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Strategic Risk > Final Study Guide 12 > Flashcards

Final Study Guide 12 Flashcards

1
Q

International Risk

A

Risk of unexpected changes in the business environment of foreign countries in which the company operates

  • such as unexpected changes in the government’s stability, attitude toward foreign companies, and tariffs
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2
Q

Risks in an International Environment

A
  • Political Risks
  • Economic Risks
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3
Q

International Business – General Risk Factors

A
  • cost of coordination
  • Institutional and cultural barriers
  • new competitors
  • Foreign Corrupt Practices Act
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4
Q

Risks & Mitigation in International Business

A

Political risk - Lobbying, partnering with government
Liability of foreignness - Pre-entry learning
Cultural - sensitivity training

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5
Q

The Liability of Foreignness (LOF)

A

Additional costs that a firm operating overseas incurs, which a local firm would not

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6
Q

Mitigating the Liability of Foreignness

A

Offensive Strategy or Defensive Strategy

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7
Q

Offensive Strategy

A

Enhancing local adaptation & localization

  1. Local networking (guanxi)
  2. Resource Commitment
  3. Legitimacy improvement
  4. Input localization
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8
Q

Defensive Strategy

A

Reducing dependence & vulnerability to the local environment

  1. Contract protection
  2. Parental control
  3. Parental service
  4. Output standardization
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9
Q

Contract Protection

A

Safeguard MNEs rights and benefits. Protect resources. Contracts operate as a (partial) counterforce to threats of environmental hostility

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10
Q

Parental Control

A

Reduce dependence on host country environment through HQ control. High-control entry modes (Sub, Majority JV). Vertical integration. Limit local manager autonomy.

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11
Q

Parental Service

A

Reduces a subsidiary’s economic and transaction exposure to host country environments. Parental financing: ForEx hedging, cash flow management, transfer pricing.

  • Parental Operational services: staffing, global distribution, sourcing & provisioning
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12
Q

Output Standardization

A

Standardize the Products or Services made or offered in Host country. Typical in export-oriented firms.

  • Reduces dependence on local market requirements, but also limits opportunities
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13
Q

Local Networking

A

Interpersonal connections with senior managers or officials in local business community such as governments, partners, suppliers, buyers, competitors, wholesalers, distributors, and promoters.

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14
Q

Resource Commitment

A

MNE contributes resources to host country operations that can solidify its competitive position or strengthen its bargaining power in a local setting.

  • Reduces resource dependency on the host country.
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15
Q

Input Localization

A

Use of local raw materials, supplies, facilities, workers, engineers, and managers. Improves MNEs image as committed to host economy & society. Decreases ForEx risk and dependence on imports. Management localization increases local knowledge

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16
Q

Legitimacy Improvement

A

Enhance acceptance by the host country. Social accommodation: education, pollution control, healthcare, infrastructure.

  • Organizational credibility: improve trustworthiness with host country public
17
Q

Why A Multinational Company Needs A Foreign Policy

A

Because of geopolitical risks

18
Q

What Is Corporate Foreign Policy?

A

A “privatized” foreign policy employed by companies to navigate the geopolitical complexities of the modern world.

  • In other words, a policy that uses the same tools traditionally used in statecraft by countries.
19
Q

Geopolitical due diligence

A

It involves the assessment of local, regional, and transnational risks facing the company

20
Q

Corporate Diplomacy

A

It aims to enhance a company’s ability to operate internationally and to ensure its success in every country in which it operates.

21
Q

New Principles of Geopolitical Due Diligence

A
  • Assess transnational (broad regional) risk
  • Pay attention to regional political trends
  • Assess local in-country risk
  • Don’t neglect home and near-abroad risk
22
Q

Management of political risk involves mitigation strategies and tactics such as:

A
  • Partnerships with local entities
  • Project Financing
  • Political risk insurance (ex: G-7 Governments)
23
Q

The Solution to Managing 21st Century Political Risk

A
  • An Enterprise Risk Management Framework for Political Risk
  • Use a checklist/survey involving a series of questions to identify exposures that need to be addressed and managed
24
Q

The 10 Types of Political Risk (Political risk
taxonomy)

A
  1. Geopolitics (in Post-Cold War period)
  2. Internal Conflicts
  3. Laws, regulations, policies
  4. Breaches of contract
  5. Corruption
  6. Extraterritorial reach
  7. Natural resource manipulation
  8. Social activism
  9. Terrorism
  10. Cyber-threats
25
Q

Three megatrends drive Political Risk

A
  • Post-Cold War Geopolitics
  • Supply Chain Innovations
  • Technology
26
Q

FIVE GLOBAL SHOCKS [Exogenous events that have system-wide and global effects]

A
  1. 9/11/2001 Terrorist Attack
  2. 2008 Global Financial Crisis
  3. The Arab Spring 2011
  4. “Great powers behaving badly”
  5. Rise of nationalism, populism, nativism, isolationism, as a reaction to Globalization created many winners but also some losers

Strategic Risk (9 decks)

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