A stranger in a strange land: Micro political risk and the multinational firm

When a firm chooses to enter or continue business in a foreign market, it becomes exposed to associated political risks which should be assessed and managed. Help is available for becoming aware of the level of macro political risk; that is, the political risk across industries or all businesses in entire countries or geographic regions. Yet, surprisingly little guidance exists by which to identify and assess firm-specific political risks, termed micro political risk. Herein, we offer some new perspectives on the nature of micro political risk within a host country, illustrating how it stems from economic, societal, and governmental forces. We have compiled a number of firm-specific variables which can affect the firm’s micro political risk profile, and advance an innovative methodology by which executives can address these variables and develop an assessment of their firm’s micro political risk. Examples of micro political risk situations are provided, along with discussion of implementing the proposed methodology.     

政治风险与中国企业对外直接投资——基于东道国与母国两个维度的实证分析

利用中国大陆企业对外直接投资(OFDI)统计数据和两类政治风险指数进行实证研究,结果发现:来自东道国的政治风险对OFDI有着显著的负向影响;本土的政治风险对于OFDI也有实质影响;经济增长、经济开放程度以及政府政策等因素对OFDI也有显著作用。     

Evaluating Political Risk Forecasting Models: What Works?

Definitions of “political risk” abound, including with “assessments” or “analysis,” but even though ratings are widely used by investors, few understand either the theory behind particular instruments or what the ratings say about their potential investment. The assessment of political risk works backward from losses to foreign investors (not domestic) that could have been insured or protected, to a determination of how high the risk is, what the cost of the likely loss might be, the type of insurance coverage that might be necessary, and then to what an investor should be willing to pay to protect against that risk. A wide range of potential losses and potential causes of those losses is covered by the many political risk assessment firms and indices that are available to potential investors. BERI, the PRS Group, ICRG, the Eurasia Group, PERC (Hong Kong), and many others provide an array of ratings that investors can employ in making their choices. Few of these focus on the critical element of forecasting. Insurance doesn't relate to circumstances of the moment but rather those of the future. What will they be? Just a few of the risk assessments (PRS, BERI, ICRG) deal explicitly with the future, as good as that might be. Few also deal with the matter of risks to particular industries, companies, regions of a country, or external circumstances (what are the country's neighbors up to?). This article offers some suggestions on improving the political risk assessment business. © 2014 Wiley Periodicals, Inc.     

Doing business in Saudi Arabia

The Kingdom of Saudi Arabia is the largest market in the Arabian Gulf region and, despite current political and economic uncertainties, offers investors and exporters many opportunities in a wide variety of business sectors. Key factors driving economic policy include the desire to reduce the dependence on oil, and the need to provide jobs, housing, and services to citizens in a time of rapid population growth. The foreign investment law of 2000 significantly changed the rules for foreign investors, permitting 100% ownership of projects. There is a streamlined foreign investment application process with various investment incentives. Important policies are privatization, economic diversification (such as the development of a tourism sector), and the education and training of Saudi workers. Although lifestyle in the kingdom is ultramodern and high‐tech, Saudi Arabia is an extremely conservative country and many of its citizens desire to preserve their religious values and ancient traditions. The Saudi culture is influenced by two dimensions: Islam and the Bedouin tradition. Foreign executives doing business in Saudi Arabia must be prepared to conduct thorough preliminary research, visit the kingdom regularly, show genuine concern for Saudi development goals and culture, be patient in business negotiations, and adapt carefully to the Saudi environment. © 2004 Wiley Periodicals, Inc.     

