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Business Environment

Business Environment

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Published by anmol

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Published by: anmol on Mar 04, 2011
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Distinction is often made between Macro & Micro risks:

A) Macro Political Risk

B) Micro Political Risk

A) Macro Political Risk

‡ A macro political risk affects all inter-national

businesses in the same way

‡ Expropriation, the seizure of privately owned assets,

as for example, a farm or a factory, by government

with little or no compensation to the owners, is a

macro political risk

‡ The taking of ownership of an entire industry that

had been generated privately, as a part of a plan to

restructure an entire economy, is called national-

isation, again a macro political risk

‡ Communist governments in eastern Europe &

China expropriated private firms following

World War II

‡ Fidel Castro did the same in Cuba during 1958-59

‡ Recently, governments in Angola, Chile, Ethiopia,

Peru, & Zambia have expropriated private firms

‡ Field Marshall Ayub Khan nationalised four hotels

of M.S Oberoi without paying any compensation

‡ In all these cases, inter-national businesses were

hard hit

‡ Political boycotts also result in macro political risk

‡ Since 1955, a number of Arab countries have

boycotted firms with branches in Israel or

companies that have allowed the use of their trade

name there

‡ Macro political risk can also come about because of

indigenisation laws which bind inter-national

businesses to accept equity participation by local


B) Micro Political Risk

‡ A micro political risk affects specific foreign business

‡ Micro political risk include industry regulations,

taxes, kidnapping, & terrorist threats

‡ India¶s decision in 1975 to reduce foreign equity to

40 per cent & Peru¶s decision to nationalise its

copper mines are example of micro political risks

‡ The US decision to tax textile imports is another


‡ Firms which have high visibility in host countries

are targets of micro political risk

‡ If agitations are caused by animosity between

factions in the host country & the government of a

foreign country, agitators may target only the most

visible companies from that foreign country, like


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