How Political Risk Analysis Helps Business to Succeed

How Political Risk Analysis Helps Business to Succeed

While international companies are enjoying the profit gained through doing business globally, some of them are also suffering the uncontrollable political risks. Not in one case did political fluctuation negatively influence economic interests of international businesses. One case is that when Chinese government implemented minimum wages protection laws which significantly increased the labor costs for companies that have built factories in this country.

Political risk analysis can inform our understanding of the business environment of the world’s countries in multiple ways. There are mainly three most important ways it can help to deal business more effectively and more stable.

Firstly, political risk analysis can help to outline systematic risk in a certain market. Though business have been greatly globalized, different countries still have diverse decision making processes and legal systems. Through political risk analysis, companies are able to gain rules other than business regulation in the target market. Most of times, this may also help to make the investment decision for a company. Only after comparing different risk levels, can a company make a sound decision of whether it should invest, and how it should do so in foreign market.

Secondly, political risk analysis can provide meaningful ways to forecast trends and fluctuations to companies who are dealing business in foreign countries. Because once make the investment decision, most international companies tend to stay in certain country for a long term. Political risk analysis provides these companies with advices of how to develop or adapt itself in a certain stage of a country’s development.

Thirdly, political risk analysis can alert companies about the possible emergent fluctuations or fundamental changes of policies which may be fetal for a company’s future. Because of imperfect legal systems and developing political systems, most of the investment destinations are also the countries that will change or “innovate” in economic policies and regulations. Political risk analysis can provide solid information for companies to make the decision of how to deal with upcoming drastic changes, and how to manage negative influences brought along by these changes.

If we apply political analysis to China, we will have handful meaningful strategic development advices for companies considering doing business there.

The most important knowledge of doing business in China is the understanding of the government decision making process in China, because none of all successful businesses could have been successful without the support from Chinese government. China’s top-down decision making process is famous for its efficiency. However, lacking democratic discussion, this process sometimes bears some risks in immediate adjustment after a policy has been made. Meanwhile, most of Chinese policies and regulations are made by multiple government entities, to figure out who is the real stake