Some extra notes for studying: Politics, and International Business All governments assume a role in international trade. The government of Canada promotes Canadian businesses abroad and tries to lessen the "risk" of doing business in foreign countries in numerous ways. The Canadian government:
establishes import/export policies to protect Canada and Canadians
develops trade policies and regulations to govern and encourage trade
assists Canadian exporters in their quest to succeed internationally
matches potential Canadian exporters with international clients
maintains and improves relationships with other nations for the purpose of trade
assists Canadian companies in adjusting to changing international market conditions
fosters innovation and human resource development to enable companies to compete internationally
"Political risk" refers to political decisions, conditions, events, or activities in a country that affect the business climate. We can't make the assumption that every other country does business like Canada. A country may have a different economic system, thus a unique political system that presents risks that Canadian companies must manage if they want to make a profit in that host country (foreign country). Types of Political Risks:
Risk of General Political Instability
Ownership Risk
Operations Risk
Transfer Risk
Evaluating Political Risks:
It is necessary to research information about doing business in other countries to find answers to the following questions about the political situation in the host country:
What are the changes of political and economic instability in the host country over the next 3 - 5 years?
What agreements are in place between Canada and the host government regarding Canadian investments?
How committed is the current government to the rules of ownership rights, for example, property and business?
When is the next election or how long will the current government stay in place?
If a new government were to emerge, how would its platform and ideology change the current state of business affairs?
Would a new government be likely to propose changes in politics that would affect the country's way of doing international business?
How would changes in government affect the profitability and safety of an international project?
Most developed countries, such as Canada, have used a democratic model for their political system. Democracy provides government for and by the people. The population has the right to vote in free elections and decide on the rules that will govern them. By contrast, some nations do not grant democratic freedoms to their people. Totalitarian systems (e.g. North Korea, Cuba) tend to centralize power and often use the military to control the state. In practice a purely democratic or totalitarian political system is theoretical and most countries have a mixed system of government that leans towards one end or the other of the political spectrum.
