Risks Risks of Investing in Indonesia Investing always encompasses risks.
What can a multinational company do to minimize exposure to political risk? By Albert Phung Updated February 8, — Adverse political actions can range from very detrimental, such as widespread destruction due to revolution, to those of a more financial nature, such as the creation of laws that prevent the movement of capital.
The Two Types of Political Risk In general, there are two types of political risk, macro risk and micro risk. Macro risk refers to adverse actions that will affect all foreign firms, such as expropriation or insurrection, whereas micro risk refers to adverse actions that will only affect a certain industrial sector or business, such as corruption and prejudicial actions against companies from foreign countries.
All in all, regardless of the type of political risk that a multinational corporation faces, companies usually will end up losing a lot of money if they are unprepared for these adverse situations. For example, after Fidel Castro's government took control of Cuba inhundreds of millions of dollars worth of American-owned assets and companies were expropriated.
Unfortunately, most, if not all, of these American companies had no recourse for getting any of that money back.
How to Minimize Exposure to Political Risk So how can multinational companies minimize political risk? There are a couple of measures that can be taken even before an investment is made. The simplest solution is to conduct a little research on the riskiness of a country, either by paying for reports from consultants that specialize in making these assessments or doing a little bit of research yourself, using the many free sources available on the internet such as the U.
Department of State's background notes.
Then you will have the informed option to not set up operations in countries that are considered to be political risk hot spots. While that strategy can be effective for some companies, sometimes the prospect of entering a riskier country is so lucrative that it is worth taking a calculated risk.
In those cases, companies can sometimes negotiate terms of compensation with the host country, so that there would be a legal basis for recourse in the event that something happens to disrupt the company's operations.
However, the problem with this solution is that the legal system in the host country may not be as developed and foreigners rarely win cases against a host country. Even worse, a revolution could spawn a new government that does not honor the actions of the previous government.
Buying Political Risk Insurance If you do go ahead and enter a country that is considered at risk, one of the better solutions is to purchase political risk insurance. Multinational companies can go to one of the many organizations that specialize in selling political risk insurance and purchase a policy that would compensate them if an adverse event occurred.
Because premium rates depend on the country, the industry, the number of risks insured and other factors, the cost of doing business in one country may vary considerably compared to another.
Certain conditions, such as trying other channels for recourse and the degree to which the business was affected, must be met. Ultimately, a company may have to wait months before any compensation is received.Sep 01, · Five Ways to Manage Overseas Business Risks Tim Mitchell a country’s health risks is a prerequisite for business travel or setting up foreign operations.
evacuation if required, and also. Latest environmental news, features and updates. Pictures, video and more. - International Business Risks - Foreign market entry strategies. Why do companies internationalize? - reduce Costs - decrease the risk of being just in one market - seek opportunities to growth - the firms risks giving control of its technology to its partner.
The general conclusions shown in the left hand column in Table 1 are drawn primarily from work in the UK, and have either been derived from hypotheses that have been subjected to empirical testing or they have resulted from direct observation and measurement, and theories have been developed to .
b)Why do you think foreign firms have been exiting Indonesia in recent years? What are the implications for the country? What is required to reverse this trend? What Are The Risks Facing Foreign Firms That Do Business In Indonesia What Is Required To Reduce These Risks. in International Business Write a 4 .