Short Guide to Political Risk Robert Mckellar Review
Egypt is in crisis. After Tunisia, at present Egypt is rocked by a popular uprising, and the event of the and so far peaceful protests is still uncertain. This unstable and developing political situation has brought me the perhaps perfect background for today's volume review: A Brusque guide to Political Adventure by Robert McKellar. Every firm with a supply chain that sources globally or operates internationally is exposed to political risks that may be very unlike from what they are used to domestically, where political risks oft limit themselves to de-regulations and re-regulations of business concern sectors, tax cuts or tax hikes or sudden environmental measures or security enforcements following major events or changes in government. On the international scene such and perhaps even worse changes can come up abruptly and without warning, not because they cannot be foreseen, but because the business firm usually lacks the tools and the knowledge information technology needs to anticipate and react coherently to political risks.
Political risk and supply chains
Political risk, although not absent, is non particularly well covered in the supply concatenation hazard literature. Among others, it is mentioned in Goshal'southward Global Supply Concatenation Gamble Management, as well as in AON's political risk map, and naturally in the Global Risk Reports by the Earth Economical Forum. That said, as a subject for supply chain hazard research information technology is very rarely found, perhaps because there are so many more imminent dangers to supply chains than the political risk that generally lurks in the background, and not in plain sight.
Because the potential impact that the political environs has on how the business firm can, may or should conducts on business operations, political chance direction should exist an integral function of any house's take a chance assessment process, especially if much of its revenue stems from international business organization. For example, according to cio,com, the European Outsourcing Association named Egypt its 2010 outsourcing destination of the year, merely recent events are probable to take their cost if the state of affairs continues, and Internet access remains blocked. This is only one of many risk faced by companies with international ties, and this book is an essential introductory guide for firms and gamble managers in how to navigate the treacherous waters that surround political risks.
Primal objectives
Chapter 1 introduces the key objectives that the book addresses:
- the key political risk that companies have faced in the recent past, and current and future trends
- the concept of political hazard and its constituent elements
- models and approached for assessing political risk in a specific context
- the principal options for managing political risk and suggestions for developing organizational structures
- some of the wider bug that a company needs to consider in developing its ain attitude and philosophy on political risk
Political risk is a complex issue, and this volume is only an introduction that illustrates the broad outlines, but however, it is an important book that focuses on operational and strategic issues that are non widely covered past other literature.
Political risk: continuity and modify
Chapter 2 introduces and describes many of the risks that shape the political risk mural and states that political hazard has always been part of international business concern.
Some of the constantly recurring risks that take e'er been function of the picture are
- International tensions
- Domestic unrest
- Terrorism
- Politically continued criminality
- War
- Expropriation and contract cancellations
- Bureaucratic morass
- Upstanding criticism
The final ii decades have seen some meaning shifts in risks:
- The ascent of political Islam
- The collapse of the USSR
- Global multi-polarity after the bi-polarity of the Cold War
- Failed and failing states due to weak governance and social fragmentation
- Global disproportionate warfare where pocket-sized (terrorist) groups tin significantly harm major and more powerful opponents
Finally, futurity trends are likely to see
- Increased ethical criticism and focus on corporate social responsibleness
- Increased confusion in inter-state tensions with a broad range of potential global disputes and power centers
- Increased exposure to civil violence, unpredictable regimes, localized conflicts and civil unrest in new "hot spots"
- Increased exposure to terrorism, accelerated by the rise of Islamist extremism, failed/failing states and new capabilities in assymetric warfare
While possibly a snapshot only, the in a higher place does serve as an splendid starting bespeak for manoeuvring the inherently complex landscape of political risks.
Political risk: analytical variables
Affiliate iii breaks political risk into manageable subjects or factors.
Starting with the lesser-line question, "What are our political risks?" is seldom viable, and can yield some pretty fantastic and incoherent results. Initially asking broader questions about each sub-element of political take a chance is more manageable, and ensures that key questions are addressed along the fashion without leaping to conclusions based on suppositions or a general reading of what kinds of political take chances exist.
Firstly, the risks faced by a company depend to an extent on the business sector a business firm competes in. Secondly, when considering political risk, it is important to look at how much risk a company is willing to acquit. Thirdly, information technology is necessary to evaluate what avails that is at risk. Fourthly, in order to manage risk, the three main sources of political gamble must be analyzed: political instability, weak governance and conflict. The fifth and terminal consideration for analysis is the level where the political risk resides: global, local or just operational.