Chinese multinationals on the New Silk Route: Managing political risk by branding the nation

Though Chinese multinational enterprises (CMNEs) have brought investment and opportunities to countries along the Belt and Road Initiative, there has been scepticism regarding the content and context of their investment. On the one hand, infrastructural development contributes to GDP formation and enhances the efficiency of productive inputs where international trade enhances technology and export development, which jointly provides a path to economic growth. On the other hand, critical issues such as debt sustainability and national sovereignty among countries that have gone through the decolonization process mean that CMNEs need to grasp the implication of political risk when investing. This article focuses on South and Southeast Asia, where China has historical socio‐economic relationship, and proposes a nation branding model combining tradition and modernity which can be the way forward for CMNEs to mitigate political risk in relation to the Belt and Road Initiative (BRI) investment. Nation branding of BRI could be seen as a continuity of China's unfinished business in globalization that has preceded the modern polity; nevertheless, there is a need to communicate a coherent and authentic message that reflects the reality of business operations.     

US National Security and Foreign Direct Investment

This article examines US foreign investment policy in the historical and current security contexts and provides an analytical discussion on the trends in foreign investment review on national security grounds. It finds that the concept of national security has been gradually broadened to include economic security, critical infrastructure, and homeland security as components of national security. This has allowed the foreign investment review process to become highly politicized. The article concludes that national security is far too important to be mixed with domestic political debates on economic and social concerns from foreign takeovers. © 2015 Wiley Periodicals, Inc.     

Political risk and the internationalization of firms: An empirical study of Canadian‐based export and FDI firms

Political risk analysis primarily receives attention for foreign direct investment (FDI) but only rarely for exporting. We examine how exporters and foreign direct investors evaluate the relative importance of political risk factors. We provide a rationale for exporters to evaluate political risk factors for FDI and for foreign direct investors to evaluate political risk factors for exporting. Survey data were collected from Canadian exporters and foreign direct investors and capture the distinctive nature of salient factors for exporting and FDI. We offer unique insights on the evolutionary character of political risk that are of practical value for both exporting and FDI. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.     

房地产项目投资风险管理研究浅析

房地产业是进行房地产投资、开发、经营管理和服务的行业,属于第三产业,具有基础性、先导性、带动性和风险性的产业。房地产的特性决定了它投资数额大,投资周期长,变现能力差,投资过程中既有经营风险、金融财政风险等有形风险,也有如政策变化等无形风险。本文通过对房地产项目投资建设过程中普遍存在的风险进行简要分析,浅析房地产项目过程中,风险识别、风险管理研究等。     

Political risks as firm‐specific (dis)advantages: Evidence on transnational oil firms in Nigeria

The international business literature has recognized that political risk can be firm‐specific, but it has so far focused almost exclusively on the national business environment rather than the firm itself. Scholars have still largely confined firms to the role of relatively passive bystanders who, at best, can forecast political risks with some precision or guard against risk (e.g., through insurance). The basic premise of this article, however, is that transnational corporations (TNCs) can be active actors capable of acquiring and upgrading firm‐specific resources and capabilities for coping with or even benefiting from political risk. The research is based on the case of the Nigerian oil industry. The research provides evidence to suggest that the same political events can have varying effects on different transnational firms depending on their strategic resources and capabilities, and can benefit specific firms under certain circumstances. © 2003 Wiley Periodicals, Inc.     

Contextual analysis of legal systems and their impact on trade and foreign direct investment

Differences among nations in legal tradition play a role in foreign direct investment decisions by multinational firms. How large a role and to what degree these factors impact the success of foreign direct investment are important issues for examination. A principal question is whether macro-differences in legal systems are causal for international investment on a stand-alone basis or subordinate to multiple other legal variations and societal considerations. This article examines the historical roots and nature of varying legal systems, traditions, and cultures that continue to affect international business. The study analyzes other major conditions which surround the legal environment in investment target countries such as system transparency, degree of corruption, adequate enforcement, and issues of bias related to foreign-owned firms. In addition, firms may have varying strategic objectives for foreign direct investment which may not be driven by short term profitability.     

