Week 3

Question 1

How can nations enhance their competitive advantage?

Answer 1

1. Competitive Advantage of Nations (Michael Porter)
2. Diamond Model (Michael Porter)
3. National Industrial Policy — a proactive economic development plan employed by the govt. to support and nurture promising industry sectors with potential for regional or global dominance

Question 2

What is the Diamond Model?

Answer 2

Competitive advantage at both national & company levels determined by:

1. Firm strategy, structure & rivalry
2. Factor conditions
3. Demand conditions
4. Related & supporting industries
5. Government (catalyst)

Question 3

What’s the difference between comparative advantage and competitive advantage?

Answer 3

1. Comparative Advantage — natural resources that are advantageous to the country
2. Competitive Advantage — Firm / Owner specific advantage

Question 4

What are some Political Systems Risks?

Answer 4

1. War, Terrorism, Insurrection & Violence
2. Government Takeover of Assets
3. Embargoes & Sanctions
4. Boycotts

Question 5

What are the 4 major types of legal systems?

Answer 5

1. Common Law
2. Civil Law
3. Religious Law
4. Mixed Systems

Question 6

Does Political Risk affect only foreign companies?

Answer 6

No — but they are MORE likely to be affected because of:

• Inferior knowledge of domestic factors
• Lower percentage of local content = less social costs
• Less able to convert to other uses
• Need more time for reaction

Question 7

How do you measure the Political Environment?

Answer 7

1. Political Risk — helps firm assess where & when a firm might encounter difficulties in managing the political environment
2. Political Hazards — examines the threats that politics or political players will have a negative impact on a firm’s asset values, costs or revenue

Question 8

What are some strategies to manage Political Risk?

Answer 8

1. The right entry strategy e.g. JV with suitable local partners, clear terms with govt.
2. Objective, sophisticated models to detect, measure & predict scenarios & contingency plans
3. Increasing local content & hence social costs of government intervention
4. Possibility for political risk insurance

Question 9

What is Political Risk Insurance?

Answer 9

1. Coverage against expropriation, political violence & other such risks
2. Non-payment insurance covering contract frustration and default by govt.

Question 10

What are the 3 main types of Political Risk Insurance Providers?

Answer 10

1. National Export Credit Agencies & Investment Insurance Entities
2. Multilateral agencies
3. Private Insurers