Assessing political chance
Chapter 4 describes the details and steps of how to assess political risk. This -in my opinion – is the best part of the book.
There are three stages of analysis at both the corporate and operational levels: contextual analysis, which defines the factors past which we derive the initial risk hypotheses and and interpret take chances; risk analysis, which derives priority near-term issues; and scenario analysis, which examines how the take a chance environment might change in the future.
The contextual assay is divided into a) a visitor'due south run a risk tolerance, or how willing the firm is to subject itself to the take a chance incurred past exposure to unstable market environments, and b) a visitor's global risk portfolio, a map that correlates the global exposure to gamble beyond its operating environments, showing how each business operation or location is exposed to a unlike level of gamble while possessing different strategic values.
The risk analysis has three stages: a) hypothesis generation, b) risk factor identification and c) risk assessment. Hypothesis generation examines how a visitor'south activities may impact political interests, by identifying stakeholders directly, and more than generally, the political terrain surrounding a company'due south activities. Chance factor identification identifies the potential effect of risk factors on key exposed assets; where an asset could suffer harm, a take chances exists. Chance cess involves estimating the potential impact of an identified risk, should information technology occur, and the probability of its occurrence, and establishes a traditional risk matrix.
The scenario analysis is a 6-pace process that allows the company to meet what could happen and to place possible future states and how they may or may not be relevant to the company'southward interest. Listen yous, and then McKellar says, the more detailed or technical the arroyo, the more than precise the results, simply not necessarily the more accurate. Information technology is maybe better to be accurately right than precisely wrong.
Political risk management
Political risk direction is more than just knowing that "bad things can happen in developing countries" and preparing for damage limitation. Political take chances management, the topic of chapter v, means enabling the fulfilment of business objectives in fifty-fifty loftier-run a risk political environments. In essence, being able to operate in high-risk environments means to exist able to show extreme flexibility to accommodate shifting political currents. This ability is what McKellar calls resilience. Political hazard management is also a strategic enabler, allowing the company to establish roots in new territories as beachheads for growth and access to lower cost inputs, mayhap even temporarily disallowment competitors from entering the same environment.
Political gamble management needs to use both a) nigh-term risk management plans focussing on avoidance, prevention and impairment limitation through training for effective responses to a manifested risk, and b) long-term contingency plans, aligning the company posture with the emergence of a given scenario.
McKellar defines four broad categories of political adventure direction measures: portfolio management, adjusting individual operations such that an overall desired level of risk is achieved; security, to protect the company confronting physical threats and malignant relationships; human relationship building, i.eastward. gaining politically influential supporters directly and personally or generally and publicly through corporate social responsibility; and risk transfer, by reducing the business firm's hazard by sharing it with other stakeholders.
It is of import to not consider the higher up direction measures every bit a listing of stopgaps only. Political chance must be dealt with at a strategic level, and each company needs to shape its own unique approach in the context of its business aspirations and unique corporate civilisation. A familiar statement, when considering what Vivek Sehgal wrote his book Supply Concatenation as Strategic Asset.
Conclusion
It is obvious to me later reading this book that no company can escape political risk 1 way or the other, non even in a seemingly stable political surround. The stakes may exist lower in some places, but conversely, much college in other places. Political risk is a business risk that should exist considered along with the broad range of other business concern risks that accompany a business firm's business endeavours. While this book looks exclusively at political risk, many of the approaches, methods and measures are as applicable to risk management in full general. As such, the book'due south value is not as express as the title may imply and information technology tin very well serve equally a guide for general run a risk management.
Reference
McKellar, R. (2010) A Short Guide to Political Risk. Farnham: Gower Publishing
Author link
- linkedin.com: Robert McKellar
Publisher link
- gowerpublishing.com: A Short Guide to Political Risk
- gowerpublishing.com: A Short Guide to Political Run a risk (Introduction)
Buy this volume
- amazon.com: A Short Guide to Political Chance
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- husdal.com: Book review – Customs Take a chance
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- husdal.com: Volume review – Procurement Risk
Source: https://husdal.com/2011/01/30/book-review-political-risk/