Political Risk: A Review and Reconsideration (Classic Reprint)

Excerpt from Political Risk: A Review and Reconsideration

"In our opinion, the most challenging issues facing MNCs are those created by social-political institutions..." (Citibank [12])

"Thus the future American Business will require the highest degree of sensitivity to the political framework in which it functions and to the great coming changes in the World political process." (Kissinger [32])

While the political environment has always been an important factor in international business, it has received increasing attention from both scholars and practitioners in recent years. This higher level of political consciousness reflects both the internationalization of production and post-war changes in the structure of socio/economic relationships.

Most uninational firms are managed by local citizens who have an intuitive understanding of domestic politics. Although they certainly make serious errors,they typically "know" how the system works and how one relates to it.

In addition, while domestic politics are important, the U.S. political system (and that of many of the other major capital exporting countries) has been quite stable in the past. Even though succeeding administrations may express different views about the private sector, actual changes in policy have tended to be those of degree rather than kind.

When the firm expands internationally, it faces political institutions and political risks not encountered by its uninational counterparts. Given the need to conduct simultaneous operations in a large number of different environments, managers can no longer rely on an intuitive understanding of politics.

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