purposive creation of dominant market positions through industry consolidation (mergers andacquisitions). In each of the case studies we use we will explore these issues from two perspectives, that of the corporation and that of society at large.
Module 2: Political and Regulatory Risk
The second module is an advanced strategy mini-course that focuses on how firms canactively manage political and regulatory pressures outside their market place
i.e. in the
market’ business environment –
rather than simply take them for granted. The modulethus builds on the first module by asking how firms can productively manage their relationships with governments, activists, NGOs and other stakeholders.
While a firm’s
competitive advantage is created in large part through developing and exploiting difficult-to-imitate capabilities and resources in the market environment, the non-market environment inwhich the firm operates also presents important risks and opportunities for business leaders.The non-market environment consists of the laws, regulations, norms and institutions thatshape the nature of competition within markets. Governments, regulators, courts, the media,non-governmental institutions, international treaties and cultural norms all affect how firmscompete and which capabilities are valuable. For instance, barriers to entry, new productintroduction, global competition, and operating practices can all be enhanced or constrained
by the formal and informal “rules of the game”. This is true for many industries, from energy
to mining to retail. Yet these rules are not simply exogenously given. They are instead theoutcome of competition between businesses and other organized groups within policy-making arenas. In many industries, corporate activity in the policy making process is a keyelement in creating or maintaining a
company’s competitive advantage.
The challenge for managers is to determine how to lead the company to success in themarketplace as well as in the non-market environment. However, the problems that managersface in the non-market environment are different in nature from the problems faced inmarkets. First, policy issues can arise unexpectedly, creating uncertainty in political and
regulatory environments about the evolving direction of “rules of the game”. Second, policy
-markets and policy-making institutions typically behave differently and have differentobjectives from consumers, suppliers and competitors. Third, firms that compete in themarketplace may cooperate as allies in policy arenas, and vice-versa. Firms can also confrontentirely new opposition in the non-market environment from stakeholders not directly
involved in the firm’s product or service markets.
The focus of this module is political risk. We analyze the risks and rewards both in stableand political unstable countries, and the relationship between risk and reward. We develop atoolkit and use it to examine seven broad themes of political risk.