欠发达地区外商直接投资经济增长效应分析——以江西赣州为例

外商直接投资的经济增长效应受多种因素影响,各地情况不同,其效应表现也不一致。文章根据内生经济增长理论,以中西部地区的江西赣州为例进行实证分析。研究表明,相对于劳动力投入和国内资本投入,欠发达地区外商直接投资对经济增长的作用十分有限。这主要是因为,利用外资的总体规模仍然很小;外资产业规模小,层次低,技术含量低;外资产业与本土产业配套发展不足。但由于外商直接投资将在长期内拉动经济增长,因此必须重视外资的引进,并不断提高外资的质量。     

Problem-Based Teaching in International Management: A Political/Economic Risk Assessment Exercise

This article draws from the current literature to examine problem-based learning (PBL) as a management education tool, and provides an example of how to incorporate PBL into an undergraduate international management course. Also included are an explanation of, and specific guidelines for, a PBL exercise focused on the analysis of “country risk” (political/economic risks) for potential foreign direct investment. Additionally, the benefits and unique challenges of successfully implementing this type of exercise are discussed.     

Smaller may be beautiful but is it more risky? Assessing and managing political and economic risk in Costa Rica

The purpose of this exploratory study is to examine how managers assess and manage political and economic risk once their company's foreign direct investment (FDI) is on the ground. Using a qualitative research design involving personal interviews with CEOs/top managers of foreign firms operating in Costa Rica, findings indicate that managers at the subsidiary level generally do not engage in political and economic risk assessment on an ongoing basis, nor do they coordinate risk assessment with MNE headquarters. Propositions are developed that suggest subsidiary size may be more important for determining a firm's political risk than the overall size of the corporation. Also, a firm's political risk may vary over time as the host country's policy priorities change, particularly the policies which favor some industries over others. Findings are expected to contribute to the literature on country risk and bargaining theories as well as to the research on the role of the subsidiary in FDI.     

Old problems remain, new ones crop up: Political risk in the 21 century

Despite the fact that most developing countries now generally welcome multinational companies, political risk still represents a huge concern for international business. In fact, multinational companies today probably face a much broader array of risks than during the nationalization wave of the 1960s and 1970s. To substantiate this claim, a theoretical framework is presented herein which outlines the key causal relationships in the political risk landscape. It is explained why a discernible attitude change in the developing and emerging world does not necessarily equal a reduced overall level of political risk. To illustrate the framework and the complexity of the political risk phenomenon, a number of recent case examples are presented from the international bauxite and aluminium industry—an industry whose wide-ranging value chain, international focus, global significance, and natural exposure to risks make it very suitable for analysis. The conceptual discussion and the empirical examples presented in this article suggest that political risk is now surely a highly complex, multidimensional phenomenon. This trait poses major challenges for the global business community, particularly in terms of accurately assessing these risks.     

Real call options to enlarge foreign subsidiaries – The moderating effect of irreversibility on the influence of economic volatility and political instability on subsequent FDI

This paper develops a real option model to explain the decision of enlarging a new foreign subsidiary by subsequent investment. The model is tested on a panel of 1148 subsidiaries in 22 host countries. The findings complement the traditional process model of firm internationalization. Rather than abiding by an incremental pattern of investment, internationalizing firms seem to keep foreign investment strategies flexible and build up their subsidiaries contingent upon the interaction of economic volatility and irreversibility of investment. However, the moderating effect of irreversibility on the relationship between uncertainty and investment may not hold for downside risks such as political instability.     

Country factor differentials as determinants of FDI flow to China

Given the large size and rapid growth of foreign direct investment (FDI) in China, a systematic analysis of the connection between FDI and the characteristics of source countries provides clearer insights into the roles of home‐country factors in the vast but still fast‐growing foreign investment in China. Unlike the existing mainstream studies of FDI in China, this analysis focuses on the effects of country‐factor differentials (between investing countries and China) on the FDI flow to China. Based on data from 21 source countries over a period of 17 years, this paper examines the impacts of eight variables in three sets of country factors, namely market conditions, risk, and financial factors. The statistical results show that, while the market‐condition variables and the high values of source country currencies positively influenced the flow of FDI to China, the relatively high costs of capital borrowing and political and operational risks in China inhibited the flow of FDI. © 2003 Wiley Periodicals, Inc.     

