Corporations who are seeking to expand their international operations(either by making substantial investments in local corporations, by developing new products for new markets, or by establishing regional manufacturing, distribution, or sales facilities) often encounter substantial risks that greatly differ from the domestic risks they encounter at home.
- physical risks (e.g., the kidnapping or assassination of executives),
- economic risks (e.g., currency fluctuations and discriminatory confiscation of assets),
- market risks (e.g., rejection by foreign consumers of products that were successful domestically), and
- technological risks (e.g., lack of a reliable telecommunications infrastructure)
- political risk
Political risk has been defined as
"… the possibility that political decisions, events, or conditions in a country, including those that might be defined as social, will affect the business environment such that investors will lose money or have a reduced profit margin,"
- punitive taxation, and
- arbitrary rejection of license applications.
Political risks are best defined in terms of political events. Political events result in part from decisions made by political actors-such as government officials (e.g., politicians, legislators, and regulators). The decisions they make include decisions to expropriate property, to delay consideration of license applications, retreat on or disregard signed prior agreements and to ignore intellectual property violations.
These actors may be advised by influencers --certain non-government organizations (NGOs)-such as environmental, charitable, social, and religious organizations-who may also be considered political actors. as well. In addition, political actors and influencers may include religious leaders, foreign investors, local oligarchs and business owners (who may be politicians, as well ) and others whose actions may affect political events. The actors may be identified explicitly, or the events they generate may be the only overt signs of their presence.
The key to analyzing political events is obtaining good reliable information about these events.
This can be done in the traditional way with tried and true on-the-ground intelligence (see " A framework for conducting political event analysis using group support systems"; Decision Support Systems Volume 38, Issue 4 , January 2005, Pages 511-527) or with novel emerging smart decision support systems, such as a smart early warning system of internal armed conflict and a concept known as "Conflict Carrying capacity"
Researchers at Harvard and Ohio State University have been working for the past 6 or so years on an automated Political Crisis Early Warning System that anticipates the worst case scenario --internal armed conflict.
An early paper on was published in the Journal of Conflict Resolution in 2001. Conflict-Carrying Capacity, Political Crisis, and Reconstruction A Framework for the Early Warning of Political System Vulnerability by J. Craig Jenkins, Department of Sociology, Ohio State University and Doug Bond, Program on Nonviolent Sanctions and Cultural Survival, Harvard University, Center of Excellence in Disaster Management & Humanitarian Assistance
"The early warning of protracted political violence needs firm empirical footing in dynamic indicators of the political processes leading to political crises. This study provides a conceptual framework for the analysis of conflict-carrying capacity (or CCC) defined as the ability of political systems to regulate intense internal conflicts. CCC is indexed by the multiplicative interaction between the proportions of civil contention, state repression, and violence. The PANDA Project (1983-1994) is used to illustrate the usefulness of this CCC index in capturing system stability in an institutionalized democracy (the United States), a bureaucratic-authoritarian regime (Mexico), an institutionalized Communist regime (China), and a peaceful democratic transition (Poland). It provides early warning signals of civil war (Algeria, Sri Lanka) and moves toward political stability (Peru). Civil contention and state repression are not destabilizing per se. Rather it is the simultaneous combination of these with violent contention that leads to internal political crises and, alternatively, to political stabilization."
Source: Journal of Conflict Resolution, Vol. 45, No. 1, 3-31 (2001)
ETA: Now Recent work on the model has advanced far enough to provide fairly good predictive results.
N.B. This new foresight tool is unlikely to replace political analysts or futurists but provide them with a more robust anticipatory capability. This tool may provide the early warning signal of an event, but not the opportunity or threat windows that result.....that takes human intelligence.
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