Management of Political Risks: Fundamentals and Tools for Executives and Entrepreneurs (Business Guides on the Go)

Political risks are on the rise. The recent past has been characterized by a dominance of geopolitical risks, which have the potential to endanger companies, entire sectors, and even national economies. Furthermore, the expanding regulatory framework, growing national debt, and other factors contribute to the escalation of political risks. The book offers a comprehensive and proven approach to identify and manage such risks. In addition to avoiding and mitigating risks, there is an opportunity to cultivate competitive advantages in navigating these challenges. Throughout the book, three fictional companies―a chemical corporation, an electricity producer, and a commodity trader―accompany the reader and demonstrate how the provided tools can be applied in practical scenarios. Contents About the Author 1: Introduction 1.1 Objective and Structure 1.2 Delimitation References 2: Overview of Political Risks 2.1 Definitions 2.1.1 Power, Politics, State, and Jurisdiction 2.1.2 Political Risks in the Narrower Sense 2.1.3 Risks from Unlawful Behavior by Political Actors 2.1.4 Political Changes as a Positive Value Driver 2.2 Emergence of Political Risks 2.3 Characteristics of Political Risks 2.3.1 Different Classifications in the Literature 2.3.2 Classification by Financial Value Drivers Book Value Market Value 1: Future Cash Flows Market Value 2: Cost of Capital 2.4 Allocating Political Risks to the Investment Portfolio 2.5 Significance and Drivers of Political Risks 2.5.1 Economic Significance 2.5.2 Significance for a Specific Company 2.5.3 Drivers of Political Risks Domestic Drivers Foreign Policy Drivers Long-term Drivers References 3: Methods of General Risk Management 3.1 Risk Identification and Description 3.2 Risk Assessment 3.3 Dealing with Risks 3.3.1 Step 1: Selecting the Course of Action 3.3.2 Step 2: Implementation 3.3.3 Step 3: Risk Control 3.4 Embedding in Corporate Organizations 3.5 Strategic Risk and Portfolio Management References 4: Create Transparency About Political Risks 4.1 Identify and Describe Political Risks 4.2 Assess Political Risks 4.2.1 Evaluating a Single Risk 4.2.2 Evaluating Multiple Risks Step 1 Step 2 Step 3 Step 4 Step 5 4.3 Controlling and Monitoring 4.4 Distinction Between Tactical and Strategic Risks 4.4.1 Differentiation Based on Impact 4.4.2 Differentiation Based on Strategic Importance References 5: Managing Tactical Political Risks 5.1 Ex Ante Options for Action 5.2 Ex Post Options for Action 5.2.1 Compliance 5.2.2 Dissuasion/Lobbying 5.2.3 Withdrawal 5.3 Synthesis of the Options for Action 5.4 Selecting the Course of Action 5.4.1 Selecting the Course of Action Ex Ante 5.4.2 Consideration of the Ex Post Options for Action 5.5 Implementation and Operationalization 5.5.1 Leadership and Culture 5.5.2 Organizational Structure 5.5.3 Operationalization in Processes and IT References 6: Managing Strategic Political Risks 6.1 Strategic Risks as a Real Option 6.2 Strategic Competitive Advantages Versus Political Risks 6.2.1 Examine Political Risks for Potential Competitive Advantages First Area, Competitive Advantages Relating to Risk-Bearing Capacity Second Area, Competitive Advantages Regarding Information Third Area, Competitive Advantages in Strategic Handling When the Event Occurs Fourth Area, Competitive Advantages for Tactical Handling When the Event Occurs Fifth Area, Competitive Advantages for Dealing with Risk Generators 6.2.2 Investigate the Impact of Political Risks on Existing Competitive Advantages 6.3 Strategic Portfolio Management 6.4 Dealing with Risks that Endanger the Company’s Existence 6.5 Integration of Political Risks into the Strategic Leadership Process 6.5.1 Analysis 6.5.2 Vision, Mission Statement, Positioning 6.5.3 Strategic Goals 6.5.4 Measures 6.5.5 Implementation/Control 6.6 Implementation and Operationalization 6.6.1 Leadership and Culture 6.6.2 Organizational Structure 6.6.3 Operationalization in Projects, Processes, and IT References 7: Geographic Flexibility as a Key Strategy in Political Risk Management 7.1 Historical and Current Context of the Geographically Flexible Company 7.2 Overview of the Procedure and Decision Path 7.2.1 First Project Phase 7.2.2 Second Project Phase 7.2.3 Third Project Phase 7.2.4 Fourth and Fifth Project Phase 7.3 Geographical Flexibility of Assets 7.3.1 Digitize IP and Processes 7.3.2 Flexible Employees: Agile Organization, People Mobility, Work from Anywhere 7.3.3 Reduce Physical Assets in the Business Model or in the Value Chain 7.3.4 Deal with the Remaining Immobile Physical Assets 7.3.5 Structural Flexibilization Corporate Structure Preparation of Contractual Relations and Value Flows Preparation of Data Flows and Storage 7.4 Selection of Target Jurisdictions 7.5 Perspective of the Jurisdiction and Its Defensive Measures References 8: Concluding Remarks Reference Appendix A: Taxonomy of Human Actions Appendix B: Tool to Support Scenario Analysis References