Have a look at some of the articles (partly in German) and especially the most recent article that has been published in OstContact 1/2020 (https://shop.owc.de/product/ostcontact-1-2020/):

Link to pdf (in German)

Translation in English:

Analyze rather than avoid risks

Political fault lines may imply an increase in costs for companies. Nevertheless, a study from Austria shows that multinational companies only seldom use their knowledge about country political conditions when developing their business strategy in Eastern Europe - and thus may lose out.

A study among the 200 biggest Austrian companies shows a hardly innovative picture in terms of the instruments used for evaluating political risk. Despite business risks are evaluated, in general, the more specific the evaluation of risks – and political risks, in particular – gets, the fewer tailor-made instruments are applied. Or to put it differently: Almost all surveyed multinational companies calculate investment models, but only about 20 percent work with instruments that were specifically developed to depict political risks. In addition to companies with Austrian owners, the study also examined German, US, Japanese and other international companies that manage subsidiaries abroad from their Austrian headquarters.

Two characteristics shape the picture of the study: First, the management of political risks is usually the responsibility of several departments. Hardly any company has a separate department for the exclusive purpose of political risk management. Second, 80 percent of the surveyed companies state that political risk issues are reported to their top management and also dealt with on the level of the top management. Although political risk-related issues seem to be given priority as they appear, only one third of the companies surveyed use political risk analysts.

The guiding principle is: Keep your hands off!

One main consequence of such a management of political risks is the occurrence of avoidance strategies. According to the study, more than half of the companies surveyed do generally avoid investments in risky countries. More than two thirds of the companies state that they reduce investments in risky countries or even leave them when political risk issues arise (65 percent).

Of course, risk avoidance may represent a sensible strategy. Nevertheless, also earlier studies have pointed to the benefits that a greater differentiation of risk management (e.g. political and social risks, competitive risks, economic risks) may imply for a company’s overall strategic planning and implementation. The results of this recent study and accompanying research discussions reinforce the picture that multinational companies may leave market opportunities often untapped, because they deem political risks as no-go’s.

Same standards, same opportunities

Companies do sometimes fail to replicate their quality-based competitive advantages when they operate in Eastern Europe and Central Asia, or similar regions that are characterized by weaker local regulations and standards. If facing low local safety standards, for instance, while also operating in other countries where companies need so comply with the Codes of Conduct of Western customers, the aim of companies might be to compensate for cost disadvantages vis-à-vis local competitors by encouraging a “level playing field.” In other words, companies may see it as important to lobby for an adaptation of higher standards at the political level.

Indeed, slightly more than half of all companies surveyed indicated that they engage in lobbying. To increase the chances of success in their lobbying, however, multinational companies need to understand local politics, they need to know how political processes work and be aware of relevant actors. To achieve such knowledge, it can help companies to gather and bundle information through intensive interactions with local and supra-regional interest groups. According to the study, however, only about 45 percent of companies surveyed use of such interactions.

Managing the balancing act between Brussels and Moscow

The definition and enforcement of norms and standardizations are essential tools for the establishment of economic unions. Some countries like Armenia, Georgia, Belarus, Moldova and Ukraine, for example, find themselves in a dilemma, as they fall between the stools of the Eurasian Economic Union and the European Union. Companies operating in these countries are thus challenged to manage a balancing act between two political forces.

After all, there is enormous potential for companies to benefit from a systematic management of political risks. If these opportunities are exploited, then market opportunities can also be exploited in countries, whose political fault lines appear too risky at first glance.