Mod 5
Chapter 1
4. Discuss examples of recent macro political risk events and the effect they have or might have on a foreign subsidiary. What are micro political risk events? Give some examples and explain how they affect international business.
Micro political risk is the risk of loss of assets or income that is specific to one company or one industry. For example, a McDonald's restaurant is destroyed in Indonesia as the result of a fundamentalist uprising against American companies. Other micro political risks can occur in more vulnerable industries such as mining and extraction in which locals may feel that the MNC is stealing their natural resources. The recent political events in Venezuela focused attention on a Coca-Cola bottling plant where army officials took control of the planet and distributed products to local residents. This occurred under the eye of the Venezuelan government. Only one firm (Coca-Cola) was victimized. Students can search for additional examples and show how the events caused management of those local operations to change their operating procedures.
5. What means can managers use to assess political risk? What do you think is the relative effectiveness of these different methods? At the time you are reading this, what countries or areas do you feel have political risk sufficient to discourage you from doing business there?
Political risk assessment techniques include: issues monitoring systems, use of experts or consultants, consultation with internal staff, computer modeling; quantification of variables into ranking systems, and use of consulting ratings. These assessment techniques have varying effectiveness, depending on the region of the world involved and the extent to which subjective, rather than objective, data must be used and interpreted. Analysts should remember to distinguish between systems that are based on past events rather than current assessments of key stakeholder conflicts.
6. Can political risk be “managed”?
4. Discuss examples of recent macro political risk events and the effect they have or might have on a foreign subsidiary. What are micro political risk events? Give some examples and explain how they affect international business.
Micro political risk is the risk of loss of assets or income that is specific to one company or one industry. For example, a McDonald's restaurant is destroyed in Indonesia as the result of a fundamentalist uprising against American companies. Other micro political risks can occur in more vulnerable industries such as mining and extraction in which locals may feel that the MNC is stealing their natural resources. The recent political events in Venezuela focused attention on a Coca-Cola bottling plant where army officials took control of the planet and distributed products to local residents. This occurred under the eye of the Venezuelan government. Only one firm (Coca-Cola) was victimized. Students can search for additional examples and show how the events caused management of those local operations to change their operating procedures.
5. What means can managers use to assess political risk? What do you think is the relative effectiveness of these different methods? At the time you are reading this, what countries or areas do you feel have political risk sufficient to discourage you from doing business there?
Political risk assessment techniques include: issues monitoring systems, use of experts or consultants, consultation with internal staff, computer modeling; quantification of variables into ranking systems, and use of consulting ratings. These assessment techniques have varying effectiveness, depending on the region of the world involved and the extent to which subjective, rather than objective, data must be used and interpreted. Analysts should remember to distinguish between systems that are based on past events rather than current assessments of key stakeholder conflicts.
6. Can political risk be “managed”?