Political Risk

Political risks are not taken lightly in international trade. Investors carefully study potential international trade partners, and the political climate under which they do business. Apart from the risk factor of dealing with companies based in countries of different philosophical outlooks, many eastern countries have greater potential for problems with extremist religious factions. Most international traders cannot afford to risk their investments in countries without political stability to protect their investment. Despite the political risks of international trade, healthy profits for stockholders always seem to offset the risk. Hopefully, one day corporate leaders will respond to the ethical questions of balancing profits with unemployed local citizens. If economic hardship destroys local markets, there will no longer be any profits anyway. (Bob Schmidt)

The Impact of the Political System on Management Decisions Political Risk

As managers evaluate a country as a potential place to do business and as they struggle to succeed once they have committed resources, they need to be aware of political risk. Political risk is when international companies fear that the political climate in a foreign country will change in such a way that their operating position will deteriorate. Although political risks can occur in democratic as well as in totalitarian political regimes, they tend to be more prevalent in totalitarian regimes.

Government Intervention in the Economy

As companies move abroad, management must deal with governments that influence the economy in different ways. There are two ideological paradigms on the role of governments: individualistic and communitarian. The individualistic paradigm believes in minimal intervention

in the economy. Individualistic states believe in regulation, and they are likely to be democratic and economically free. They will handle market defects, such as entry barriers and insufficient consumer knowledge and power, but they...