Political risk and foreign direct investment

Abstract

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