Political Risk

Question 1

What is a political risk

Answer 1

likelihood of political action that will positively or negatively affect a business

Question 2

What are the two categories of political risk

Answer 2

1. macro risk (threatens the activities of all domestic and international companies in every industry)
2. micro risk (threatens companies only within a particular industry or more narrowly defined group)

Question 3

How does conflict and violence impact a business

Answer 3

1. open conflict can threaten a company’s physical assets, such as offices and factories, and even the lives of employees
2. terrorism can have political motivated violence against individuals and property

Question 4

What is confiscation

Answer 4

forced transfer of assets from a company to the government without compensation

Question 5

What is expropriation

Answer 5

forced transfer of assets from a company to the government with compensation

Question 6

What is nationalization

Answer 6

government takeover of an entire industry

Question 7

What is a government policy that is used

Answer 7

restricts ownership to domestic companies only or limits ownership by foreign firms to a minority stake

Question 8

What is the local content requirements

Answer 8

laws stipulating that a specific amount of a good or service be supplied by producers in the domestic market

Question 9

How to manage political risk

Answer 9

International companies monitor and attempt to predict political changes that can negatively affect their activities
(be proactive, develop situational awareness)

Question 10

What is information gathering

Answer 10

use to conduct accurate political risk with two sources:
1. current employees who have worked in a country long enough to gain insight into local culture and politics
2. agencies specialized in providing political-risk services

Question 11

What is adaptation

Answer 11

incorporating risk into business strategies:
1. partnerships
2. localization
3. development assistance
4. insurance

Question 12

What is lobbying

Answer 12

policy of hiring people to represent a company’s views on political matters (get favorable legislation enacted and unfavorable legislation rejected)

Question 13

What are favorable and strong political relationships

Answer 13

1. foster stable business environments
2. expand business opportunities
3. lower risk
4. promote economic development

Question 14

Who are the united nations

Answer 14

1. general assembly
2. security council
3. economic and social council
4. trusteeship council
5. international court of justice
6. secretariat