Contact: Dr. Franz T. Lohrke, Associate Professor of Management, 205-726-2373, ftlohrke@samford.edu

Managing political risk overseas

When a company enters a new overseas market, it can face considerable uncertainty in how a country's government will treat it. In some cases, the government may provide incentives to lure a company, but history also provides several examples showing that the government may interfere with company operations, hurting its profitability or interfering with investment goals. For example, the government of Chad, a central African oil producing country, has recently threatened to expel Chevron over disputes about how to share oil revenues.

Research examining how companies contend with this "political risk" has often focused on how much bargaining power each party wields. For example, a company can gain bargaining power (and, in turn, reduce its political risk) by exporting finished products, providing new technology, or increasing employment whereas a government can gain power (and, in turn, increase its ability to interfere) by having an attractive market, encouraging competition, or waiting until the company builds a production plant that cannot be relocated easily.

A recent study by Samford University management professor Franz Lohrke and his coauthors reexamined this "bargaining power model" and provides new insight into the political risk management process. Employing an historical case study of Panton, Leslie and Company, which operated in the present day southeastern U.S. (including Alabama) during its tumultuous colonization period, their study suggests the need to modify the present bargaining power model.

For practitioners, the findings illustrate the need for a firm to balance competitive differentiation with conformity to government demands. For researchers, the study provides several propositions to guide future political risk research. For those interested in business history, it provides insight into a unique company led by Scottish mangers that traded British-made products with several Native American tribes living within Spanish, British, and U.S. territories. It operated even when these various nations were at war, and it survived transitions in which nation owned these territories. The paper is forthcoming in Journal of Management History.