Glbl Mgt & Strategy Chapter 10 Managing Political Risk, Government Relations, and Alliances

Political Risk

Unexpected actions by a host government that disrupt MNCs.

- arise form legal changes, currency limits, or government favoritism.

- relevant in emerging markets

- for example: Tiktok faces scrutiny by the US government just how western companies face challenges in China.

Macro Risk

Affects all businesses (e.g. China's capital controls).

Micro Risk

Targets specific sectors or firms (e.g., tariffs on U.S steel)

Macro Risk Issues and Examples

Russia: Foreign currency restrictions

India: Slow courts, legal complexity, piracy risk.

Vietnam: JVs with local partners required.

Central/Eastern Europe: Seen as more stable by MNCs.

Micro political risk: Uneven Playing Fields

- U.S. tariffs hurt foreign steelmakers AND U.S. manufactures.

- WTO ruled some U.S. policies illegal.

- EU can block foreign M&A deals.

- Some MNCs face special rules others don't.

Terrorism

Force/violence for political or ideological goals.

Types:

Classic (organized, targeted)

Amateur(sporadic, unstructured)

Religious (driven by ideology)

Terrorism and Instability as Political Risk

1. Physical Security Planning

2. Employee Safety & HR Policy

3. Real-Time Intelligence & Monitoring

4. Legal & Insurance Protections

5. Community Engagement & Local Partnerships

Expropriation

Government takes over a business

- common in extractive and utility sectors

- data laws - China, India & Russia

Indigenization laws

Force local majority ownership.

- big firms = bigger targets

Transfer Risks

Barriers to capital or resource movement

Operational Risks

Interference in how firm runs

Ownership - control risks

Threats to company control or assets

Conglomerates

High risk - less benefit to host country

- like a us tech company buying a dairy in Brazil

- opportunistic

Vertical

Moderate risk - resource focused

- like a mining company entering Chile for lithium

- connected to raw materials or key inputs

Horizontal

Lower risk - meets local demand

- like McDonold's opening restaurants in India.

- Aligned with local consumer needs

FDI Risk Depends on

Sector: primary (e.g. oil,minerals), Industrial(manufacturing), service(banking,IT)

Ownership structure(wholly-owned vs joint ventures)

Technology sophistication: Proprietary vs. replicable

How do MNCs asses risk?

They assess risk by assigning scores to key variables:

- Politcal stability

- Economic health

- global linkages