Much At Stake Henisz says much is at stake for firms that fail to conduct thorough political-risk analysis. But foreign businesses are having trouble making profits in these markets. The authors point to a report by Merchant International Group, a risk consultancy based in the United Kingdom, which surveyed 7,500 multinational corporations and found that 84 percent of their operations spawned in emerging markets from 1995 to 1998 failed to meet financial targets. A huge amount of financial resource and management time is lost each year as a result of inadequate research and analysis prior to embarking into a non-domestic market, the Merchant study notes. It goes on to say that techniques for identifying and evaluating hidden risks will need to become more sophisticated.
Henisz work is intended to aid companies in honing their risk-analysis techniques.
His research is based on in-depth analyses of electricity generation and telecommunications, but is applied to a broad range of manufacturing and service industries. Risk analysis is especially critical in those two industries because forays into foreign markets involve large sunk costs, substantial economies of scale and pricing structures that can become highly controversial and politicized. The concept of assessing political risk is nothing new to corporations. If a firm is considering investing in a foreign country, its leaders want to know everything they can about the national and local governments with which they will have to deal. A company wants to be able to assess with the highest degree of certainty the stability of current policies and how likely they are to change.