Thủ Thuật Hướng dẫn The most severe political risk of global business is the government action of domestication 2022
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Abstract
It is a fact of international business that governments intervene in the operations of foreign direct investors. These government actions create a high level of uncertainty in international planning and are very costly to the foreign investor. It appears, however, that not all firms experience the same degree of intervention. Within almost all nations, the government appears to intervene in some foreign companies more than in others. At one extreme some firms are forced out of the nation, while the other extreme firms tend to grow and prosper. The purpose of this paper is first, to explain these different experiences of foreign firms, and then to address the question: How can foreign firms reduce the amount of intervention they experience? The conclusions are based on the intervention histories of more than 100 firms.
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Journal of International Business Studies (JIBS) is a top-ranked peer-reviewed journal in the field of international business; its goal is to publish insightful, innovative and impactful research on international business. JIBS is multidisciplinary in scope, and interdisciplinary in content and methodology. JIBS is an official publication of the Academy of International Business. JIBS is published 9 times a year.
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2.2.2.2 Political risks induced by
the governmentThese risks constitute some laws directed against foreign firms. Some government-induced risks are very drastic. There are expropriation, confiscation and domestication.
Expropriation is the seizure of foreign assets by a government with payment of compensation to the owners. In other terms, it is involuntary transfer of property, with compensation, from a privately owned firm to a host country government. Expropriation may generate some funds for the owners. However, procedures to get paid from the government are sometimes protracted and the final amount remains low. Furthermore, if no compensation is paid, conflicts may erupt between the host country and the country of the expropriated firm. For instance, the relations between U.S. and Cuba acknowledge such situation, since Cuba does not offer compensation to U.S. firms that have their assets sized.3(*) Also, expropriation can refrain other companies from investing in the concerned country.
Confiscationis another type of ownership risk similar to expropriation, except compensation. It is involuntary transfer of property, no compensation, from a privately owned firm to a host country government. In confiscation, firms do not receive any funds from government. Thereby, it represents a more risky situation for foreign firms. Some industries are more vulnerable to confiscation than others because of their importance to the host countries and their lack of ability to shift operations. Sectors such as mining, energy, public utilities, and banking have been targets of such government actions.
Domesticationoffers to governments a subtle control over the foreign investments. There is a partial ownership transfer and companies are urged to prioritize local production and to retain a large share of the profit within the country. Domestication can negatively impact the international marketer activities, as well as that of the entire firm. For example, if foreign companies are forced to hire nationals as managers, poor cooperation and communication can result. If domestication was imposed within a short time span, poorly trained and inexperienced local managers would head the firm operations with possible lost of profits.
Other government actions-related risks are less dangerous but more common such as boycott, sabotage. When facing shortage of foreign currency, government, sometimes, attempts to control the movement of capital in and out of the country. Often, exchange controls are levied selectively against certain products or companies. Exchange controls limit importation of goods so that firms might be confronted with difficulties in their regular transactions. Severe restrictions on import can be a motive for foreign corporate to shut down. Governments may also raise the tax rate applied to foreign investors in order to control them and their capital. Government may implement a price control system. Such control uses to derive from a sensitive political situation. For example, social pressure may result in a kind of price standardization for particular sectors like food, transportation, fuel, and healthcare.
Political risks like arms conflicts, insurrection may affect all firms in the country equally. For that reason they are called macro political risks. Unlike, nationalization, strikes, expropriation may affect only a handful and specific firm, they are named micro political risks.
2.2.3. Impact of some political risks
Some negative effects of political risks on firm are summarized in the following table.
Table 1. Holistic table summarizing the major political risks and their effects on firms
TYPES
IMPACT ON FIRMS
Expropriation
Loss of future profits
Confiscation
Loss of assets
Loss of future profits
Campaigns against foreign goods
Loss of sales
Increased costs of public relations efforts to improve public image
Mandatory labor benefits legislation
Increased operating costs
Kidnappings, terrorists threats, and other forms of violence
Disrupted production
Increased security costs
Increased managerial costs
Lower productivity
Civil wars
Destruction of property
Lost sales
Disruption of production
Increased security costs
Lower productivity
Inflation
Higher operating costs
Repatriation
Inability to transfer funds freely
Currency devaluations
Reduced value of repatriated earnings
Increased taxation
Lower after-tax profits
Source, Ricky W. Griffin, International business, 2005, page 73
In long run, and depending on the severity of the risks, action taken by government may decrease income and be detrimental to the host country economy. Strong political risks that are deeply rooted in the country governance habit might be barriers to foreign investment and country prosperity. What is going on in West Africa?
PART TWO
Case study: West African countries
Chapter 1: Methodology for assessing political risks
* 3 International business, page 65
Which of the following is the most severe political risk?
The most severe political risk is confiscation , that is, the seizing of a company's assets without payment. Confiscation was most prevalent in the 1950s and 1960s when many underdeveloped countries saw confiscation, albeit ineffective, as a means of economic growth.What is the ultimate goal of domestication?
The ultimate goal of domestication is to force domestic investors to share more of the profits with the government. The risk of domestication appears to have decreased over the last two decades. Domestication has always led to more technologically advanced and competitive businesses.Which of the following is a top political issue concerning foreign businesses quizlet?
At the top of the list of political issues concerning foreign businesses is the stability or instability of prevailing government policies.Which of the following is the top political issue concerning foreign businesses?
exam 1. Tải thêm tài liệu liên quan đến nội dung bài viết The most severe political risk of global business is the government action of domestication