par Samuel Yapi ANDOH university of northern Washington, USA-MBA, global Marketing2007

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2.2.2.2 Political risks induced bythe government

These threats constitute some laws directed against foreignfirms. Part government-induced dangers are really drastic. There room expropriation,confiscation and domestication.

Expropriation is the seizure offoreign heritage by a government with payment that compensation to the owners. Inother terms, it is involuntary deliver of property, with compensation, native aprivately owned firm come a host country government. Expropriation might generatesome funds for the owners. However, actions to get paid from the governmentare sometimes protracted and also the last amount remains low. Furthermore, if nocompensation is paid, conflicts may erupt in between the host country and also thecountry that the expropriated firm. For instance, the relations in between U.S. AndCuba recognize such situation, because Cuba walk not offer compensation come U.S.firms that have their assets sized.3(*) Also, expropriation can refrain various other companies frominvesting in the came to country.

Confiscation is another form ofownership risk comparable to expropriation, except compensation. It is involuntarytransfer that property, no compensation, indigenous a privately owned firm come a hostcountry government. In confiscation, firms do not receive any type of funds fromgovernment. Thereby, it represents a more risky situation for foreign firms.Some sectors are an ext vulnerable come confiscation than others due to the fact that oftheir prestige to the hold countries and their lack of capacity to shiftoperations. Sectors such as mining, energy, publicly utilities, and banking havebeen targets that such government actions.

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Domestication offers to governments asubtle regulate over the foreign investments. Over there is a partial ownershiptransfer and companies are urged to prioritize regional production and to retain alarge re-superstructure of the profit within the country. Domestication can negativelyimpact the worldwide marketer activities, and also that the the entirefirm. Because that example, if foreign companies are required to hire nationals asmanagers, negative cooperation and also communication have the right to result. If domestication wasimposed within a short time span, poorly trained and also inexperienced localmanagers would head the for sure operations with possible lost that profits.

Other federal government actions-related risksare much less dangerous but much more common such together boycott, sabotage.When encountering shortage of foreign currency, government, sometimes, do the efforts tocontrol the motion of capital in and out of the country.Often, exchange controls space levied selectively againstcertain commodities or companies. Exchange controls border importation of items sothat firms could be challenged with challenges in their regular transactions.Severe constraints on import deserve to be a motive for foreigncorporate come shut down. Federal governments may likewise raise the tax rate used toforeign investor in stimulate to regulate them and also their capital. Federal government mayimplement a price manage system. Such regulate uses come derivefrom a perceptible political situation. Because that example, society pressure might resultin a sort of price standardization for details sectors choose food,transportation, fuel, and also healthcare.

Political threats like arms conflicts, insurrection may affectall firms in the nation equally. Because that that factor they are called macropolitical risks. Unlike, nationalization, strikes, expropriation mayaffect just a grasp and certain firm, they are called micro politicalrisks.

2.2.3. Influence of some political risks

Some an adverse effects the political dangers on firm space summarizedin the complying with table.

Table 1. Holistic table summarizing the major politicalrisks and also their effects on firms

TYPES

impact ON FIRMS

Expropriation

ns of future profits

Confiscation

loss of assets

lose of future profits

Campaigns versus foreign goods

lose of sales

Increased expenses of windy relations initiatives to improve publicimage

Mandatory job benefits legislation

enhanced operating costs

Kidnappings, terrorists threats, and also other forms of violence

Disrupted production

increased security costs

boosted managerial costs

reduced productivity

polite wars

damage of property

lost sales

Disruption the production

enhanced security costs

lower productivity

Inflation

greater operating costs

Repatriation

i can not qualify to transport funds freely

Currency devaluations

lessened value of repatriated earnings

increased taxation

reduced after-tax profits

Source, Ricky W. Griffin, international business, 2005, page73

In long run, and also depending on the severity of the risks,action take away by government may decrease income and be detrimental come the hostcountry economy.

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Strong political risks that room deeply rooted in the countrygovernance habit might be obstacles to international investment and also countryprosperity. What is going on in West Africa?