Hi! Thanks for the question.
In order to answer your question well; let us first define political
risk management.
“POLITICAL RISK MANAGEMENT is providing Guidance for developing and
implementing Core Competencies in Risk Management and Strategy
Formulation towards Risk Prevention & Adjustment, and conducting
Executive Policy Reports & Strategy Research and Business Policy
Studies on World Capital Markets & Political Risk Management, World
Politics & Economics, and Geopolitics & International Relations.
Political Risk Management is indispensable for maximizing investment
opportunities and minimizing risk exposure.”
“Political Risk Management:
http://www.worldcapitalforum.com/polecris.html
The next two papers I will cite here are both in PDF file format and
you would need a software like the Adobe Acrobat Reader to access
them. If you haven’t installed them yet in your computer you could
download it from this site
(http://www.adobe.com/products/acrobat/readstep2.html)
In a Wharton School University of Pennsylvania paper it mentions the
role that governments could play in providing a trade conducive
atmosphere to investors. Such examples showing your contentions can be
seen from this paper.
“We share the view that a sophisticated assessment of political risk
is necessary, but are more sanguine regarding the operational
implications of this view. Investors who incorporate the revenue and
cost implications of a government’s continued interest in
infrastructure planning, output pricing and quality into their initial
valuation of a project and then actively manage political risk on an
ongoing basis may exhibit better performance. Indeed, the ability to
do so may well be a source of competitive advantage for some
entrants.”
“The framework that we offer for assessing and managing political risk
broadens the dominant theoretical paradigm of “bargaining power”
(Fagre and Wells, 1982; Kobrin, 1987; Poynter, 1985; Svejnar and
Smith, 1984). This paradigm’s core insights are that investors’
relationship with the government involves both divergent interests and
the potential for mutual gains (Kobrin, 1987), and that the terms of
the relationship evolve as a function of the two parties’ relative
bargaining power. Investor bargaining power is posited to be at a
maximum prior to investment, and then to decline secularly once
investors sink capital in the ground or their technology diffuses.”
“We extend the bargaining power paradigm by incorporating insights
from neoinstitutional theory in the organizational literature, which
emphasizes the importance of social and political structures in
understanding organizational choices and actions.”
In the case of the electricity power crisis of the Philippines in
1992, the neoinstitutional theory shows how government assisted
investors in managing political risks in the electrical power industry
by providing contracts and enacting investment laws so as to change an
otherwise monopolistic industry.
“Neoinstitutional theory contends that when normative (informal) or
regulative (formal) institutions are underdeveloped, firms may not
view “pressures and expectations as a given constraint,” but instead
attempt to “actively alter, re-create or control the pressures
themselves…” (Oliver, 1991: 159). The bargaining power literature
takes a similar perspective, holding that strategic actors with
bargaining power arising from possession of a scarce resource—capital,
in the case of early electricity investors—adopt ex ante safeguards to
protect themselves against politically-motivated expropriation or
renegotiation (Fagre and Wells, 1982; Poynter, 1985), especially given
the high capital intensity, small potential for technological
upgrades, high visibility and widespread output consumption of
infrastructure investment (Levy and Spiller, 1994; Spiller, 1993,
1996; Wells and Gleason, 1995).”
“Values, Institutions and the Dynamics of Bargaining Power: Managing
to Keep the Lights On (and the Profits Flowing)”
http://www-management.wharton.upenn.edu/henisz/papers/hz_mklo.pdf
Another paper, which also studies the electrical energy sectors of
different countries, provides a look on the different strategies made
by investors so as to manage political risks.
“Based on these analyses, the international management literature
prescribes a number of ways in which multinational corporations can
develop effective non-market strategies. The first stream of
literature implies that firms should take steps that decrease the
benefits or increase the costs to the host government of acting
opportunistically, for example, by forming joint venture partnerships
with local companies5 (Henisz, 1998), by employing less sunk
technologies6 (Zelner, 1999), by involving multilateral financial
institutions7 (Moran, 1998), by directly lobbying political actors and
by mobilizing political constituencies (Hillman and Hitt, 2000). The
second stream of research identifies country-level, as opposed to
industry- or project-level, factors associated with the degree of
political hazards and implies that managers should focus their
non-market strategies in countries where institutional structures do
not support credible policy commitments.”
“Non-market capabilities consist of tacit firm resources that enable
firms to manage and influence the public policy process, and can be
localor generic in nature8. Local non-market capabilities are specific
to the political jurisdiction in which the firm operates and allow the
firm to tailor non-market strategy to the idiosyncrasies of a
particular situation. Local capabilities include the networks of
relationships between firm employees and national and local political,
regulatory, legal, and interest group actors who influence public
policy, and are based on the firm’s experience in a specific country
or locale. Generic non-market capabilities, on the other hand, are the
tacit skills and knowledge which firms use to devise and implement
non-market strategies in other political jurisdictions. They include
the ability to identify political preferences and patterns of behavior
in different types of institutional environment, to accurately assess
the source and nature of expropriation hazards, and to successfully
negotiate with political and regulatory actors. Thus, while firms
develop local non-market capabilities through interactions with the
non-market environment in each jurisdiction, the experiential benefits
spillover into the development of more generic non-market
capabilities.”
“Political Risk, Political Capabilities and International Investment
Strategy:
Evidence from the Power Generation Industry”
http://www.wifo.ac.at/~luger/holborn_guy.pdf
I have provided you with only snippets from the papers so as to save
you time. I highly suggest that you read them in their entirety so
that you will have a broader perspective of the discussion.
Search terms used:
“political risk management” government investors
I hope that these links would help you in your research. Before rating
this answer, please ask for a clarification if you have a question or
if you would need further information.
Thanks for visiting us.
Regards,
Easterangel-ga
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