Directive Studies

Chapter 1

4. Discuss examples of recent macropolitical risk events and the effect they have or might have on a foreign subsidiary. What are micropolitical risk events? Give some examples and explain how they affect international business.

The United States invasion on Iraq has halted international businesses with and within both countries. Gas has reached record top prices and has affected many businesses and the economy. Many were not prepared for this crisis. Micropolitical risks are particular events that affects one industry or company or only a few companies.

The following are examples that are common today and explain how this could possibly affect our future.

* Expropriation of corporate assets without prompt compensation.

* Forced sales of equity to host country nationals, usually at or below depreciated book value

* Dishonesty by government officials, including canceling or altering contractual agreements, extortions demands and so on.

* Interference in managerial decision making.

* Barriers to repatriation of funds (profits and equity).

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?

The means that managers can use to assess political risks is using experts or consultants that are familiar with that particular country. Advisors should monitor important trends that portend political change, such as the development of opposition or destabilizing political parties. A second common means of political risks assessments used by MNC’s is the development of their own internal staff and in house capabilities. Another technique is the assessment of political risks through the use of computer modeling.

6. Can political risk be “managed”? If so, what methods can be used to manage such...