Political risk

Political risk

Political risk reflects the possibility that a foreign government will interfere with a firm’s preferred manner of conducting business.

The level of interference can be modest, such as requiring that a certain number of first-line supervisors be local nationals rather than “foreigners.”

More severe instances of political risk include:
· restrictions on the repatriation of dividends,
· mandatory local investments, or
· even the host-country government assuming control of the foreign firm through nationalization.

For multinational corporations, political risk is a fact of life. Firms learn to estimate the level of this risk in different parts of the world, as well as how to reduce its impact and to postpone or avoid its effects.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk