International Business Environment
Outline and critically discuss the criteria by which they judge whether or not a country is stable.
International businesses faces a number of risks when they decide to operate overseas. Their ability to make sound investment decisions and to address those risks is directly related to the stability of the country in question. Firms therefore need to develop mechanisms for measuring stability before making the decision to enter a market. There are a few different ways of understanding stability -- political stability, economic stability and exchange rate stability are perhaps the most important, although workforce stability and legal stability are also relevant for many organizations.
Political Stability
International businesses operate in countries with vast differences in political structures and systems. From Communist to totalitarian to capitalist nations, international business must make adjustments for operating based on the local government conditions. Doing this is complicated with the nation in question has a low level of political stability. Regime change -- especially sudden regime change -- can have a dramatic impact on a company's ability to operate in a country. Sometimes, even just the threat of regime change in enough to convince a company to cease international operations, as was the case this past week when energy company Suncor pulled out of Syria (AP, 2011).
In some situations, the company must "feel" a situation, but that is easier for a company that already has operations in the country and contacts. For evaluating a country prior to market entry, it is likely that firms will need to rely on more objective measures. Some of the indicators that can help to determine the risk of regime change in a country are noted by the World Bank (n.d.): violent demonstrations, armed conflict, frequency of political killings, disappearances and tortures; and the level of social unrest. When the underlying cause of conflict and political disturbance in a country is related to religion, ethnicity or even class struggle, the risk of regime change is higher.
There are also published measures that are available. Private consulting firm Maplecroft publishes a "political risk atlas" (2011) that categorizes political risk associated with the world's nations according to a number of criteria. This criteria includes the level of judicial independence from government, resource security, human rights and other measures. Countries whose regimes are unstable or non-existent obviously stand out in this survey (Somalia, DR Congo, Afghanistan) but the survey also characterizes some countries with stable regimes as unstable. Myanmar for example has a stable government but one with little legitimacy that is ripe for revolution. The organization predicted the current troubles in Russia, as Russians have been wary of the Putin/Medvedev's regime's consolidations for years. North Korea and Zimbabwe also make the top ten because their country's underlying conditions are ripe for internal conflict and regime change, even though both rulers have been well-entrenched for a long period of time.
Another dimension of political instability that international companies need to take into consideration is internal instability within the regime and of the regime (Jong, 2006). The former includes such factors as leadership changes within the same regime (as seen in Communist countries, for example) and policy changes within the same regime, no matter who is leader. Regimes that do not follow consistent policies with respect to the treatment of foreign countries are especially troublesome for international business. It is also worth considering that there may be a high degree of different in the way that the central government's policies are implemented at the regional level. In nations ranging from India to China and even the United States, there is a high degree of variance between the political environment and business climate in the different sub-regions. In part, this can also reflect the level of control that the central government has on sub-regions. In some countries, this level of control can change frequently, and it is worth knowing for international businesses what the likelihood of the current status remaining stable is.
Economic Stability
Most major economic indicators are widely published, and can shed some light on the economic stability of a country. For a firm engaged in international business, these indicators will be the first set of criteria for determining economic stability. GBP, unemployed, FDI and other measures help to paint a broad picture not only of a country's performance but its long-run stability.
Beyond these measures, however, a qualitative analysis must be done to determine what other underlying...
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