Transnational Business And Political Risks And Management Research

In the period of two-pole confrontation, developing countries often carry out political intervention for multinational corporations after they get rid of colonialist rulers. Existing theories on the political risk management of transnational operation have certain limitations, since they are proposed mainly by western scholars in 1960's and 1970's, and are based on the perspectives of multinational corporations in developed countries.This paper studies political risk of transnational operation through a trans-disciplinary approach, by combining business administration, economics and politics methods, an approach that breaks through the limitation of the current methodology, which relies solely on the insights from political economy. The new combined research framework would greatly expand research vision and will thus help to form a bigger picture of the analysis system for managing political risk across countries. It is only on the basis of deep understanding and research that the theory could be correctly applied to the reality in China. On the realistic level, the theory would generate useful suggestions and advice for Chinese enterprises with the intention to operate overseas.The layout and main findings of the paper are as follows:Firstly, the paper discusses the main problems of existing research on political risk of multinational corporations. By studying the development, contentions and theoretical tendency around the concept of political risk, the paper compared the three analysis methodologies of political risk, namely the macro-, micro- and macro-and-micro methods, and comes out with the finding that the shrinkage of applicable scope, the unsatisfied demand of enterprise management on political risk theories, and the neglect of economic factors are the three main de-merits of the existing research framework.Secondly, the paper undergoes a thorough discussion on political risk guarantee tools by analyzing, respectively, political risk insurance tools provided by public and private providers, and by international organizations such as MIGA, World Bank, Asian Development Bank. The paper also discusses the utilization of these tools.Thirdly, the paper analyzes the political risk management of transnational operation from the viewpoints of the government as well as that of enterprises. From the viewpoint of the government, the home country government can reduce the political risk of its enterprise invested overseas by implementing domestic legislation, offering information consultation service, building up overseas investment assurance institution and signing bilateral and multilateral investment protection treaty, and etc. The host country can provide legal assurance by means of constitution and foreign investment legislation, as well as by offering political risk stability framework agreement via regional or global international investment legal system. From the viewpoint of enterprises, there are different risk assessment mechanism and risk avoidance methods in different periods ofthe investment. During the initial stage of investment, enterprises mainly take early-stage measures and risk avoidance strategy. During the mid-term, they can adopt strategies of investment body decentralization, short-term profit maximization and capital withdrawal. During the later stage, they can adopt concession, management contract, reap and withdrawal or remedy strategies to decrease losses from political risk fluctuation.Fourthly, the paper carries out a survey and an empirical research on Shanghai enterprises with transnational operations so that we can further analyze current situation of political risks faced by Chinese enterprises. The outcome shows the disorder of transnational operation political risk macro-management system, the lack of supervision inside multinational corporations, the vacancy of transnational operation political risk management protection institutions, the imbalance of foreign investment regional structure, the irrationality in transnational operation industrial structure and the lack of guarantee tools. These are the main problems of political risks management faced by our enterprises in transnational operation.Finally, the paper proposes policy suggestions and the practice strategies on political risk management from both macro- and micro- aspects. From the macro-aspect, the paper suggests that the major ways to avoid risks are to enhance political risk management legislation and policy support provision, to improve bilateral and multilateral investment protection treaty, to extend channels to provide information consultation service for investors and to establish overseas investment protection institution. The paper concludes that through such means the Chinese government can provide policy support and a steady political environment for enterprises with overseas investments. From micro-aspect, the paper argues that Chinese enterprises can avoid overseas political risks by the following strategies: setting up risk early-warning system and self control system, carefully selection and decision of the objective, region, industry, product and technology of investments.This research not only proposes a suggestion for government to offer policy management on foreign direct investment, but also provides a guideline for Chinese enterprises with concrete means to avoid political risks faced in overseas operation.