Political Risks

1.     What is political risk?

Political risks are risks a company can suffer from foreign political changes or instabilities. The Risk could result in financial, market, or personal losses.

2.     Discuss 2-3 ways that multinational firms, like GE, can manage political risk.

One way multinational firms can manage political risk is using insurance. In the event that political risk would put GE in a big financial loss, their insurance would keep them from facing as big of a hit. Referring to the modes of entry chart, another way to minimize the political risk in a country could be to rely on exporting to receive the goods needed to support that firm. This lowers the risk where if something polical would happen within a country it wouldn’t be as hard to pull out and go elsewhere. This would relate to GE’s deal by GE building the plant for their Locomotives in the U.S. and bringing in the parts to India instead of having the plant in India.

3.     Why do you think Piyush Goyal wants to end the deal with GE?

Piyush Goyal is the new railways minister. He proposed to end the deal with GE and instead transform the locomotives to electric instead of diesel. It could be because he is worried about the environment and the effects that the diesel locomotives may have on it. Another reason is if he goes through the deal with GE, India will likely have to rely on GE even after the 11 years to possibly maintain and fix the locomotives if something goes wrong.

4.     Could GE have predicted the change of affairs in the deal?  If so, how?

I think GE could have predicted the change of affairs in the deal. If they were following the election process in India, they could have seen that he had a plan to create a healthier eco-friendly environment. Since GE was making them all diesel locomotives, they could have started to ask questions sooner so they weren’t blindsided with the news.

5.     GE is a conglomerate.  Which of the 4 generic MNC strategies does GE likely pursue?  Explain your answer.

GE would likely pursue a transnational MNC strategy if they have not already done so. They are headquartered in the United States, but have independent subsidiaries around the world that are able to work independently and specialize in their own projects. At the same time however, they still work with the headquarters because that is where they are able to receive shared knowledge