INTRODUCTION TO INTERNATIONAL BUSINESS

2019 – 2020

Assignment​: ​HBR 2

Group Number​: 10
Tutor Group:​ ​31 & 32
Lecturer​: ​H.U. (Hammad) Haq, PhD

Student​: Andina Lathifah Student Number​: S4057104

Student​: Devindra Hananbayu Student Number​: S4057147
Student​: Hafiz Athallah Ghifari Student Number​: S4076281

Date​: 16 October 2019

Introduction

Journal Details
Zegard, Amy & Rice, Condoleezza. 2018. Managing 21st-Century Political Risk: Today’s
threats are more complicated, but the remedies don’t have to be, ​Harvard Business Review​,
May-June, 130-138.

Summary of The HBR Article

The article discusses how organisations are exposed to political risk, particularly the three
new forces behind it, and suggests a four-step framework for companies to manage that risk.

Today, political risks are growing in the environment. There are many external
environmental factors that multinational enterprises have to deal with. Political activities are
happening almost everywhere, from homes to neighborhood bars. The article discusses how
these political activities play a major role in determining a company’s productivity and
well-being. A real life example is provided in the beginning of the article, about how San
Diego SeaWorld’s stock price had plunged 60% after a women created a documentary called
“​
Blackfish”​ about the death of an orca whale trainer during one of SeaWorld’s shows.

The article describes how companies can reduce political risks through several
different ways, and also stated three precursors of political risks: politics, supply chains, and
technology. These three different risks affect different businesses in different industries. Yet
the most important aspect of the article is how a business can anticipate those risks. The
article provides a framework with three guiding questions, which companies can use to assess
their environment and reduce the chances of being impacted by the political risks.

Body

Strength Presented in The Article

A key strength presented in the article are the examples the authors give towards the
first step, “​Understand: What is my organisational political risk appetite?​” (Pg. 134) Here,
the authors clearly explain the different industries that face different types of political risks.
The authors’ claims that companies in the oil and gas industry undertake long term
investments in distant countries. They are also prone to autocratic regimes and social unrest
and must be willing to tolerate substantial political uncertainty. This claim made by the
authors is true as an example of the claim is Chevron.

Chevron is a multinational oil and gas company that operates worldwide. ​One of the
countries where Chevron operates is Indonesia. The origin of Chevron can be traced back
since 1924, where they first launched a geological expedition to the island of Sumatra. Their
main focus was to target Indonesia due to the location advantages that it held, which was

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mass amounts of natural gas and oil. It can be seen until today that Chevron is still operating
in Indonesia. However, government authorities are starting to prioritize local Indonesian oil
and gas companies such as Pertamina. Hence, this supports the authors’ claim as it shows the
fact of an oil and gas company, Chevron, that has to stay for a long time in a certain location
as it tries to penetrate natural resources of Indonesia. Chevron undertook a long process, from
1924 until today. But due to political reasons, Chevron cannot extend their contract in
Indonesia and they will be departing in 2021.

Therefore, the claim that the authors present is a positive note to take because what
the authors state is correct; oil and gas companies will take longer term investments in far
away countries and at the same time they must tolerate to political uncertainty. Here, the
political uncertainty is the contract of the multinational companies in the country being taken
away, which is not something managers in the organisation can predict or see in the future.
Thus they must apply the different framework to deal better with political risks.

Weaknesses Presented in The Article

There are two weaknesses that stands out in the article. The first weakness is the use
unsupported qualitative and descriptive accounts past events and of Condoleezza Rice’s past
personal experiences and recollections of events throughout her career as U.S. secretary of
state as the basis of the supporting arguments of some of the article’s claims. While Mrs.Rice,
who is one of the two authors of the article and the former U.S. secretary of state for
President G.W. Bush’s administration, may possess a wealth of experience on the subject
matter, using hand-picked accounts from her life events may also be a very weak way to
bolster a proposed claim or idea for two reasons. The first being that it presents little to no
hard evidence that should leave little room for doubt for the audience regarding the actual
occurrence of the events. Secondly, an experience or recollection from a single person at one
point of her life is unlikely to be representative of every circumstance that may happen to
organisations around the world.

An example of this in the article is found on page 133, wherein the authors suggest
there are three new forces behind political risk, and to back the three claims, the authors used
events during the Bush administration as supporting arguments. It is also likely that there are
actually more than three new forces behind political risk, but were not mentioned in the
article because there were no events related to it that involves Mrs. Rice’s career. This
implies an inconsistent form of analysis of the current environment that organisations are
facing because they are discussed based on arbitrary events in the past, rather than raw
concrete data analysis, such as from interviews or surveys.

