Chapter by chapter guide
Background.......................................................................................................................................... 02
Significance of the research ................................................................................................................ 02
Research point and objective.............................................................................................................. 02
Literature review................................................................................................................................. 03
Methodology....................................................................................................................................... 04
ResearchTechnique..............................................................................................................................04
Sampling............................................................................................................................................. 05
References.......................................................................................................................................... 06
Topic
Political Risk And MNC’s Location Decision
Background
A decade of socio-economic discourse in the country has been dominated by politics, leading to the notion that politics
affects business. A correlation between the Zimbabwean stock market's performance and investors' perceptions of political
risk was the basis for this conclusion (Jongwe 2011). By amending the constitution in April 2000, the government made it
possible to seize commercial farms that had been privately owned and only compensated for land improvements.
Expropriated land now belongs to the government as a result of constitutional changes made in September 2005. Since the
approval of this amendment, government and security forces have continued to disrupt output on commercial farms,
including those owned by foreign investors and protected by BIPPAs (BIPPAs). According to the Indigenization and
Economic Empowerment Bill, which was passed by the government in March 2008, 51% of businesses must eventually be
controlled by indigenous peoples. First company to be forced to comply with a controversial empowerment law requiring
foreign-owned companies to cede 51 percent of their shareholding to black investors-Country risk at its best for Old Mutual.
"Empowerment: Government targets Old Mutual" was reported (The Financial Gazette, March 4-10, 2010)
Significance of Research
It was vital to investigate how political risk impacts multinational firms operating in host nations because globalisation and
political risk are on the rise. Investment prospects in Zimbabwe were always going to be limited due to the country's volatile
political and economic backdrop. Individual property rights have been jeopardised as a result of government practises and
constitutional amendments that have eroded the rule of law. The importance of political risk has long been recognised by
investors and the CEOs of multinational firms. In spite of its reputation for political instability and lack of basic infrastructure,
Zimbabwe is a desirable investment destination in Southern Africa owing of its high factor endowment. The researcher
studied the country's reputation as a viable FDI destination due to its vast natural resources and market base in order to
better understand how political risk affects MNC site decisions. Investors, on the other hand, found it difficult to announce
their interest due to the country's disorganised governmental system.
Research Questions



How political risk can affect an MNC?
What are political risks of operating in an international market?
How do you mitigate against political risk?
Literature Review
Concept of Political Risk
According to Dunning, the majority of countries embrace foreign investment, but they increasingly seek it on terms that
maximise national goals and minimise the risk of national sovereignty (1993). Globalization's perceived political dangers are
growing investor apprehension due to a sudden shift in government policy from historically open-door policies to more
cautious ones.
The term "political risk" has been floated by a number of academics. For the purposes of this definition, "risks that are
believed to be present and based on a generic image of one or more countries in general" were evaluated. This shift in the
corporate environment owing to political upheavals was also defined as a "political risk" (Thunell 1977). Political risk
assessments are increasingly focusing on how a policy might effect a business' bottom line. An increase in political risk can
have several causes, including those related to the economy, society, or culture, among others.
Effects of political risk on business
(Buthe at al 2008) There is evidence that firms are reluctant to invest in many countries due to the fear of political
expropriation, whether it is direct or indirect. Political expropriation occurs when the government renegotiates contracts with
the public sector, avoids agreed tax benefits, revises regulatory standards unfavourably, or nationalises privately-owned
assets without proper recompense. In the current political climate, commercial interests can profit or suffer from the degree
of uncertainty, which may even be worse than predicted. A project's political risk can be broken down into four categories,
according to Root (1987).
1.
General instability risk. This is due to a lack of faith in the long-term viability of the political system in the host
country. Even if a project is not terminated, it will almost definitely interrupt business and lower profitability.
2.
Ownership or control risk. To a large extent, this concern can be attributed to a lack of faith in the ability of the
host government to prevent or limit an investor's ownership or effective control of this affiliate in the host country The
expropriation of the investor's property by the host government falls under this umbrella.
3.
Operations risk. It's difficult to predict how the host government's policies and practises would affect an
investment firm's ability to carry out its day-to-day operations within the country. Managerial ambiguity is to blame for this
situation.
4.
Transfer risk. Management's inability to anticipate future government actions that could hinder the ability to make
payments or transfer capital outside the country is a major concern for investors, who are worried about the currency of the
host country becoming inconvertible. Investors' home currencies may decline against the currency of the host country.
Currency depreciation is almost always a result of government decisions or actions. Four kinds of political risk can be
grouped into four horses to help managers structure their data collection and analysis.
The risk of government participation rises when the government is unsteady and rules and regulations are subject to change
at the whim of politicians. When the government is obliged to act because the economy is so fragile, the dangers are
considerable. There is a patriotic rationale for defending disparities, and the government uses public appeals to enforce the
rules.
