Political risks can also be managed by trying to prove to the host country that it cannot do without the company`s activities. This can be done by trying to control raw materials, technology and distribution channels in the host country. The Company may threaten the host country that the supply of materials, products or technology will be stopped if its operations are disrupted. Political risks in emerging markets are a reality, and our case firm has put in place several mechanisms to mitigate these risks in case projects to ensure the promised return on investment (ROI). Energy Co., with many years of IPO experience in emerging markets, has developed its capabilities in identifying project risks, including political risks (Cova and Holstius, 1993). Most interviewees stated, « Political risk is the biggest risk to the project company if you are in emerging markets, » and was checked against case project data (i.e., data from risk registers and case company mitigation plans). In addition, interviews confirmed that Energy Co. identifies political risks and decides on mechanisms to reduce them during the second phase of the project life cycle (Figure 3). Respondents also confirmed that « all strategic risk factors identified in the literature review in this document are relevant to the political risk assessment for energy infrastructure projects [i.e., they are assessed for identification purposes]. » Table 5 lists examples of perceptions of political risk cited during interviews. However, respondents showed that different countries face different challenges and that relevant political risks depend on « realities on the ground » and « historical events ». Fletcher, M.
and Plakoyiannaki, E. (2011), « Case selection in international business: key issues and common misconceptions », in Piekkari, R. and Welch, C. (eds.), Rethinking the Case Study in International Business and Management Research, Edward Elgar Publishing, Cheltenham, pp. 171-191. Keep an eye on global issues. Stay proactively up-to-date on local issues and policies to plan and prepare for potential risks. Achieving a status of indispensable is an effective strategy for companies that have exclusive access to high technology or certain products. These companies keep research and development out of the reach of their politically weak subsidiaries while strengthening their bargaining power vis-à-vis host governments by emphasizing their contributions to the economy. Risk analysis should cover all macroeconomic risks: geopolitical, market, political, economic, regulatory, social, environmental, security and reputational, as well as micro-risks that could impact your business. International political risks for businesses are mainly economic threats arising from events such as terrorism, war, sanctions and other disagreements between the heads of state of two or more states. Companies around the world are facing increased political risks, but the majority are ill-prepared, reactive, and lack confidence in their ability to manage these risks successfully.
Geopolitical risks are the most significant, especially given the disruption of supply chains due to COVID-19, the rise of nationalization and protectionism, the escalation of trade tensions between the United States and China, and the growing confrontation with authoritarian regimes that provoke cycles of sanctions and retaliation. Dandage, R., Mantha, S.S. and Rane, S.B. (2018), « Ranking the risk categories in international projects using the TOPSIS method », International Journal of Managing Projects in Business, Vol. 11, No. 2, pp. 317-331. Licensing is another form of risk sharing where the company risks appropriating its technology, but none of its other capital or financial assets.
Subsequently, MNEs use additional mechanisms to protect their project activities from political risk factors in emerging markets (Steffen and Papakonstantinou, 2015). Although identifying political risks prior to the implementation of infrastructure projects is an essential part of managing these risks and existing research on entering international markets has provided some information on the nature of political risk in different host countries (e.g., Deng et al., 2018; Han et al., 2018; Huemer, 2004; Khattab et al., 2007), empirical work specifically on political risk management in IPOs is very limited (Chang et al., 2018; Mullner, 2016). In a recent study on IPOs, Dandage et al. (2018) ranked risk factors and found that political risk is the biggest risk in IPOs. However, they acknowledged the limited guidelines for managing these risks. Kardes et al. (2013) and Mullner (2016) also call for more research on political risk management in IPOs. Therefore, we want to fill this gap in the existing literature on international market entry by explicitly examining how a DMNE perceives and manages political risks when carrying out infrastructure projects in emerging markets.
Based on interviews, informal discussions, and case project data, case project descriptions were developed, similar to the narrative strategy (Richmond, 2002; Riessman, 2005). The objective was not to establish causality between the perception of political risk and the management of political risk in IPOs, but to examine the mechanisms used by Energy Co. to manage political risk. Therefore, instead of dividing the data into codes, researchers (Maxwell, 2013, p. 112) linked the case descriptions to topics identified in the literature (i.e., political risk factors and political risk reduction mechanisms). This was done manually on paper for each of the cases by two individual researchers, and then the results were reviewed to draw the final results. According to Langley (1999), the contextual details of narrative analysis offer a meaningful conclusion to hidden realities that previous research on political risk management has not yet used. Historically, a project is a « one-time attempt to create a unique product or service » (PMI, 2000, p.
4). However, project-based business operations have been on the rise since the emergence of modern portfolio management in the 1960s (Turner, 2009). IPOs include « a wide range of activities involved in the design and construction of various facilities and facilities: such as housing, office buildings, factories, industrial facilities, mining development, defense facilities, and social infrastructure (utilities, transportation, etc.). » (Luostarinen and Welch, 1990, p. 126). Kardes et al. (2013) report that the lack of appropriate infrastructure in emerging markets has increased demand for large-scale projects, particularly over the past two decades. As a result, many DMNEs that were originally world-renowned original equipment manufacturers (OEMs) have also conducted IPOs as part of a growth strategy (Owusu et al., 2007; Kowalkowski et al., 2015).