Every country on the planet has political risk irrespective of its development level. According to Cuervo-Cazurra et al. (2018), for any firm considering doing business in different countries, identifying things like political stability, whether corruption is prevalent, and the regulatory climate is crucial. When there are clear indications of unrest, such as a military conflict or a revolution, there are political risks involved. Conversely, the results of democratic elections or a change in leadership might have a considerable impact on public policies and objectives. Consistently, an increase in state control of some sectors or an increase in government interference in the economy poses political risks.
Where there is a political risk in a country, an international company will make investment decisions after several evaluating factors. These include stability in the country, the policy and regulatory atmosphere, availability and transparency of relevant data, violent extremism, violence and delinquency, employee autonomy and mobility, government support initiatives for enterprises, immigration and labor regulations, and perceptions toward international investment (Johnston, 2020). If a business makes an investment decision ahead, it must recognize risk factors and develop a strategy to reduce them. This way, the business’s vulnerability to instability is minimized. Some methods of risk mitigation to consider include:
First is conducting background research, which means knowing the country’s foreign environment. Ideally, this could involve investigating the country to learn about its political, economic, and systemic risks. It can also include an examination of the country’s laws concerning international trade (Johnston, 2020). The second is starting a business or project on a small scale. When entering a new overseas market, a better approach to handle economic risk is to contemplate forming a joint venture or strategic partnership. Thus, collaborating with a fresh trading partner on a modest venture can help avoid putting considerable assets at risk. The third is to purchase trade credit insurance, which will protect the business from being exposed to credit risk in the future. When a firm covers its receivable accounts, it can be confident that it will receive payment whether any of its accounts go bankrupt.
The most recent country to face political risk is Afghanistan. Taliban, which is a dreaded and authoritarian militia group, took over the country following the exit of the U.S. military from the country (Trofimov & Parti, 2021). With the militant group in power, political risks such as stability in the country, terrorism, policy and regulatory atmosphere, violence and delinquency, and employee autonomy and mobility may have affected companies’ investment decisions in Afghanistan. More concerning would be the likelihood of the country becoming a hotbed of international terror attacks.
A country’s political risk can influence all areas of global business, from the ability to commercialize or ship merchandise to the freedom to own or run an enterprise. Consider an organization such as Coca-Cola, which began its operations in Afghanistan after the collapse of the Taliban government (Johnson et al., 2017). The rise of Taliban may usher in a new era of stringent business policies and regulations that adversely affect how Coca-Cola operates in the country.
With Taliban in power, there may also be increased terrorist activities, violence, and crime against humanity especially against young girls and women. The group restricts and controls what women and young girls can do with dire consequences of disobeying them. Thus, Coco-Cola, which promotes diversity and gender equality by employing women, may be affected if Taliban bans all women from working.
Cuervo-Cazurra, A., Ciravegna, L., Melgarejo, M., & Lopez, L. (2018). Home country uncertainty and the internationalization-performance relationship: Building an uncertainty management capability. Journal of World Business, 53(2), 209-221. Web.
Johnson, T. H., DuPee, M., & Shaaker, W. (2017). Taliban narratives: The use and power of stories in the Afghanistan conflict. Oxford University Press.
Johnston, S. (2020). The miniature guide to political risk analysis for international business. Steven Johnston
Trofimov, Y., & Parti, T. (2021). Taliban Cheer U.S. Exit From Afghanistan, Vow to Enforce Islamic Rule as Biden Stands By Pullout. WSJ. Web.