This paper looks at managing political risk in international business using Millers (1992) table on Organizational Responses to Uncertainties. It focuses on financial risk management and Strategic Management. This paper shows that not having a solid plan leaves companies exposed to uncertainties and unnecessary risk for stock holders.
In international business there is room for a lot of political mistakes. Political risk can be defined as government or ruling party interference with private business or political decision, influences, political instabilities and wars may change a business environment. Political interference can be currency repatriation, limits on business transactions, changing tax laws, and possible seizure of assets. Political events such as: terrorism, rebel groups and violent demonstrations (Hong, Jones, & Song, 1999) can affect a firm’s ability to do business. Due to these issues today’s companies need a good financial risk management plan, along with a strategic risk management plan, when looking to enter or expand in international territories. No plan is perfect and cannot be completely executed without the proper plan, you put stockholders, employees, and the company’s future in jeopardy if entering into a business environment not suited for your companies strong points. Kent D. Miller’s steps for creating a financial risk management strategy and Strategic management strategy in his journal article “A Framework for Integrated Management in International Business,” are a great tool for developing a plan (Miller, 1992).
Financial Risk Management
According to Miller (1992) the principal financial risk-reduction techniques are purchasing insurance and buying and selling financial instruments (forward contracts, futures contracts, swaps, and options). Financial risk management and changes in firm strategy are two approaches to managing exposure to environmental and political uncertainties. Financial risk management techniques...