Suspending Operations, Withdrawing Country, a MNC Routes

¶ … suspending operations, withdrawing country, a MNC routes manage political risk: adaptation dependency. What adaptation? What dependency? What characteristics adaption dependency? Essay 250 words length APA format

Both adaptation and dependency are two approaches that managers use in their strategy of handling political risks in different countries where their multinational is operational. While both instruments share the same objective, the approach is somewhat different, but in both case, the original premise is that the multinational has decided that political risk is, in some way or other, manageable and that the future profits are significantly higher than the risks incurred.

In the case of adaptation, as the book points out (page 23), this strategy can take several forms and is customized to fit the needs of a particular area where the multinational is present. Several forms of adaptation include equity sharing, participating management, localization of operation and development assistance. All these measures are undertaken in order to make the company more attractive to local particularities and more able to fit into a foreign environment, thus minimizing its political risk.

Equity sharing involves joint ventures with local individuals or companies, with the purpose of increasing the interest of the locals in the multinational and its operations. The thinking behind this approach is that political risk diminishes because there is also local participation in the company. On a similar line, locals can be involved in the management of the company operations (as opposed to the ownership, as in the previous situation).

Localization of the operation is perhaps the instrument that best describes adaptation taken to the degree to which the multinational aims to transform itself from a foreign company to a domestic one. Localization involves changing the company name, brand and any other characteristics to make it no different from local players.

Finally, development assistance involves cooperating with the local government on particular projects that involve the multinational investing in things ranging from infrastructure to education. The strategy behind development assistance is to profile the company as a reliable partner of the government rather than an economic entity aiming solely to produce profits.

Dependency has an entirely different thinking behind the process, relying on control to minimize political risk and support the company's activities in the host country. Control includes both input and market control. In the case of input control, the aim is to regulate and exercise control over everything that goes into the production process, notably raw materials and technology. This would mean greater access for the multinational to all these and lower access for any potential competitors, but also for the public entities as well.