1. Chapter 10
Managing Political Risk and Negotiations

2. Government Corruption
5 Most Corrupt Countries
1. Cameroon
2. Paraguay
3. Honduras
4. Nigeria
5. Indonesia
5 least Corrupt Countries
1. Denmark
2. Finland
3. Sweden
4. New Zealand
5. Iceland

3. Macro Analysis of Political Risk
Purpose: To review the major political decisions likely to affect all business conducted in a country
Examples
tightening controls on flow of foreign currency
bureaucratic legal systems
requiring foreign investors to establish joint ventures with local partners

4. Micro Analysis of Political Risk
Purpose: government policies that influence selected sectors of the economy or specific foreign business
Examples
industry regulation
taxes on specific types of business activity
restrictive local taxes

5. Political Risks
Transfer Risks - policies that limit the transfer of capital, payments, production, people, and technology in or out of a country
tariffs on exports or imports
operational Risks - policies that constrain the management and performance of local operations
price controls and financing restrictions
Ownership control risks - polices that inhibit ownership or control of local operations
foreign ownership limitations

6. The nature of investment
1. conglomerate investment - The production of goods or services dissimilar to those produced at home
high risk
2. Vertical investment - production of raw materials or intermediate goods that are to be processed into final products
moderate risk
3. Horizontal investment - production of goods or services similar to those produced at home
low risk

7. Special Nature of Investment
Economic Activity consists of:
primary sector (agriculture, forestry, etc.)
highest risk factor
industrial sector (manufacturing operations)
lowest risk factor
service sector (transportation, finance, etc.)
moderate risk factor

8. Technological Sophistication consists of:
science-based industries
high risk factor
non-science-based industries
lower risk factor

9. Patterns of ownership consist of:
wholly owned businesses
high risk factor
partially owned businesses
lower risk factor

10. integrative techniques
Designed to help overseas operations become part of the host country’s infrastructure
examples
developing good relations with host government
producing products locally
creating joint venture
participating in local research and development

11. Protective and defensive techniques
Designed to discourage the host government from interfering in operations
Examples
doing little local manufacturing
conducting little local research and development
limiting responsibility of local personnel
diversifying production in a number of countries

12. The negotiation process
planning
interpersonal relationship building
exchanging task-related information
persuasion
agreement

13. do’s and don’t of negotiation
do not identify the counterpart’s home culture too quickly
beware of western bias toward “doing”
try to counteract the tendency to formulate simple, stable images
do not assume that all aspects of culture are equally significant
do not overestimate your familiarity with your counterpart’s culture

14. Negotiation Tactics location time limits buyer-seller relations
neutral meeting site is usually best
time limits
one party may be under a time constraint (e.g., holiday season)
buyer-seller relations
reciprocity