chapter 3 emerging market
Chapter 3 risk and challenges IN EMERGING MARKETS
Introduction
This chapter will expose the students on potential risks faced by firms that are doing or currently planning to enter an emerging market. This chapter will detail each and every element of political, economic and legal risk. Discussions on how to reduce the impact of risks are also discussed at the end of the chapter.
OBJECTIVES
After studying this chapter, students should be able to:
1. Describe political, economic and legal risks of doing business in an emerging market.
2. Analyse which risks are the most probably to happen in different emerging market countries.
3. Classified each emerging market based on the level of risks.
4. Describe the action that can help mitigate the effect of risks.
GLOSSARY/KEYWORDS
Political volatility; economic volatility; legal risks; corruption; expropriation risk; risk mitigation.
3.1 The nature of risks
Even though previous chapter’s discussions on the current trend in emerging markets highlight many good opportunities for Multinational Firms (MNCs) to explore, there are also a risks and challenges that firms will encounter. Among the most significant risks are political volatility, economic policy volatility and also legal risks. Firms entering emerging markets must understand the risks and take necessary action to mitigate the effect of those particular risks.
3.2 political volatility
Despite the democratisation and free market orientation process among emerging market countries, some of them particularly the one that just achieved independence, is having an election, or governs by corrupt individual or political party are susceptible to political risks. Multinational companies that invest in this volatile country are exposed to risks such as military coups, civil war, mass labour strikes, violence street protest, or erratic changes in government policy and industry regulations that pose a threat to foreign investment. Among the
Introduction
This chapter will expose the students on potential risks faced by firms that are doing or currently planning to enter an emerging market. This chapter will detail each and every element of political, economic and legal risk. Discussions on how to reduce the impact of risks are also discussed at the end of the chapter.
OBJECTIVES
After studying this chapter, students should be able to:
1. Describe political, economic and legal risks of doing business in an emerging market.
2. Analyse which risks are the most probably to happen in different emerging market countries.
3. Classified each emerging market based on the level of risks.
4. Describe the action that can help mitigate the effect of risks.
GLOSSARY/KEYWORDS
Political volatility; economic volatility; legal risks; corruption; expropriation risk; risk mitigation.
3.1 The nature of risks
Even though previous chapter’s discussions on the current trend in emerging markets highlight many good opportunities for Multinational Firms (MNCs) to explore, there are also a risks and challenges that firms will encounter. Among the most significant risks are political volatility, economic policy volatility and also legal risks. Firms entering emerging markets must understand the risks and take necessary action to mitigate the effect of those particular risks.
3.2 political volatility
Despite the democratisation and free market orientation process among emerging market countries, some of them particularly the one that just achieved independence, is having an election, or governs by corrupt individual or political party are susceptible to political risks. Multinational companies that invest in this volatile country are exposed to risks such as military coups, civil war, mass labour strikes, violence street protest, or erratic changes in government policy and industry regulations that pose a threat to foreign investment. Among the