Political Risk in Emerging Multinational Corporations: A Study Into the Mitigation Strategies of Multinational Corporations

Abstract

Political risk is a factor multinational companies need to consider when operating in emerging markets. There host governments can with the swing of a pen transform a multimillion dollar investment into a huge loss. With the opening of more emerging markets to foreign direct investment, the traditional approach of political risk studies to focus on the bargain over entry becomes obsolete. As a result of this, this thesis seeks to investigate the mitigation strategies of multinational corporations in emerging markets post-entry. In illuminating this issue, this thesis firstly draws upon the literature on political risk to form a basis of understanding from which the following analysis draws. Secondly, this thesis presents a multiple case study of the experiences of two large Danish companies, Novo Nordisk, and Arla Foods, to illustrate possible strategies for mitigating political risk in emerging markets. Lastly, an expert interview is presented to extract new knowledge as well as validate the findings of the case studies. This thesis concludes that companies are able to manage political risk. Local partnerships and engagement with the host society are valid strategies to decrease one’s political risk exposure. One cavity with the conclusion is the preciseness of managing any risk until it materializes, i.e. if the risk does not materialize what you did was either correct or unrelated, but if the risk does materialize, your actions were either wrong or they soften the blow.