Mgmt 302 Final Essay

However, the investment was not without risks. There are four types of risks in international business called cross-culture risk, country risk, currency risk and commercial risk. Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some human value at stake. Country risk describes the potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country. Currency risk is the risk of adverse unexpected fluctuations in exchange rates. Commercial risk refers to potential loss or failure from poorly developed or executed business strategies, tactics, or procedures (Boter & Wincent, 2010). Investment in Rulmenti Grei, Timken might face the salient risks of political and economic instability. Romania’s economic growth was slower, inflation was higher, and the labor force was more volatile. Furthermore, there might be a risk of re-nationalization. It is said that economic risk analysis tells corporate leaders the ability of a particular country to pay its debt while political risk analysis tells them whether that country will pay its debt. Political risk measures the stability of individual countries through the

5. What means can managers use to assess political risk? What do you think is there lative 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?

Over the year’s organizations from, all parts of the world have experienced growth in the areas of business. Much of this growth is in part due to multinational companies, many of them enjoying significant benefits. One such area is investment, however it creates benefits for foreign MNCs, and it brings about concern. Perhaps the greatest fear. Fear concerning state owned corporations and the lack of effectiveness of legislation / regulatory enforcement.

One of the first steps in managing political risks is to analyze the political environment for risks to the business. According to Luthans, the analysis of risk can be done with two types of political risk analysis, Macro and Micro Analysis. Macro Analysis is an analysis of political ideas and decisions that will impact all businesses in a country and Micro Analysis is an analysis of governmental regulations and policies that affect a specific sector of on economy or market such as the auto industry (Luthans, 2015). However, there are other risks that can be more difficult to analyze such as terrorism especially in today’s political unrest. Some major corporations have spent thousands of dollars on macro and micro analyses just to have a world event disrupt or completely destroy operations. Tata motors dealt with political battles as well as a terrorist event.

Yes, it can be managed because they could suspend their firm’s dealings, or in the other hand, they may choose to start operations there and to accommodate that risk through adaptation to political regulatory environment. There are some methods that can be used to manage such risk; equity sharing, participative management, localization of the operation and development assistance. Although, Multinational corporations also could manage political risk through their global strategic choices another way to minimize the risk of negative outcomes due to political events is by involving local people. Finally, the returns I would expect to gain the successful and development of my business.

Political risk is associated with political changes that may negatively impact domestic and foreign firms. Which statement about political risk is correct?

ANSWER: Political risk increases the rate of return required to invest in foreign projects. Some foreign projects would have been feasible if there was no political risk, but will not be feasible because of political risk.

This dissertations presents concept of political risk in the context of Efficient Market Theory (Hypothesis) and State capitalism. The paper explores the link between the three ways of insuring political risk to economic theories. Using case study of a multinational firm the political regime and its effect has been explored on business situations and how it can be managed. Political risks are the threats arising for a business due to the actions of a host government. Multinational firms in particular face political risks due to expansion of their businesses to developing countries. Author has explained and examined how political risk management has been developed in the contemporary history. A comparative analysis of concepts that deal with political risk under the contexts of prevailing ideologies; political and economic constructs has been conducted.

However; there is still hope for those business to change their tactics. Political risk can be managed and in doing so opens the door for newer business environments and markets. Business do not have to create new programs just to manage political risk, they are able to incorporate it into their “existing Enterprise Risk Management (ERM) systems, which would provide lower risk management costs, new revenue streams, better performance of existing businesses in emerging markets, and loss mitigation through improved business continuity planning and crisis management.” (Culp, Steve)

"Political risk has many guises war, expropriation, currency devaluation but for companies doing business abroad, these risks don't begin to give a complete picture of potential threats to earnings" (Protests in Middle East, North Africa spur look at corporate risk disclosures globally, 2011, Westlaw Business). For companies in the Middle East, the recent Arab Spring and a series of regime changes are causes of concern because they "could lead to civil wars; regime changes resulting in governments that are hostile to the US and/or Israel" (Protests, 2011, Westlaw). Middle Eastern volatility can also cause unstable crude oil prices which, although significant for the entire world economy, would have a particularly negative impact on the region. In terms of securing investment capital, "capital market reassessment of risk" can make necessary funds scarcer to find (Protests, 2011, Westlaw). For companies wishing to build a base of customers in the area, economic and political instability can result in a sharp downturn in demand and can also threaten supplies of essential raw goods.

*Given the added political and economic risks that appear to exist overseas, are MNCs more or less risky than purely domestic firms in the same industry?

There are many factors which a company should be aware of when they trying to enter an unfamiliar market. This paper will discuss those factors in separate categories, which are government risk, cultural risk and economic risk.

The biggest apprehensions in international business are related to transactions and negotiations crossing national as well as cultural borders. In order to make this mechanisms take place on an international base level, businesses awareness of external uncertainties needs to be tackled and turned into a beneficial dimension.

1. Political risk and country risk are challenges that must be strategically considered by multinational firms. What is one real-world firm that deals with political and country risk?

Four types of political risk factors must be examined in assessing the climate for investment in any given country. They are: