Analysis of Political Risks and Discussion of Its Impact

Topic: Social & Political Theories
Words: 380 Pages: 1

The growing essence of multinational corporations remains a challenge to the neoliberal order of the world economy in an increasingly globalized world. Adverse political actions can range from the pernicious, such as widespread destruction, the source of which can be the revolution, to the more financial, such as the intervention of a military administration (John and Lawton 851). Moreover, consumer groups can resort to boycotts or lockouts, and political parties can initiate unrest, skirmishes, and sabotage. For example, institutions are bringing false claims to the courts for alleged violations of health and safety conditions in the workplace and product quality (John and Lawton 852). The purposes and goals of such interventions can be remarkably different. Sometimes they are related to giving a competitive advantage to their own national companies. In other cases, the aim may be to reduce the market price of a foreign company for other market participants to buy it at a lower price.

Political risk cannot be eliminated or wholly controlled; however, companies can take some steps to reduce the likelihood of adverse political action. Political risk is usually significantly decreased when the expectations of others about the costs and benefits of a project are matched by reality (Orr and Zhigang 4). A company can lessen the impact of government by targeting local credit markets or placing its stock with local investors. Joint ownership agreements and a strategy of gradually transferring shares to local investors are unique ways to lower the likelihood of interference.

Some strategies are available to managers even after political action has been taken against the company. For example, foreign owners can appeal to the political opposition in the host country and sometimes to the governments of neighboring countries to put pressure on the host country’s authorities. Legal means of protecting one’s rights should not be neglected either (Orr and Zhigang 7). Although the legal doctrines of sovereign immunity and the host state’s statutory acts limit the possibility of legal recourse in other countries, foreign states can submit the resolution to the International Centre for Settlement of Investment Disputes. In any case, the guiding principle should be mutual interest in the business. The conduct should be organized in such a way that both the company and the host country will continuously benefit from it.

Works Cited

John, Anna, and Thomas C. Lawton. “International Political Risk Management: Perspectives, Approaches and Emerging Agendas.” International Journal of Management Reviews, vol. 20, no. 4, 2018, pp. 847-879.

Orr, Ellen, and Taob Zhigang. Huawei at a Crossroads: Reacting to the US Equipment Ban. ACRC, 2019.

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