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The Three Major Political And Political Risks In International Business

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Expansion across seas can be very advantageous and lucrative for many companies; however, there are many risks associated with doing business overseas, and companies that intend to expand internationally should be careful and strategic when doing so. Not only do companies run the risk of experiencing a product fail due to differences in cultures, they also face severe political and economic risks as well. There are three main political risks that can be encountered when moving business overseas which are: confiscation, expropriation, and domestication. Each of these risks can have significant adverse effects on a company that is trying to expand into foreign countries. Of the three, confiscation is considered to be the most severe political…show more content…
Economic risks faced by companies that want to expand their business globally are exchange controls, local content laws, import restrictions, tax controls, price controls, and labor problems (Cateora, Gilly & Graham, 2011). These risks can be just as harmful, in some cases, as the political risks faced. As implied by its title, import restrictions are limitations placed on certain goods being shipped in from another country. “There are especially tight import restrictions on goods with a potential to be hazardous” (Dugger, 2016). Many restrictions are placed on imports in order to protect and promote the domestic market within the host country. Tax controls are put into place primarily to generate revenue and operating funds. Unfortunately, many companies that attempt to expand their business overseas experience unreasonably high taxes. Elevated tax rates can also be seen as a form of protectionism in efforts to deter threatening foreign companies from entering their market, thus allowing domestic companies to…show more content…
Because the health of individual economies depends largely on the health of the global economy, sanctions are typically not put into place to debilitate a country’s economy; instead, they are generally used to coerce a country to comply with standards that the inflicting country believes are acceptable. Unfortunately, many times sanctions are ignored and the country will continue to do what it pleases. An example of this is the sanction placed against Russian banks, elite business men, and energy companies. “Since the introduction of Western sanctions in 2014, Russia has increased its efforts to lure China to participate in large energy projects” (Russia and China Continue to Forge Energy Ties, 2016). Instead of changing their actions to drop sanctions against them, Russian energy companies turned to a country that will allow their
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