Risky but not Attractive?Mapping Political Risk in the BSR.
Dr. Johannes Leitner
Internationalisation &Risks for Business
Source (Hoskisson et al. 2000; Meschi 2005; Brouthers et al. 1998; Alcantara 2013; Diamonte et al. 1996)
Risks in International Business
Risks in a Business Location
GeneralEnvironment The Industry Firm specific
Variables
Source: Miller (1992,1993); van Wyk (2010); Werner et al. (1996)
Nonmarket Environment
GeneralEnvironment
Source: Boddewyn (2003); Kobrin (2015); Rajwani and Liedong (2015); Baron (1995); Boddewyn (2015)
Distribution of Political Risks…
Source: Bremmer (2009); Taleb (2007)
Low probability - high impact events
Metro in Eastern Ukraine
Distribution of Political Risks…
Source: Bremmer (2009); Taleb (2007)
Market Entry Armenia
Expansion Moldova
Which problems arose?
Competitors?
Demand?
PoliticalInstability?
Judiciary?Socio-economic?
Low GDP?
PoliticalSystem?
Formal Informal
International Context…
Political Risk
Political RiskFuzzy Concept
(e.g. Kobrin 1979, Fitzpatrick 1983, Sottilotta 2013, 2015)
Public actions….
interference with private business…
in the host country of international activities…
with (mostly) adverse effects for the business.
Cor
e de
term
inan
ts o
ver v
ario
us a
utho
rs…
(Lei
tner
, fo
rthco
mni
g sp
ring
2016
)
Political Risk Factors
Political stability (Miller 1992)
.
Geopolitical Risk Factors (MIGA 2015)
Internal (de la Torre et al 1988)
Systemic Corruption (Meissner 2016)
Regional, BilateralConflicts and DiplomaticTies (Alon & Martin 1998)
Host country‘s attitudetowards internationalcompanies (Kobrin 1980)
Macropolitical Risk Factors (Robock, 1971; Alon & Martin, 1998)
.
Micropolitical Risk Factors(Robock 1971, Alon & Martin 1998)
.
Leve
l of A
naly
sis
.
External (de la Torre et al 1988)
Systemic Favouritism (Meissner 2016)
Institutional Ambiguity (Meissner 2016)
The Risk Map
Source: AON Political Risk Maps at: https://www.riskmaps.aon.co.uk/site/map.aspx
Business Environmentin ENP Markets
Source: (EBRD BEEPS Report 2016 at: http://ebrd-beeps.com/reports/beeps_v_report/)
GDP Growth (annual %)
Source: World Bank at: http://data.worldbank.org
State Capture
Political stability (Miller 1992)
.
Geopolitical Risk Factors (MIGA 2015)
Internal (de la Torre et al 1988)
Systemic Corruption (Meissner 2016)
Regional, BilateralConflicts and DiplomaticTies (Alon & Martin 1998)
Host country‘s attitudetowards internationalcompanies (Kobrin 1980)
Macropolitical Risk Factors (Robock, 1971; Alon & Martin, 1998)
.
Micropolitical Risk Factors(Robock 1971, Alon & Martin 1998)
.
Leve
l of A
naly
sis
.
External (de la Torre et al 1988)
Systemic Favouritism (Meissner 2016)
Institutional Ambiguity (Meissner 2016)
State Capture
Systemic Corruption
Systemic Favouritism
Institutional Ambiguity
State Capture:“private actors seize public institutionsand legal-political processes to realise
their particularistic interests of accumulating power and private
wealth. For that reason, they more or less systematically abuse, side-step, ignore, or even
tailor formal institutions to fit their interests” (Larulle 2012)
State Capture works through systemic corruption, systemicfavouritism and institutional ambiguity and poses severe politicalrisks to enterprises
Example: Azerbaijan
Risk Assessment
Stakeholderanalysis
Politicalterrain
analysis
Risk factors
Probability
Impact
Be prepared
Be aware
Focus
Monitor
Severity
Source: McKellar 2010
Risk Management
Generic Strategies Refined Examples
Accept You simply accept the risk and do not take any action
Start the business and hope for the best
Mitigate You try to reduce either the probablity or the impact of the risk
• Political strategies• Stakeholder Mgmt• Portfolio Mgmt• Intelligence
Transfer You transfer the risks to other partners who are willing to bear them
• Insurance• Outsourcing risky
actions• Brokers• Decoupling
Avoid You do not take actions that inherently are associated with certain risks
• You do not pursue a business opportunity
Risky but not attractive?
…political risks root in the parallel existence of formal and informal institutions…
No surprises in economic development,trough being experienced in 2015…
…paired with state capture in most of thepost-Soviet markets.
But these issues can be managed if decisionmakers in the firm are aware of these risks.
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