Companies doing business internationally are grappling with political issues that sometimes surprise even the most experienced. A new study by PwC and Eurasia Group shows that despite current efforts, a high percentage of multinational companies believe they are not doing all they could to manage political risk effectively.
PwC and Eurasia Group believe that more effective management of political risk can help companies protect their investments and take advantage of new opportunities, thereby improving global business performance. In our view, this requires leaving behind fear and uncertainty and integrating political risk management into a systematic process embedded in a company’s other business processes. Companies doing business internationally are, by nature, willing to take big risks. We believe that big risk takers should be informed risk takers—and political risk management is an essential element of risk-taking savvy.
When it comes to improving global business performance, managing political risk helps in two fundamental ways. First, it protects new and existing global investments and operations by helping management anticipate the business risk implications of political change or instability. Prepared and aware, management is more likely to be able to exit markets that are in danger of growing too unstable. Where short-term instability does not dampen the appetite to pursue long-term opportunity, management can implement risk mitigation and operational oversight to control against shocks. Second, for a company constantly on the lookout for new opportunities, monitoring political risk within target regions or across continents can help management hone in on political developments that foretell a business boom, beating competitors to the punch.