International business environment; Ukraine
International business environment; Ukraine
Order Instructions:
Subject named:INTERNATIONAL BUSINESS ENVIRONMENT
In the topic it says “a country of your choice” preferably to make it Ukraine (if not enough information, choose another country)
An Introduction (about 170 words) should provide a general background to the topic at the beginning. This should be followed by the main body where you need to present your analysis and /or discussion. The essay should show evidence of reading from at least 15 sources – including books, academic journal articles, newspapers / magazines and websites. Refer to the module handbook for recommended reading sources. It is OK to use some sources more extensively than others. Do not include charts and graphs in the core-text of the essay. These can be included in an appendix section at the end of the essay; however you need to cite them when you refer to them in the core-text. The Conclusion (about 170 words) of the essay should summarize the analysis / discussion and provide concluding statements.
3. Reading and Resources
3.1 Essential Reading (Purchase Recommended)
Hill, Charles W.L. (2014) International Business: Competing in the Global Marketplace (Global Edition). New York: McGraw-Hill.
OR
Daniels, J.D., Radebauch, L.H., and Sullivan, D.P. (2014) International Business: Environments and Operations. Pearson.
3.2 Supplementary Reading
Morrison, J (2011) The Global Business Environment: Meeting the Challenges, Palgrave Macmillan
Cavusgil, S-T, Ghauri, P., Knight, G., and Riesenberger, J. (2013) International Business, Global Edition, Pearson
Joshi, R. M. (2009): International Business, Oxford University Press.
Dunning, J-H & Lundan, S-M (2008) Multinational Enterprises and the Global Economy,
Edward Elgar
Piggott, J. & Cook, M. (2006) International Business Economics: A European Perspective, Palgrave Macmillan
Note: See Reading Resources (Library List) on Study Direct for a more detailed reading guide.
3.3 Other Reading
Students should complement their reading through consulting relevant journals, websites, magazines and newspapers, for example:-
Journals
Harvard Business Review
International Business Review
Journal of International Business Studies
Journal of World Business
Management International Review
Newspapers / Magazines
Financial Times
The Economist
The Wall Street Journal
Business Week
Strategy+Business
2
Websites
CIA (World Factbook)
IMF
UN Global Compact
UNCTAD
World Bank
World Economic Forum
https://www.cia.gov/library/publications/the-world-factbook/ http://www.imf.org
https://www.unglobalcompact.org/
http://www.unctad.org
http://www.worldbank.org
http://www.weforum.org/
SAMPLE ANSWER
Key Political Risks in Ukraine
Multinational companies operate in different nations having different political backgrounds. Such companies often face different political risks such as insurrection, expropriation, corruption, and prejudicial actions not in favor of multinationals operating in the country (Sadgrove, 2015). Political risk can be termed as the risk that a host country will approve political verdicts that may have negative effects on the multinational’s objectives or revenues. Political risk is a reality and often varies in extent and nature from one nation to another. A political risk may be as a consequence of policy adjustments by the ruling government to alter the controls put in place with respect to exchange rates and interest (De Grauwe, 2013). Political risks may also be an outcome of actions of legitimate governments. For example controls on outputs, activities, prices, currency, and remittance restrictions. However, it is imperative to note that political risk may also arise from events that are beyond government control. Such as terrorism, labor strikes, extortion, war, and revolution.
However, this paper discusses political risks that exist in Ukraine giving examples of such risks. On the same note, the paper provides ways in which firms can deal with those political risks they may face in a foreign country.
Ukraine is located in Eastern Europe. The country is bordered by Russia, Belarus, Poland, Hungary, Romania, and Moldova. The country is headed by a president put in place according to the constitution and democratic voting. The country GDP is USD 177.4 billion ranking number 55 in the world according to World Bank. However, Ukraine economy had been exposed to high risk even before the beginning of a series of conflicts and political crisis that happened in 2013/2014 (Overseas Business Risk, 2015). The country economy went into chaos after the suspension of an IMF funding program in the year 2011. This crisis has resulted in macroeconomic imbalances such as fiscal deficit and account deficit. The country’s foreign exchange reserves have been declining fast because of recurrent central bank intervention to protect the quasi-fixed exchange rate, financing of fiscal deficit and protection of capital flight. The Ukrainian economy has faced recession since mid-2012.
Since 2014, the Ukrainian government forces have been in conflict with separatists found in the eastern part of Ukraine. The country is also involved in a serious dispute with Russia, which has seriously hampered the economic crisis in Ukraine (TRINDLE, 2015). The foreign exchange reserves have continued to dwindle regardless of the massive international support, the balance of payment has also continued to persist, and the recession in Ukraine has seriously deepened, the country is planning to do a sovereign debt restructuring during this financial year.
The Eastern European nations are also undergoing transition. These nations are attempting to upgrade their political, legal and economic framework to merge with the European Union standards. However, Ukraine economic growth in the recent years has been hampered by the recession, economic upheavals, and bureaucracy. The country’s economic growth is expected to increase though the political risk existing is still high.
Key Political Risks
The level of bureaucracy and legal system in Ukraine is high. Therefore, it is cumbersome for the organization to establish their firms in the nation (Overseas Business Risk, 2015). On the same note, enforcement of contracts is tied bureaucracy and political influence making it more cumbersome to operate a business in Ukraine.
The president of Ukraine proposed an economic and political reform dubbed “Ukraine 2020.” The reform is supported by most of the western government as well as the International Monetary Fund (Wolczuk, 2014).. The project seems ambitious yet it is unpopular and may prove to be difficult when implementing the reform.