The second weakness that is found in the article is related to the solution that is
proposed towards the end of it. The framework to manage political risk suggested in the
article does not address the importance of knowing and analyzing which part of the
organisation is at risk. As found on page 134, the framework focuses on four competencies:

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understanding risks, analyzing risks, mitigating risks that cannot be eliminated and putting in
place a response capability that enables effective crisis management and continuous learning.
However, in order to understand, analyze and mitigate risks, it is important for the company
to first know which part of the organisation is at risk. The article, thus, implies that all
political risks affect the entire organisation. To give an illustration as to why this is not
always true, the National Basketball Association, a U.S. sports organisation, has recently
faced public anger from its Chinese fans after one of its team managers shared a tweet in
support of Hong Kong protests, and yet despite being a setback for the organisation to expand
in China, the reputations and operations of its branches back in its home country and other
host countries remain unaffected, nor are they involved in anyway ​(Bradsher & Hernández,
2019). Under the article’s assumption, all kinds of political risks will affect an organisation’s
entire strategy and top management, while in reality, this is not always true.

What Managers Can Learn from The Article

A key takeaway for managers in this article is how to manage the external
environment of the business, particularly the political risks. As we can see from the article, it
is not easy to anticipate change or predicting what will happen in the future but firms have to
ensure that there are managers who are constantly analyzing the environment, ensuring that
when something goes wrong and that is out of the firm’s control, employees in the
organisation know how to deal with these different types of political risks. Knowing the
importance of being able to manage these problems, managers may create a specific
department to interact with the external environment that may have unexpected effects for the
company.

How The Findings Relate to The Course

On the last pages of the article, the authors provide a real life case about Royal
Caribbean’s Haitian Crisis. The company is considered as one of the best-practice companies
that understand the potential political risks and know how to get out of them. When a
7.0-magnitude earthquake struck Haiti and killed an estimate of 200,000 people, a Royal
Caribbean cruise ship named Independence of the Seas landed in the Haitian port of Labadee.
There were 3,000 passengers swimming and basking on a private beach just 85 miles from
the hard-hit capital of Port-au-Prince. This was controversial as New York’s Posted article
about how inattentive the passengers were toward the Haitians. But Royal Caribbean
successfully handled the situation by providing needed economic aid for the Haitians. But
their success did not come with the glance of an eye. The Royal Caribbean had begun taking
political risk management seriously years before the earthquake. Because it also had
developed strong competencies for handling man-made political risks in Haiti, it was well
positioned to deal with a natural disaster there, too.
This real life example relates with what we have learned in the course. As Verbeke
wrote in the book, “​Extensive community involvement and sponsorship are important to
demonstrate the positive role of the company intend to play in society​”. This has been proved
by the Royal Caribbean case.

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Conclusion
As political risks are significantly growing and affect businesses in many ways, it is
important for the companies to excel at risk management. Companies should be able to
understand, analyze, mitigate and respond to those political risks. The best companies ensure
that political risk is a concern for everyone involved, thus they reduce blind spots by fostering
creative thinking and guarding against groupthink. Companies also need to have a good risk
analysis so that organizations are better prepared for the political risks. Finally, to reduce the
exposure to the identified political risks, the company should follow three strategies. The
strategies are dispersing critical assets, creating surge capacity and slack in the supply chain,
and working with others in the industry to share political risk assessments and mitigation
strategies.

Questions for The Author

1. When did you start to identify the importance of political risk for an organisation
specifically towards the company of San Diego World, and why has that sparked you
to create a whole article on this topic?
2. Why did you not conduct an extensive research on the new forms of political risk by
means of surveys, statistical analysis of available data, or interviews, and instead
settle for descriptions of past events as the basis of most of your arguments?
3. How do you know that three strategies to reduce exposure are almost always useful?
Are they applicable for all kinds of industry?

References

Chevron Policy. 2018, December 31. About. ​chevron.com.​

https://indonesia.chevron.com/en/about.

Asmarini, W. 2018, August 1. Indonesia's Pertamina to take over Chevron's Rokan block in
2021. ​Reuters.​ Thomson Reuters.
https://www.reuters.com/article/us-chevron-indonesia-rokan/indonesias-pertamina-to-take-ov
er-chevrons-rokan-block-in-2021-idUSKBN1KL2B6.

Bradsher, K., & Hernández, J. C. 2019, October 10. China Blows Whistle on Nationalistic
Protests Against the N.B.A. ​The New York Times.​ The New York Times.
https://www.nytimes.com/2019/10/10/business/china-blows-whistle-on-nationalist-protests-a
gainst-the-nba.html​.

Verbeke, A.. 2013. International Business Strategy. 2​Edition.

nd ​