Introduction
Political actions and events significantly impact businesses and organizations, making mitigation of political risks a critical factor in operations. Political risk refers to the uncertainties that companies and other entities experience when factors that can destabilize a country occur. It entails the actions of a political leader, the passing of laws, or the emergence of popular movements that lead to the stabilization or destabilization of a country (Rice & Zegart, 2018). Several companies provide goods and services to clients internationally, making their operations subject to the events and actions of political leaders (Buehler et al., 2008). Events or actions in one country can potentially affect the political and economic status of several other countries, as is the case with the current Russian-Ukraine conflict. Businesses are now more affected by the political activities of governments or leaders, making it essential to incorporate political risk assessment outcomes in their decision-making to mitigate against the possible losses that may be incurred.
Main body
The modern business environment is significantly affected by political forces due to the interconnectedness of countries and economies. Political risk has expanded from being constrained in one country to affecting several nations at the same time (Bremmer, 2005). Their actions had little effect on the global economy and businesses. Today, the actions of governments have several implications on their economies and that of the world due to the connections that have been created, making political risk one of the most critical factors in business (Rice & Zegart, 2018). Businesses, especially those with international operations, are required to consider several factors like extraterritorial risks, geopolitics, and laws when making critical decisions (Rice & Zegart, 2018). They achieve this through global political risk assessments from different agencies.
Global political risk mitigation should be a continuous organizational process that entails assessments of politics and economies to ensure the company always has the correct information. Changes in international politics are always present, making political risks constantly threatening organizational processes and investments (Rice & Zegart, 2018). The events of the last two decades have shown that the political and economic status worldwide can change instantly, leading to adverse outcomes for companies that rely on stability. Continuous assessment is an effective strategy that entails having a department or officer whose sole responsibility is to conduct assessments of the political and economic status and events in areas the company operates. It involves ensuring that the organization is continuously updated about laws, regulations, and occurrences in respective nations and worldwide to determine the risks they face and develop mitigation measures.
Political risk mitigation requires companies to understand, analyze, mitigate, and respond to risks effectively to reduce or avoid implications. Understanding the risk entails knowing the political risk tolerance of the company and measures to address areas that have not been effectively managed (Rice & Zegart, 2018). Analysis of political risks requires the organization to acquire all the information about their political risks, ensure comprehensive analysis, and integrate the outcomes into decision-making processes. Mitigation focuses on reducing a firm’s exposure to risk through systems and teams dedicated to this purpose and limiting damages when they occur (Rice & Zegart, 2018). Response to political risks involves proper reactions to the risks and continuous learning from them to reduce interferences when they occur. Therefore, the consistent political risks in the modern business environment can be effectively mitigated through a constant process assessment and implementation of mitigations and responses to the threats involved.
Conclusion
In conclusion, political risks are a constant problem for companies at the local and international level due to the impacts that events or actions of politicians have. The risk has become so significant to the extent of requiring frequent assessments of countries and their administrative leaders to determine the effects they have on businesses. The solution to these challenges lies in continuous risk assessment and mitigation implementation that ensures organizations are always updated on the latest occurrences. Frequent evaluations of global politics allow managers to make informed decisions that reduce their exposure to risks from the actions of leaders.
Reference
Bremmer, I. (2005). Managing risk in an unstable world. Harvard Business Review, 51-60.
Buehler, K., Freeman, A., & Hulme, R. (2008). The new arsenal of risk management. Harvard Business Review, 93-100.
Rice, C., & Zegart, A. (2018). Managing 21st-century political risk. Harvard Business Review, 130–138.