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STRATEGIES TO MANAGE POLITICAL RISK

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 Has extended the last day of submission of IGNOU Assignments for session June 2020 to 15th June 2020. Candidates who are facing problems in making assignments here is the solution to your problem. Master of Commerce – M.Com First Year Ignou Solved Assignment for July 2019 and January 2020 Admission CyclesM.COM First Year Tutor Marked Solved AssignmentCourse Code: IBO – 06
Course Title: International Marketing Logistics
Assignment Code: IBO-06/TMA/2019-20
Coverage: All BlocksIBO – 06 International Business Finance Solved Assignment for 2019-20 Q5.) Discuss the various strategies to manage political risk. Ans: राजनीतिक जोखिम को आम तौर पर राजनीति से उत्पन्न होने वाले फर्मों के व्यावसायिक हितों के जोखिम के रूप में परिभाषित किया जाता है।
उस देश में अस्थिरता या राजनीतिक परिवर्तन जिसमें फर्म व्यवसाय कर रही है।
राजनीतिक जोखिम में उन विदेशी देशों की सरकारों की संभावित प्रतिकूल कार्रवाइयों से उत्पन्न जोखिम शामिल हैं जिनमें कोई व्यवसाय कर रहा है या जिनके कानून और विनियमों के अधीन है। Having analyzed the political environment of a country and having assessed the risk to its operations, a firm should decide (a) whether to invest in that country, (b) if so, how to device coping strategies to minimize the risk. A few generalizations are possible here. as every firm, consistent with its field of activity, faces unique risk.  1.) Pre-investment Planning: An MNC can follow each or all of the following policies- a.) Avoidance.b.) Insurance.c.) Negotiating the environment.d.) Structuring the investment. a.) Avoidance: राजनीतिक जोखिमों का प्रबंधन करने का सबसे सरल तरीका है कि ऐसे जोखिमों पर उच्च रैंक वाले देश में निवेश करने से बचें। जहां निवेश पहले ही किया जा चुका है।
पौधों को घायल किया जा सकता है या किसी अन्य देश में स्थानांतरित किया जा सकता है जिसे अपेक्षाकृत सुरक्षित माना जाता है। Many firms tackle political risk by avoiding investing in that country. मुद्दा यह है कि कितना जोखिम है, कंपनी को स्वीकार्य लगता है और वह सहन करने के लिए तैयार है  If the firms avoid investing in a high-risk country, it also foregoes the high returns possibly available on their investment. Thus most multinationals use avoidance strategy only I-rarely and try to recognize and assess the risk, e.g..investing in dictatorial China, or economically volatile South Asian countries are risky. However, if the risk does not materialize, the returns are considerable. b.) Insurance: Companies buy insurance against the potential effects of political risk. Some policies protect companies when host governments restrict the convertibility of their currency into parent country currency. Others insure against losses created by violent events, including war and terrorism. Mostly high-risk multinationals will seek insurance. Hence adverse incentives are built-in by adjusting premiums in accordance with the perceived risks. Screening out certain high-risk applicants and by providing a reduced premium to the companies engaged in activities that are likely to reduce risk. c.) Negotiating the Environment: There are two fundamental problems with relying on insurance as protection from political risk. सबसे पहले, इसमें एक विषमता शामिल है। यदि कोई निवेश लाभहीन साबित होता है, तो उसके ज़ब्त होने की संभावना नहीं है। चूंकि व्यावसायिक जोखिम को कवर नहीं किया जाता है, इसलिए किसी भी नुकसान को फर्म द्वारा ही वहन किया जाना चाहिए। दूसरी ओर, यदि निवेश सफल साबित होता है और उसे जब्त कर लिया जाता है, तो फर्म को केवल उसकी संपत्ति के मूल्य के लिए मुआवजा दिया जाता है। Thus, although insurance can provide partial protection from political risk, it is not a comprehensive solution. At times firms try to reach an understanding with the host government before undertaking an investment. This is called a “concession agreement” in which the rights and responsibilities of both parties are defined. These concession agreements are negotiated by multinational firms with developing countries. However, as the experience in developing countries shows, such concession agreements are difficult to implement, particularly in countries like Iraq, Iran, etc. d.) Structuring the Investment: Multinational firms try to increase the cost of interference by the host country to minimize its exposure to political risk. This can be done by keeping the local affiliate dependent on sister companies for markets and supplies. Another strategy is to establish a single global trademark that cannot be legally duplicated by a government. Control of transportation is used by some companies to prevent any adverse action on their projects by the lost government. 2.) Operating Policies: The operating policies relates to: a.) Planned dis-investment.b.) Short-term profit maximization.c.) Changing the benefit/cost ratio of expropriation.d.) Developing total stakeholders.e.) Adaptation.  Some authors have suggested that a multinational firm may phase out its ownership of foreign investment over a fixed time period by selling all or a majority of its equity interest to local investors. This may be difficult in practice. If the prices for buying out the MNC interest are settled in advance and if the project is less than successful.The host government or the strategic partner in the host government may be unwilling to buy.  The multinational enterprise may try to recover the maximum amount of cash from the local operation.This can be done by deferring maintenance expenditures.producing lower quality merchandise, setting higher prices.and eliminating training programs.This way while cash will be ignou generated during the short run.The long-term effects of such policies will harm the project.Without considering the ethical aspects, one would have to consider such a short-sighted hit-and-run strategy only when faced with the danger of losing everything Ignou Solved Assignment. The better strategy for the foreign project would be to cultivate local individuals and groups in such a way, that any adverse action against the project would affect the influential local investors as well.If the consumers get dissatisfied project.With the quality of the product.The local entrepreneur who displaced the foreign owner. their protests will influence the government policies. During Janta Raj, the coca-cola withdrew from India, but customers not quite satisfied by the substitute product welcomed the company back when it finally came. 


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