Minimizing Political and Economic Risks In New Country

In order to minimize political risks in new country, certain steps should be taken:

Being the multinational and a developing country like South Africa, a business can make strong alliances with the current government. Many developed nations like U.S, have the political risk coverage for foreign businesses, therefore the business can aim to gain the same from government as well. 

Diversifying the assets into more than one SBU (Strategic Business Unit) can be adopted in order to spread the risks into large but safer avenues. Example, the business can invest more in bedroom sets, assuming that it is more in demand and invest less in other risky sides. 

In order to ensure the business operate smoothly, the company can even go for joint venture or acquisition agreement by using the expertise of same business, rather than setting up everything on its own. In case of optimistic results, business can later purchase all shares and take the control on its own.

While entering a new market, it is important to do a political risk assessment by hiring an expert or a consultant, weigh the likelihood of political instability, nationalization of company assets, or military intervention etc.   A company can hire its own internal capabilities to ensure a continuous political risk assessment of a country.

If the market is ready for international goods, there is a chance that competition in local and international would get fleecier, manufacturers’ especially local ones will bring in competitive products at lower rates to compete with the international business; therefore the business can minimize this risk by improving its operations and achieving cost efficiencies.

Government in order to support economic activity may give incentives to local manufacturers which would threaten the international business and its policies. Therefore while entering; it is important to understand the government policies towards current multinationals and local manufacturers.

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