What are proactive political strategies? How do they help multinational companies (MNCs) to respond to political risks?
What will be an ideal response?
Because government policies can have a significant impact on business activities and many governments face competing pressures from a range of stakeholders, corporations must adopt various proactive political strategies both to affect government policy and to respond to competitors' efforts to influence that policy. Comprehensive strategies are especially important in unstable and transitional policy environments. These strategies are designed, in part, to develop and maintain ongoing favorable relationships with government policy makers as a tool to mitigate risk before it becomes unmanageable. Broadly, strategies may include leveraging bilateral, regional, and international trade and investment agreements, drawing on bilateral and multilateral financial support, and using project finance structures to separate project exposure from overall firm risk. They also can include entering markets early in the privatization-liberalization cycle, establishing a local presence and partnering with local firms, and pursuing preemptive stakeholder management strategies to secure relationships with all relevant actors. More specific proactive political strategies include formal lobbying, campaign financing, seeking advocacy through the embassy and consulates of the home country, and more formal public relations and public affairs activities such as grassroots campaigning and advertising. Strategies must vary based on the particular political system (parliamentary vs. nonparliamentary), distribution of power (highly centralized vs. decentralized), and other variations in political systems. However, multinational companies (MNCs) have the option of purchasing political risk insurance, which could be used across cultures and systems and protect the company from inherent uncertainty. This option has been available for decades, but many have not utilized it because risk assessment is so subjective and unpredictable that most companies choose to forgo coverage. MNCs that are concerned with currency convertibility issues, political unrest, or exporting matters may want to take a closer look.
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