For any business, entering new markets comes with its fair share of regulation. This could be political, social and economic. Political analysis, however, passes as the most important thing to analyse before entering new territories. According to Luthans and Doh (2012), there are three main techniques that can be used to analyse political risk.
Firstly, there is the relative bargaining power analysis. Here, the company making an entry into the said country should strive to ensure that its bargaining power position is better that that of the country. This essentially provides the company with an upper hand in various forms of negotiation.
Additionally, Luthans and Doh (2012) highlight protective, integrative and defensive techniques as the most appropriate means of responding to political risk. With the integrative technique, any overseas operation is bound to become part of the host country’s infrastructure. Therefore, political risk is almost neutralised. In addition, embracing protective and defensive mechanisms ensures that the host country is vetoed against interfering with the company’s operations.
Thirdly, proactive political strategies are a viable bargain (Luthans and Doh 2012). Here, consulates and embassies of the home country play a fundamental role in shaping and influencing political decisions that may influence the firm (and its operations). Also, Luthans and Doh (2012) have suggested campaign financing and formal lobbying as almost equally effective strategies where response to political risk is concerned.
All the three major techniques have their uniqueness, which sets them out from their similar strategies for managing political risk. However, a combination of them all is bound to work even better. Political risk is one of those issues that no international business can gamble. Therefore, organizations should endeavour to blend the strategies thus sealing out any loopholes that may arise.
Luthans, F., & Doh, J. P. (2012). International Management: Culture, Strategy, and Behavior. New York, NY : McGraw-Hill Education.