For new market entry, politics really does matter
January 13, 2014
When it comes to new market entry, understanding the politics – and in particular how it might affect you and your business – really does matter. It’s not just in emerging and ‘frontier’ markets where political power and economic power are often concentrated in a few hands. It can be just as important in apparently more developed markets, and business leaders ignore it at their peril.
Politics can pervade a whole host of issues, whether it’s weak governance, corruption, regional divides, sectarianism, or fractious relations with neighbours. All of these can add to the complexity of an unfamiliar working environment and may not be immediately apparent to an outsider. But they can create a host of risks to business, from physical danger to staff, to the threat of expropriation of assets.
The challenge for business, as I see it, is in creating a process to manage political risk that is proportionate and practical, and recognises the inherent difficulty in predicting political events (events in South Sudan, for example, defied some recent rosy forecasts).
Assessing and monitoring political risk
So how should a business best evaluate political risk and incorporate it into its decision-making processes? A thorough initial assessment drawing on multiple sources, and regular monitoring, is needed. Relying on a single source of analysis or market intelligence is, in my view, a mistake – however confident and well-informed it might seem.
A balance of local and external (and possibly more objective) views is also required, and it is important for the business to make its own judgement on the balance of risk and reward. Scenarios can also be helpful to understand which risks might have the greatest impact on the business, and how it should prepare.
In my experience, a combination of quantitative risk scores and qualitative risk assessments is the best way to communicate key information to time-poor senior managers juggling competing priorities. Numbers and colour coding risk can provide a useful snapshot of risk factors to facilitate decision-making. But they can be misleading without the nuance provided by well-researched qualitative analysis.
Whatever risks are identified, they’re best viewed holistically, rather than in isolation. At the strategic level, a country assessment might inform decisions over company profile, while at the tactical level it might help to determine which part of town the company’s office should be located in. A risk review board with participation from senior management will help to ensure the right level and scope of appraisal oversight. But failure to establish a thorough assessment and on-going risk monitoring process is simply preparing the venture to fail.
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