2. BusinessWeek
Freeport-McMoRan Copper & Gold Inc.
Bought rights to Grasberg
90% revenues
Much unrest: Papuan rebels, environmental risks,
governmental complications
High political risk
Government’s right to its own natural resources
Riots and blockades by locals for a share of the wealth
This is a high-risk company
If Freeport diversified, it would rank higher on
S&P and its stocks would sell higher
3. Political Risk
Unstable governments threaten MNCs
Changing policies can constrain MNCs’ trade
and investments
China joined WTO, limited policies, deterred
future trade and investments
MNCs adjust practices/policies accordingly
Potential problems not understanding new
policies
Many government changes after 9/11 and
MNCs are not as willing to invest in the Middle
East
4. Macro and Micro Analysis of
Political Risk
Macro Political Risk – major political decisions
that affect all MNCs
China’sforeign trade policy changes affected all
business in the country
Micro Political Risk – political decisions having
a narrower scope, affecting segments of
MNCs
China’s policy revision in telecommunication
affected only a sector of the business economy
5. Macro Political Risk
What kind of countries make macro level
decisions?
Economically unstable countries
Transition economies
Corrupt governments – make legal business hard
Macro politics can really hinder MNCs
productivity
Unable to react to counterfeit operations because
of macro political policies that make the process
not worth the fight. MNCs have to get creative.
Indian counterfeit operation stopped by new
6. ??Questions??
Is it worth the risk to acquire foreign
investments in up and coming economies such
as Russia, India, and China knowing that this
puts your MNC at higher risk for macro political
problems?
What are 3 types of political risk that an MNCs
entering Russia or France would face?
How are these countries’ political risks
similar/different?
7. Ranking of Countries’
Corruption
In the book, the US is ranked 20th out of 85
nations. We don’t have a perfect business
environment. Germany and Hong Kong beat us
out.
8. Micro Political Risk
Often industry taxes, restrictive local laws
Not only policies or laws, but actions as well
Dumping only affected steel industry
Problem? Some MNCs are treated differently
than others in the same country
Examples
EU has stopped mergers to prevent monopolies
South American government is currently
encouraging exports and discouraging imports.
Hurts some MNCs
9. Terrorism and Its Overseas
Expansion
Terrorism- violence or force used to promote
political or social views
ultimate goal-government and citizens change policies
and yield to terrorists’ beliefs
Types of Terrorism:
1. classic
2. amateur
3. religiously motivated
effects on MNC
10. Expropriation Risk
Expropriation- business seizes host country
and provides little compensation
Indigenization laws- required nationals to hold
a majority interest in an operation
likely in non-Western countries
strategies to minimize expropriation
operational profitability
11. Managing Political Risk
Comprehensive framework- considers and
identifies all political risks
Political risks
1. transfer
2. operational
3. ownership-control
12. General nature of investment
1. conglomerate
2. vertical
3. horizontal
3 sectors of economic activity
1. primary
2. industrial
3. service
13. Techniques
3 strategies:
1. relative bargaining power analysis
2. integrative, protective, and defensive
techniques
3. proactive political strategies
15. Integrative, Protective, and
Defensive Techniques
Integrative techniques
enable the overseas operation to become a part
of the host country’s infrastructure
Protective and defensive techniques
discourage host government interference
more likely to be used by companies
ex. Microsoft technology
16. Political Decisions Affecting MNCs
How can MNCs respond to unpredictable
government decisions?
Proactive Political Strategies:
• Lobbying, campaign financing, advocacy, and other
political interventions designed to shape and influence
the political decisions prior to their impact on the firm.
• They are designed to develop and maintain ongoing
favorable relationships with government policy makers
as a tool to mitigate risk before it becomes
unmanageable.
17. Managing Alliances
Another dimension of management strategy related to
political risk and government relations is managing
relationships with alliance partners.
Example:
Motorola in China has many alliances with state-owned
enterprises, like its joint venture with Nanjing Panda
Electronics to produce a personal computer. The heart of the
computer will be Motorola's Power PC Chip.
18. Primary factors motivating firms to
enter into International Strategic
Alliances:
• Faster entry and payback
• Economies of scale and rationalization
• Complementary technologies and patents
• Co-opting or blocking competition
A fundamental challenge of alliances is managing operations with
partners from different national cultures. Cultural differences create
uncertainties and misunderstandings in the relationship.
Can you think of any Misunderstandings a business might have with
its international alliance?
Partner selection and task selection criteria have
been identified as critical variables that influence
alliance success or failure
19. The Role of Host Governments in
Alliances
Host Governments are active in mandating
that investors take on partners, and these
mandates can pose managerial and
operational challenges for MNCs
When host governments do not require
alliances or joint venture as a condition for
entry, many MNCs find that having alliances or
joint venture partners is an advantageous.
Established alliances with local partners
primarily gain market access and contend with
local regulations.
20. Starbucks Coffee & Beijing Mei Da
Coffee Company working together.
The Joint venture is focusing on the training of the local managers.
Recruits are sent to Washington to learn how to make various types of
Starbucks Coffee..
• “People don’t go to Starbucks for the coffee but for the experience”
MNCsare going back and renegotiating old contracts to seek
improvements.
Notas del editor
Transition economies seem profitable to be a part of before they get their full start up, but they are still very unstable, policies are still changing, political problems still have the potential to arise,