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 risk. Confiscation is “the seizing of a company’s assets without payment” (Cateora, Gilly & Graham, 2011). This can leave the company in a deficit which can destabilize their business. As defined by our textbook, expropriation is “where the government seizes an investment but makes some reimbursement for the assets” (Cateora, Gilly & Graham, 2011). This is a less severe risk; however, it is still detrimental and worth careful consideration of companies that look to expand their business overseas. Unfortunately, there are many cases in which a company has not been compensated for expropriation (Barratt & Roche, 2010). Without compensation for the loss of investment, the expropriation is then considered confiscation. Last is domestication “which occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees that mandate local ownership and greater national involvement in a company’s management” (Cateora, ...
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...iness 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 practices.
It is vital for companies that intend to expand their business overseas understand the political and economic risks that are associated with the decision. Not only should they understand the risks, they should also attempt to create a plan for risks management by becoming familiar with the laws and regulations of the country in which they wish to move into. Though many of the risks listed cannot be completed avoided, there are ways in which a company should prepare to itself to fight against them.
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