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Political Risk and Risk Management - PDF

   

Added on  2021-06-18

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Page 1 of 6POLITICAL RISK AND RISK MANAGEMENT

Page 2 of 6Table of contents1.0 Introduction..........................................................................................................................32.0 Political risk and risk management......................................................................................33.0 Conclusion............................................................................................................................5Reference....................................................................................................................................6

Page 3 of 61.0 Introduction The economy of a country and the politics of the country are intertwined with each other. Thechanges in the stability level of the country in terms of politics impacts the operation of thebusinesses. Political risk can also come from different kinds of turbulence as well such asterrorism, mass protest and many more. Both the action of the government and theturbulences affect the operation of the organizations and limits their potentiality to achievebusiness objectives.2.0 Political risk and risk managementThe term political risk has more than one definition, however, as per the most widely useddefinition, it is the risk that comes from the decisions of the government and the turbulence.There are many of the factors that can come as the political risk to the companies. Theseinvolve the social factors, macroeconomic factors, fiscal and monitory decisions of thegovernment and many more. The political risk for an organization can exist at two levels suchas macro and micro. While the impact of macro-level risk affects all the industries of theeconomy, the micro level risks are only related to few of the specific industries. Zonis et al.(2011) stated that micro level risks are the internal risks of the organizations. One of the most important problems related to political risk and risk management is theunambiguity associated with the external factors that directly get impacted due to the changesin politics. The political changes impacts on the economy, society, stability and many otherfactors which in turn impacts the business that is operating in the economy. These factors areall external to the organization and hence very much difficult for the management to manage.The political risks in general troubles all the economic entities some way or the other.However, domestic and the international firms are the main victims of political risks. Thechanges in the legislation or the requirement by the government compel the organization tochange their standard which in turn increases the cost of operation and hence the revenue isimpacted. Shai (2017) highlighted that, even the firms that have some amount of control fromthe side of the government also comes under the risk of political changes. There are many of the benefits of managing the political risks especially if the organization isoperating in a foreign market. The first benefit of the political risk management is theprotection from the changes in the policies of the government. The analysis andunderstanding of the political changes allow the upper management to articulate andimplement contingent strategies in order to nullify the negative impacts due to the risk of thepolitical changes. Apart from that, the management of the risk also provides the managementof the organization to make the most of the market opportunities. Toksöz (2014) stated that

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