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Abstract
Political risk originates from the negative actions of social stakeholders of multinational enterprises (MNEs) in a given host country, such as the host government and other non-governmental actors. Further, there are various underlying reasons why the stakeholders take negative actions against MNEs, among them MNEs cannot satisfy or balance the competing interests of different stakeholders play an important role. This paper discusses the political risk in cross-national business from a stakeholder view. The possible negative actions of stakeholders and their reasons are identified. The strategies and tactics to deal with these stakeholders so as to prevent and control political risk are proposed.
Keywords: Multinational enterprise, Adverse action, Political risk, Stakeholder management
Globalisation brings both chances and challenges to multinational enterprises (MNEs). When MNEs exploit the market or cheaper labour or law in a given host country, they may also confront with an environment completely different from their home country's. The adverse actions conducted by host country individuals or organisations threaten the operation or the survival of MNEs. As a result, risk management is one of the key objectives of MNEs (Ghoshal, 1987). Noncommercial risks, such as war or expropriation, are important elements of risk management in foreign direct investment, which is reflected in the extensive literature on forecasting and managing political risk (for example, Ghadar et al, 1983; Herring, 1983; Kobrin, 1982; Moran, 1998).
The extant literature on political risk, different studies often provide different or conflicting opinions on the definition and scope of political risk, and propose different methods and strategies to forecast and manage political risk. For example, some studies defined political risk in terms of (usually host) government interference with business operations (Kobrin, 1979) and concentrated on adverse governmental actions (Fitzpatrick, 1983), while others define it in a broader sense.
Truitt (1974) argued that "political risks are all 'non-business' risks such as creeping expropriation". Frynas and Mellahi (2003) also argued that all sociopolitical risks are political risk, and thus the political risk contains three types of risks: political risk, government policy risk, and social risk. Furthermore, for a long time, political risk is regarded as exogenous to organisations and MNEs only play a passive role in managing it. As Hadjikhani (2000) noted by citing past research work: "Industrial organisation...