an approach to handling Political Risk

In October 2007 this topic was taken out of the larger unit
 www.witiger.com/internationalbusiness/politicalriskcontingencyplanning.htm
and given it's own .htm page to make it easier for students to find this material within witiger.com

WTGR

1. Defensive Approach
2. Integrative Approach

• defensive approach
• avoid use of local managers, 
• borrow money non-locally, 
• locate strategic components outside the risk region so if the company operations were confiscated, the "thief" would not be able to produce the entire product or process
• hire non-local security 
• use barriers and fences with aggressively marked notices restricting access

• integrative approach
• use local managers extensively, - this was a policy used by the British in India a century ago and still holds true in some situations
• borrow money locally, so local financial leaders will have a vested interest in your success
• "hearts & minds" approach, build a school, hospital, train local medical staff - used by the British Army in Iraq
• make your business and operations appear to be tied in with the success of the local population, if you are successful, they will be successful

integrative approach

examples
 
 

Starbucks 
backs 
down in 
China

Student Stanley C, in C44 at UTSC in 2007 sent an email Sept 29th in which he suggested that the way Starbucks responded to the closing of this location, was a good example of an "integrative approach" to the left is Stan's "UTSC grad pic" - supplied by Stan

Stanley said in his email
"In addition to Victoria Z's post about McDonald's in Russia,  I would like to bring your attention to Starbucks in China.  Starbucks  has had a license to sell coffees to the imperial palace from the  Emperor's Hall of Attendance. Symbolically, the imperial palace was  home to many emperors who did their best to shut out the outside  world.  With the presence of US based Starbucks, many citizens  criticize its presence as "trampling on Chinese culture".  The Chinese  community criticizes the Forbidden City authorities of "selling out."

Although the palace managers offered Starbucks the option of  continuing to operate using other brands, Starbucks declined and it  was forced to shut down.  In this case, I believe Starbucks  demonstrates a integrative approach.  Instead of confronting with the  managers (ie potential lawsuit), it withdrew and showed respect for  the Chinese people and their culture."

Stanley also noted that part of the reason this story developed was, as reported by AP, a massive "Internet campaign started in January [2007] calling for the removal of a Starbucks coffee shop from Beijing's famed Forbidden City." - which serves as a pretty good example of how the web can be used successfully in lobbying