Political risk and foreign direct investment

Abstract

To conclude, if the political risk theoretically means anything, it means thinking about the<br />future role of Nation-States, of culture, history and geography and market forces in the<br />shaping of the international economic order. In considering the political risks in their<br />strategies, MNCs as the symbolic motors of the globalization should be aware of this<br />theoretical implication. For the economic research this means that efforts should be made,<br />not only to improve the risk/returns tradeoff of the MNCs (through predictability,<br />quantification or integration in decision making process, risk transfer-methods and risk<br />avoidance methods) but also to integrate the 'Miwelt' and the 'Umwelt', that is, to<br />contribute to the economic and social development of the involved population in the host<br />government and to improve the quality of their environment. In this sense, improving the<br />social conditions of the population of host countries as well as the quality of their<br />environment constitute one of the comprehensive and best management tools of political<br />risk. The strategy just described calls for pertinent strategy aimed at strengthening the<br />reputation of integrity of the subsidiary in the market place and in the public eyes. Siegwart,<br />Caytas and Mahari (1989, p. 82) referred to them as 'good will strategies' that encompass<br />following measures;<br />· Support social, cultural or charitable projects<br />· Maintain a harmonic relationship with the media<br />· Maintain a conflict-free, trusting relationship with supervisory and licensing authorities<br />· Maintain the most comprehensive political and social contacts possible<br />· Contribute to legitimate goals of relevant interest groups<br />· Avoid any proximity to conflicts of interest or corruption<br />· Demonstrate a healthy loyalty to the country and to the local community<br />· Avoid compromising business relationships<br />· Observe high standards in the selection and behavior of employees<br />· Avoid open display of prosperity<br />· Exhibit gener