Causes of Financial FDI Inflows into Sub‐Saharan Africa (SSA): Evidence from Ghana

The main aim of this article is to examine the factors that influence the inflow of financial foreign direct investment (FDI) into SSA and to understand foreign investors’ perceptions of the role of institutional factors in facilitating financial FDI inflows and the extent to which the postreform business environment has been successful in attracting financial FDI inflows into SSA. An in‐depth qualitative study was adopted for the research. Using two financial multinational corporations as case studies, the environmental factors that influenced their decision to choose Ghana as an investment destination are examined, as well as the institutional and regulatory factors that affect their current operations and future investment decisions. © 2014 Wiley Periodicals, Inc.     

Uncertainties,Imitative Behaviours and Foreign R&D Location: Explaining the Over-concentration of Foreign R&D in Beijing and Shanghai within China

This study examines the location of foreign research and development (R&D) establishments in China and reveals that such facilities are overly concentrated in Shanghai and Beijing, the two first- tier cities. We argue that the spatial concentration of R&D in Shanghai and Beijing is more intense than what can be expected based on the spatial concentration of foreign investment, science and technology resources and general economic activities. The spatial concentration is also greater than what is observed in more developed countries. This degree of concentration cannot be convincingly explained by the conventional, rational choice model that relies mostly upon factors such as market size, labour costs and infrastructure, among others. Our analysis suggests that site location decisions are also the product of imitative behaviours among decision makers faced with uncertainties and multiple risks, particularly in a transitional economy such as China's. We further discuss the implications for second-tier cities in competition for foreign R&D investment, suggesting that these cities should aggressively market their cities to foreign investors in order to reduce the perceived risks undermining their ability to attract R&D. We also speculate that as foreign investors become more knowledgeable about the rest of China, more companies will begin to establish R&D facilities in such second-tier cities.     

Corporate Social Responsibility and Business Value of Multinational Companies: Lessons from a Sub-Saharan African Environment

ABSTRACT

The issue of corporate social responsibility (CSR) as an approach for businesses to independently take actions that lead to better levels of societal development as well as higher value creation for the business, particularly in developing countries has gained much advocacy. Thus, the purpose of this study is to examine the relationship between CSR and business value of multinational companies (MNCs) in sub-Saharan Africa. The study adopted quantitative research methodology and using multiple regression analysis, findings show that CSR can positively and significantly predict business values in the multinational subsidiaries. These values include direct (economic value) and indirect (human capital value and reputational business value). This paper therefore contributes to a novel CSR index from the perspective of business value and sustainability of MNCs in the Sub-Saharan Africa (SSA) environment. Thus, the paper recommends MNCs operating in Africa to enhance their social investment through their CSR strategy with the aim that CSR must not be regarded as a cost center, but an investment instrument that can accrue various dividends.     

The Australian Mining Industry Council, 1967–75

As the long boom that followed the Second World War ended in inflation, unemployment and exchange rate instability, business peak associations became more active on a range of policy issues. Industries that had not seen value in such forms of political organisation in the past established them. Australian mining companies created the Australian Mining Industry Council (AMIC) to lobby the government over changes in the exchange rate, wages and budgetary policy, foreign investment guidelines and tariffs on imports of machinery and raw materials. In this the AMIC was often drawn into conflicts with manufacturer organisations that represented industries catering for the domestic market, whereas mining companies relied heavily on foreign investment and export sales. The AMIC was also very active in opposing attempts by government to interfere in the contractual negotiations between mining companies and overseas buyers of minerals and metals. Apart from economic policy issues, the mining industry faced challenges from the environmental movement and indigenous Aboriginal claims for land rights that placed barriers in the way of easy access to deposits. These challenges required innovative and flexible industry-wide approaches to influence government legislation and public opinion.