There is an ongoing violence between the government, pro-Russian separatists in the Southern, and Eastern part of the country. This violence has seriously hampered the government operations as well as the economic growth. Currently, there is a ceasefire but because of the consistent violations of the cease-fire has resulted in the marginalization of government power and reduced soldier’s morale (TRINDLE, 2015). It is clear that the ongoing political and economic instability is not going to stop shortly. The Russian government seems not to respect the cease-fire order. Therefore, it may result in a further economic recession and widening the gap existing in the political environment of Russia.
Ways in Which Multinationals can minimize political Risks
There are various factors that multinationals must consider before entering a new foreign market. There are three broad categories that define international trade. That is the foreign direct investment, international licensing and technology, and trade (Terpstra et al., 2012). A firm should consider these categories before making a choice of entry. It is also important for a firm to consider the capital resources, nature of its products or services. As well as a number of risks the firm is willing to take before making the most appropriate choice of entry.
A multinational company should also consider political risks and develop ways to mitigate such risks before entering into a foreign market. There are quite some measures that can be adopted even before investing in a foreign market. Firstly, a firm should conduct research to understand the domestic and international affairs of the potential foreign market (Curlb, 2012). Some of the critical areas that should be researched are political stability of the nation and strength of its institution. The firm should also find out if there are any religious or political conflicts, minority rights, and ethnic composition. It is also paramount to consider other factors such as relations with neighbors, recognition of international law, membership with the international organization as well as border disputes (Bremer, 2015). The company can obtain the mentioned information above by conducting research. However, they can find such information from insurance companies, international business consulting firms, international chambers of commerce, foreign embassies as well as international businesspeople.
Multinationals can also negotiate terms of compensation with the host nation. This strategy helps to establish a legal basis for taking action in future in the event that something happens that may disrupt the firm activities (Howes, 2013). Therefore, a firm can take a legal course to defend its position or claim compensation for any damage that might have occurred due to political risks in the host country. Such strategy can be fruitful because most nations respect agreements they made with multinationals because of their respect for international law and they have to honor the agreement (Jervis, 2015). The government may also provide insurance coverage to foreign firms as a strategy to encourage foreign direct investments and international trade in a country. However, this strategy may not work because the legal systems in most countries may not be advanced and is prejudiced against foreign companies. With time, a new government may be born who may not honor contracts entered by the previous governments.
Another possible solution is purchasing a political risk insurance cover after entering a nation that is considered risky (Curlb, 2012). A multinational company can approach an organization that are experts in selling political risk insurance and buy a policy that will cover all the adverse risks that may occur in the course of business. The premium that the company can pay is dependent upon many factors such as a number of risks insured, the country, cost of doing business and the industry in which the firm operates. Political risk insurance can cover the following types of political risks such as political violence for example insurrection, terrorism, civil unrest, war, and revolution. Secondly is insurance against confiscation of assets or governmental expropriation. They also cover business interruption, the frustration of contracts as well as inconvertibility of currency among another risk that a firm may face in a global market.
Multinationals often use political risk insurance to boost their confidence of trading in markets that is seen to be risky as compared to the home market. Political risk insurance enables multinationals to focus their energy on the commercial aspects of trade leaving the political risk insurance provider to take care of any potential losses and gather for any damages resulting from any political risk.
In conclusion, political risk is one of the risks that business faces in the international setting. With increasing globalization, political risks are taking new dimensions. In the contemporary economies, states have to deal with real and perceived income inequalities. Nations also focus on solving challenges resulting from high sovereign debts. The government may also take actions meant to promote state-owned companies, build trade barriers among other public policies (Jervis, 2015). Multinationals may face challenges that may lead to loss of revenue or disruption due to political risk. Therefore, firms should always consider the potential consequences that may arise due to political risks even before entering a foreign market. Ukraine is not left out in this case. The country has been in recession since the year 2012 after IMF stopped providing funding. The country is also facing numerous political differences that result in political imbalance making business it hard to do business operations.
Some of the key political risks that a multinational firm may face in Ukraine include high bureaucracy and corruption in the Ukraine government that may make it hard for multinationals to set up operations (Overseas Business Risk, 2015). Secondly is political unrest in the country and reforms that may hinder business operations. However, a multinational can still invest in the country because high risks often result in high profits. But still, the firms wishing to invest in Ukraine should develop effective strategies that may help to mitigate any risk that may result due to political unrest.
References
Sadgrove, M. K. (2015). The complete guide to business risk management. Ashgate Publishing, Ltd..
De Grauwe, P. (2013). Design Failures in the Eurozone: Can they be fixed?.LEQS Paper, (57).
Jervis, R. (2015). Perception and misperception in international politics. Princeton University Press.
Terpstra, V., Foley, J., & Sarathy, R. (2012). International marketing. Naper Press.
Bremmer, I. (2015, June). Managing Risk in an Unstable World. Retrieved October 17, 2015, from https://hbr.org/2005/06/managing-risk-in-an-unstable-world
Curlb, S. (2012, August 27). Political Risk Can’t Be Avoided, But It Can Be Managed. Retrieved from http://www.forbes.com/sites/steveculp/2012/08/27/political-risk-cant-be-avoided-but-it-can-be-managed/
Overseas Business Risk – Ukraine – GOV.UK. (2015, July 9). Retrieved from https://www.gov.uk/government/publications/overseas-business-risk-ukraine/overseas-business-risk-ukraine
TRINDLE, J. (2015, January 28). Political Risk Analysts See Ukraine as a Risky Bet Over the Next 10 Years | Foreign Policy. Retrieved October 17, 2015, from http://foreignpolicy.com/2015/01/28/political-risk-analysts-ukraine-russia-north-korea-investment-business/
Howes, M. (2013). Politics and the Environment: Risk and the Role of Government and Industry. Routledge.
Wolczuk, K. (2014). Ukraine and the EU: turning the Association Agreement into a success story. European Policy Centre Policy Brief, 23.
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