According to investors, local management and partners were the biggest risk element when it comes to doing business in an
ASEAN country (Chan su Yin et al 2003). Currency exchangeability and economic growth were also a part of these
developments. It has also been established that the negative link between risk and investment in Brazil is most likely related
to a lack of government effectiveness.
Aims and Objectives
For policymakers, the findings correct for sample and selection biases and have substantial implications for policy design
targeted at encouraging foreign direct investment (FDI) in the country. Political risk perceptions among Malaysian-based
MNCs varies depending on where their investments are located, according to Noordin et al (2006) (Noordin et al 2006).
When it comes to their investments in emerging countries, investment corporations were most concerned about asset
confiscation, social and political unrest, and price fixing. Enterprises in developed countries were more concerned about
profit restraints, unfair competition from domestic competitors due to government subsidies, frequent unilateral changes in
agreements and ownership restrictions. When it comes to performing assessments, Malaysian MNCs tend to rely more on
subjective, unstructured qualitative approaches. In developing countries, more foreign direct investment (FDI) is linked to
lower corruption and nationalisation risk (Gastanaga et al. 1998).
Methodology
Research approach
In this Research Qualitative Method is used. I revolves around investigating and deciphering settings, depictions and
settings (Bray et al., 2014). One of its key qualities remembers a profound investigation of sentiments for a specific
peculiarity, gathering emotional data which might contrast from one individual to another (Hennik et al., 2020; Bryman,
2016). Besides, subjective examination will in general profit from explorative adaptability and social affair top to bottom bits
of knowledge which might reinforce the last proposed suggestions (Sugarman and Sulmasy, 2001). Quite, Garcia and
Gluesing (2013) contend subjective exploration is valuable in adding to global business as it allows an inside and out
comprehension of arising peculiarities. Not with standing this, downsides should be perceived. Because of its nitty gritty and
abstract nature, this approach will in general be tedious both to direct and to decipher (Anderson, 2010). Thusly, this
approach every now and again prompts more modest examples, consequently the discoveries might be less generalizable.
Malhotra and Birks (2003) express that specialists' reactions to the exploratory inquiries are basic wellsprings of essential
data. Review, interview, discernment, and examination are only a couple of the numerous techniques that can be utilized to
get imperative information (Ghauri and Gronhaug, 2005). Over the span of this contextual investigation, semi-organized
telephone will be led. An expert drove process in which semi-organized telephone meetings will be led to respond to specific
inquiries. All in all, as the discussion advances, the researcher can raise a completely new subject of examination.
(Saunders, Lewis and Thornhill, 2009)
Ahead of the meetings, the members had gotten preparing and were knowledgeable concerning the venture's makers,
theme, and inspiration. During the meetings, the makers were altogether unlimited and didn't answer the individuals. When
requested data, the individuals gave it without reservation. The members now and again gave remarks that were either
excessively short or excessively obscure. They were drawn nearer in this vein to clarify things significantly more.
Notwithstanding this, the individuals have not disregarded any inquiries.
Research strategy
The picked strategy envelops semi-organized interviews directed through Zoom Teams which, subject to member's assent,
will be recorded permitting re-evaluation by the analyst to help the record interaction. The videoconference is utilized to
guarantee wellbeing given the pandemic. Additionally, semi-organized interviews permit the analyst to accumulate an
exploratory perspective on members' insight of examination point through unambiguous inquiries while allowing them
adaptability to share significant experiences from their mastery. By the by, a weakness is the exhausting strain on the
questioner to be educated and deft on the theme and pertinent sub-issues which might bring about pressure (Newcomer et
al., 2015).
Sampling
A model altogether affects the examination, as indicated by Miles, Huberman, and Saldano (1994). In an abstract report,
characterizing a sensible case issue and training a framework to choose examples really are two of the means (Miles et al.,
1994). For a guide to be viewed as a decent one, it should be both right and exact (Cooper and Schindler, 2008). It is
conceivable that the specialist's very own contacts will bring about choice predispositions for all members.
Data Analysis
Businesses must use local management contracts to safeguard themselves from political risk due to the country's unstable
political climate. These companies are likely to have totally owned subsidiaries, which reduces the risk of political risk (e.g.,
changes in government legislation) for them.
Limitations
Consider the constitutional change proposed by the government, which would permit the government to seize privately
owned commercial farms and only compensate the owners for improvements done on the property. Expropriated land now
belongs to the government as a result of constitutional changes made in September 2005. Since the approval of this
amendment, government and security forces have continued to disrupt output on commercial farms, including those owned
by foreign investors and protected by BIPPAs (BIPPAs). Over time, 51% of businesses would be owned by indigenous
people, according to the Indigenization and Economic Empowerment Bill that was signed into law in March 2008. Semiorganized interviews have been upheld in an effort to avoid bias among the participants. As a result, members can use an
avatar they like to create a more secure image of their organisation.
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