Summary Chapter 10: Managing Political Risk, Government - Comprehensive Chapter

Chapter 10: Managing Political Risk, Government Relations, and Alliances Learning Objectives and Chapter Summary 1. EXAMINE how MNCs evaluate political risk. Political risk is the likelihood that the foreign investment of a business will be constrained by a host government’s policies. In dealing with this risk, companies conduct both macro and micro political risk analyses. Specific consideration is given to changing host government policies, expropriation, and operational profitability risk. 2. PRESENT some common methods used for managing and reducing political risk. MNCs attempt to manage their political risk in two basic ways. One is by developing a comprehensive framework for identifying and describing these risks. This includes consideration of political, operational, and ownership-control risks. A second is by quantifying the variables that help constitute the risk. 3. DISCUSS strategies to mitigate political risk and develop productive relations with governments. Common risk management strategies are the use of relative bargaining power, integrative, protective, and defensive techniques, and proactive political strategies. 4. DESCRIBE challenges to and strategies for effectively manage alliances. Effective alliance management includes careful selection of partners, defining the tasks and scope of the alliance, addressing cross-cultural differences, and responding to host-government requirements. The World of International Management: IKEA’s Russian Roulette