ABSTRACT
Political risk in international business endeavors – Where business meets politics Striving for business opportunities abroad makes enterprises accepting of risky environments, which is especially true for emerging markets and transition markets (Diamonte et al. 1996; Brouthers et al. 1998; Hoskisson et al. 2000; Meschi 2005; Alcantara and Mitsuhashi 2013). In the business context, risk is typically constructed as negative consequences for a firm’s performance provoked through unanticipated variations of influential variables (March and Shapira Zur 1987; Al Khattab et al. 2007, 2010). Frequently, risk also denotes in fact risk sources in the organizations’ environment which lead to an unpredictability of its performance, such as political risk (Miller 1992). The influential context variables highly relevant for organizations that get active internationally range from those located in the micro-and macroeconomic environment of the target country to its political and institutional environment (Miller 1992, 1993; van Wyk 2010). Miller (1992, 1993) composed a taxonomy of different broad risk or uncertainty factors which can be identified in business locations. In a follow-up study, the variables were empirically tested and widely accepted by Werner et al. (1996). From a managers’ perspective, (1) the general environment, (2) the industry, and (3) firm-specific variables can be perceived as risky, since their unknown variations might adversely affect the firm. The general environment is particularly interesting for the discussion of political risk as here factors such as political and government policy instability are referred to (Miller 1993), which links a business with its nonmarket context. Nonmarket research aligns strategies that were previously investigated rather isolated from each other but which target a firm’s environment, such as corporate social responsibility, corporate political activity, legal actions, lobbying, and advocacy (Lawton and Rajwani 2015). Although there has been a long tradition in the discussion of what the term “nonmarket” exactly comprises (e.g. Baron 1995; Boddewyn 2003, 2015; Kobrin 2015; Rajwani and Liedong 2015), Boddewyn (2003, S. 320) condensed the literature into his definition which describes nonmarket as,
(a) values expressing the purposive pursuit of public interests; (b) internal and external interchange mechanisms of coercion and cooperation that complement and balance competition in a reciprocal manner at various levels
of interaction; (c) relationships among market and nonmarket organizations resting principally on their actors’ sovereignty rights; and (d) the conflictual integration in the light of their failures of society’s economic, political, social, and cultural organizations.
