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Chapter 5 International Politics

International politics, or international relations, studies the interactions between states and global actors, covering diplomacy, conflict, and cooperation. Political risks in international business arise from political decisions or instability that can negatively impact operations and profitability, categorized into systematic and unsystematic risks. Key issues include nationalization, expropriation, regulatory changes, currency controls, favoritism, and bureaucratic delays, all of which can disrupt business and influence market decisions.

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Ryza Nicole Francisco
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13 views10 pages

Chapter 5 International Politics

International politics, or international relations, studies the interactions between states and global actors, covering diplomacy, conflict, and cooperation. Political risks in international business arise from political decisions or instability that can negatively impact operations and profitability, categorized into systematic and unsystematic risks. Key issues include nationalization, expropriation, regulatory changes, currency controls, favoritism, and bureaucratic delays, all of which can disrupt business and influence market decisions.

Uploaded by

Ryza Nicole Francisco
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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INTERNATIONAL

POLITICS, AND
POLITICAL RISK
INTERNATIONAL POLITICS

Also known as international relations, is the


study of how states and other global actors
interact with each other. It encompasses a wide
range of issues, including diplomacy, conflict,
cooperation, international law, and the role of
organizations like the United Nations.

It examines the complex relationships between


nations, their foreign policies, and the global
systems that shape their interactions.
THE POLITICAL
ENVIRONMENT

Political risks
In international business, it refers to the
possibility that political decisions, events, or
instability in a foreign country will negatively
impact a company’s operations, investments,
or profitability.
TYPES OF POLITICAL RISK

SYSTEMATIC RISK
This type of risk affects all businesses or industries in a country or
region. It arises from nationwide political decisions, conflicts, or
instability and is generally uncontrollable by individual firms.

UNSYSTEMATIC RISK
This risk only affects a specific company or industry, usually due
to its actions, ownership structure, or sector sensitivity.
NATIONALIZATION
When a government seizes private assets,
sometimes without fair compensation.

EXPROPRIATION
The act of a government taking private property
for public use, such as infrastructure development
or public facilities.
POLICY OR REGULATORY CHANGES
Sudden changes in laws, taxes, tariffs, or ownership
restrictions can increase operational costs or make
business illegal.

Example
India’s foreign investment law for e-commerce restricted
how foreign platforms like Amazon operate—banning them
from selling their own products through third parties.
CURRENCY AND EXCHANGE CONTROLS
Governments may control the flow of foreign
currency, preventing companies from repatriating
profits.

Example
In Nigeria, businesses face currency restrictions that make it
hard to convert and send profits back to headquarters
abroad.
POLITICAL FAVORITISM AND
DISCRIMINATION
Foreign businesses may be disadvantaged compared
to domestic ones through biased regulation,
subsidies, or access to government contracts.

Example
In India, the government imposed a 2% “Equalization Levy”
(digital tax) on foreign tech companies’ online services and
ad revenues starting in 2020.
BUREAUCRACY AND ADMINISTRATIVE
DELAYS
Slow or inefficient government systems can delay
permits, customs clearance, or licensing—causing
financial loss.

Example
A manufacturing company waiting months for import
permits in some African countries may lose customers or
face extra costs.
Why Political Risk Matters in
International Business

Political risks can:


Disrupt operations
Affect profitability
Cause asset loss or business closures
Damage company reputation
Influence decisions on entering or exiting a
market

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