POLITICAL RISK 2
Running head: POLITICAL RISKS 1
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Political risks concerning businesses or companies are the decisions taken by several companies that affect the profitability of an industry inclusive of the legal risks (Brink, 2017). Political risk is low in countries that have a history of stability and consistency. Many businesses operate in harsh environments. They neither try to find nor anticipate quick paybacks on their investments. Significant political risk requires companies to see a quick payback on investments by the investors, and this is done through overworking the laborers. This leads to exploitation and an increase in risks for the investing company. Politics has and will always play a role in every aspect of the economy. People who hold political positions yield so much power due to the influence they have with regards to decision making in all arms of the government. The parliament is, however, individually powerful as they make law and rules that affect people and businesses (Wachira, 2016).
They are actions that alter the expected outcome of a given technical work by changing the profitability of achieving business success. Liquidity is a significant concern in foreign investment activities; even large companies usually want to know how quickly a project will replay their initial investment. There are different levels of political risk; high and low political risk, and where the latter is in a given country, it does not directly translate to the success of a business. Many companies have had to bend to laws laid out by the lawmakers. To come to terms with these laws, companies have taken drastic measures to mitigate the risks brought about by political uncertainty. The chances of doing business in any country are high because there are always political instabilities that plague every state, and they negatively affect the smooth operation of activity across the divide. Taking risks to shelve out uncertainty and to get a quick payback for the dangers do not always guarantee the companies the risks they have made will translate to a secure future. Broadly looking at political uncertainties, a company may be faced with, macro-political dangers; which looks at the non-project political risks that affect everyone in a given country no matter the kind of business they are undertaking. Micropolitical chances are project-specific risks, and companies have to be conscious of what they contribute to the local economy and have to also focus on the industry.
When making investments, many companies usually require returns on their investments, and they want to know how long it will take for the investment to repay their initial investment. Companies exposed with such political risks, it is reasonable and rational that companies seek to focus on a quick payback to recover the initial investment in a foreign country because their business could also be stopped suddenly if these risks would become sustainable threats and bring significant impacts. The amount of time required for the project’s expected tax-increment to repay the initial investment after the period has expired referred to as payback. Payback, therefore, is the measure of the liquidity of a project in the short term. Many companies also see this as the risks that stem from exposure to many risks, such as political and governmental. Some of the hazards that can emanate from the government include; acquisition, nationalization, and the cancellation of licensing operation. Companies that are exposed to such risks will find ways in which to get a quick fix or a payback for the recovery of their initial investments in many countries uniquely African countries that are prone to war (Cannon, 2016).
It is downward risky for a company to invest in long term projects due to the uncertainty and the unstable environment where war can erupt any time and make the company lose their investment as a result of the war. Companies will, however, invest in projects that bring quick returns in their finances to make sure that even in an event like the war, they will still get value for their investment. In these events, companies usually, end up conflicting with many foreign governments because of the responsibilities expected of them, such as corporate social responsibility as spelled out by the various governments. These regulations are sometimes exploitative, exposing companies to various risks apart from politics. From wanting to get quick payback companies to face a lot of chances and they become avenues of exploitation because it is in mind of the exploiters that the companies have to get back what they invested and would not want to make loses. Sometimes a company might want to introduce it measures to ensure profitability, but they might run parallel to what the regulations of the host country wanting to make sure that its people get employment in cases where the company wants to automate its operations. These realizations are those that lead to the quick payback investments that are about exploitative behavior. Companies should, however, look for ways to adapt to such measures in their quest for a quick payback and ensure their corporate social responsibility goes in line with the requirements of the given country to ensure that they spelled out corporate social obligations are met.
Many companies whether foreign or local have a responsibility to engage in community development projects voluntarily and also uphold environmental standards and also engage in projects that benefits the locality in which they operate (Schäfer, 2016). Some countries require companies to hire local people, and this might sometimes not be good for companies as they might need skilled foreigners to do the work. It does not go well with the host country as they may be deemed not to be complying with the social responsibility requirement. This might be an avenue for exploitation because they might be seen not to comply with the regulations that have been set up attracting sanctions and other penalties that might negatively affect the investment of the company. In their quest for a quick payback, a company should make sure that the relationship between them and the host country is mutual to avoid running into political risks that might cost their investments. The world of business is vast and full of strategic decision making to ensure companies and businesses from losses. Every business enterprise aims to make profits and reduce the risk of making losses.
Drastic decisions and measures are made in the process, such as wanting to make an investment that will bring a quick return with lower risk. This development, however, exposes the companies to various risks and exploitation by multiple players in the industry especially the foreign countries they operate in will want to come up with measures to ensure they maximize on the presence of such companies in their countries. Participating in local development projects enhances the image of a company, and it builds trust with the local government and makes a right name thereby to some extent reducing the potential political risk that otherwise might have been incurred. It is in this small projects that long term projects for the locals bloom because an idea is induced and with the help of the local government it is supported for the benefit of a long time for its citizens. This can significantly help a company seeking a quick payback for its investment. Quick payback, as seen earlier, is when a company aims to get returns for their investment also applies to logistics and the management of supplies (Mytelka, 2018). Companies usually seek where they can get cheap labor to minimize what they spend and maximize returns. Doing this sometimes makes them violate specific values such as allocating long working hours for employees.
As a quick fix measure, this can be open to exploitation when relevant authorities find out the practices that are being carried out by the company. It is therefore essential to find a measure that can create a suitable environment for co-existence so that all those parties can positively benefit from each other even as the company seeks a quick payback. Companies looking to quickly enhance their portfolio and look for other areas to invest should do extensive research and establish if the areas they are investing in will bring them the returns they hope for with the little as possible risk incurred. In Kenya, for example, many companies have faced political threats such as the high corruption rates in government and the private sector where getting tenders have been marred with malpractices. Adapting to this climate has made companies take measures both good and bad following suite to get a quick payback for their investment by being corrupt or engaging in illegal business practices.
This has seen many businesses face closure and other business managers being charged in courts. In trying to adapt to changing times and make something out of their investments, companies have opened themselves for higher risks and exploitation of the weaknesses that they open themselves to for wanting to make profits no matter what it takes. The spate of attacks by the militia group “Al-Shabaab” has also created an unstable investment environment, especially for those who bank on tourist for their businesses to flourish. This has made decision making to be elaborately done to counter the problem so that in spite of the shortcomings, there should be no loses. In conclusion, it is crucial to see that even though companies and various businesses try a much as they can to get a quick payback for their investments. They open up themselves for higher political risks and exploitation. When companies seek to get a quick payback, the measure taken to achieve that might sometimes lead to consequences that might impact negatively on the company.it is therefore essential to find ways in which there can be a realization of quick payback from investment and how to peacefully and mutually co-exist with the various countries they invest their money. It is the only way that a company will close up or significantly reduce the risk that comes with taking measures for profitability without putting into account the consequences after that.
References
Brink, C. H., (2017). Measuring political risk: risks to foreign investment. Routledge.
Wachira, W., Brookes, M., & Haines, R. (2016). Viewing the impact of outsourcing from a Kenyan perspective. Asian Journal of Management Science and Economics, 3(1), 24-43.
Cannon, B., (2016). Deconstructing Turkey’s efforts in Somalia.
Schäfer, H., (2016). 26 Corporate Social Responsibility Rating. A Handbook of Corporate Governance and Social Responsibility, 449.
Mytelka, L. K., (2018). Knowledge and structural power in the international political economy. In Strange Power: Shaping the Parameters of International Relations and International Political Economy (pp. 61-78). Routledge.