International Business: Contexts and Challenges

INTERNATIONAL
BUSINESS: CONTEXTS
AND CHALLENGES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Part 1: Literature review on political risks in context of international business.........................3
Part 2: Foreign direct investors and political risks in India.........................................................7
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
International business shows the trade of goods and services, expertise, assets and
information across nationwide boundaries and at intercontinental or transactional extent. It
involves cross border dealings of goods and services in the middle of two or more countries. The
assets that have been involved within the transactional services are those which provide benefits
to the firm who are dealing with other business organizations in order to satisfy their needs and
desires of consumers along with their own profit maximization. Global integration of business
activities helps the business in global trade, speculation, issue, expertise and communiqué.
This report will highlight the topic i.e. political risk in context of India through the concepts
that has been provided by various authors in their favour as well as in their critique sense. Apart
from this, the study will also provide description with example in which foreign direct investors
may be subject to political risk along with recommendations about the ways in which political
risk can be mitigated.
MAIN BODY
Part 1: Literature review on political risks in context of international business
According to the Stevens and Newenham‐Kahindi (2017), Political risk occurs very
frequently within the international business. It arises from the actions of national governments
which interfere with or prevent business transactions or change the terms of agreements or cause
the elimination of wholly or partially foreign owned business property.
Whereas Olsen and et. al., (2020), define it is a broader way that political risks are primarily
a reflection of the activity of the governments. It is basically governments’ actions that deny or
restrict the right of an investor in order to use or benefit from their assets, reduce the value of the
firm. The well known political risk that has been involved within the international business
activities are revolutions, nationalization, war and actions in order to restrict the movement of
profits and other form of system to receive revenue to the home country.
In the view of Drautzburg, T., (2017), it has been stated that political risk in terms of
international investment when government discontinuities occur within the business environment
which are difficult to look forward to and such discontinuities result from a political
modifications within the environment. The major concern related to political risk within the
global market by foreign investors would be related to the stability of the local economy and

instability in the inflation rate as well as fair trade practices by the host country government,
rules and regulations that have been prepared are different for local as well as international
business person, free transfer of profits from host country and many more such kind of issues
creates chances of political risk higher during global transaction of goods and services.
As per the view of Moberg, L., (2017), it has been identified that political risk management
is a popular topic in the department of international business. There are various kind of strategies
has been prepared by the government in order to address political risks that are involved while
doing business activities internationally which includes investing in safe environmental
atmosphere, enhance required return, adapt specific business environmental conditions sharing of
risk with other organizations, improves relative bargaining power and transfer of risks to
insurance firms along with spreading risk by investing in different countries so that the risk
involved has been reduced in more appropriate manner.
From the view point of Calliari, E., (2020), there are various kinds of political risks that are
involved within the international business such as Confiscation risk which described as taking of
the private property by government without any reimbursement offer on the ground that foreign
organization are take advantage of the country and relation among the government and foreign
country are too much stressed. Next is Agreement disclaimer which states that contractor enter
into the agreement with the foreign government only in order to find that the bond cannot be
fulfilled or come to an end the agreement without showing any reason for termination, refuse to
pay for delivered goods and services by the firms, cancel the license of contractors and many
other ways which includes contract cancellation. Third is Money inconvertibility which is
putting restrictions over the foreign organizations to send profits from the host country to their
home country. The reason behind do so is the passing of new laws and regulations or
organizational slowdown. System of government of foreign country slow down the procedure of
exchange of currency and thus it become trouble for the foreign owned companies. Biased
taxation is another type of political risk which states that government charges extra amount of
tax changes from the foreign country firms in comparison to domestic organizations. Prohibition
represents the kind of political risk that arises as restrict the transactions of certain goods and
services to a certain country or some selected countries. Expropriation of the property is also a
kind of political risk which described as apprehension of the private property owned by foreign
country with compensation to specific company. Another kind of political risk is nationalization