Genicon In Russia

Business Horizons (2009) 52, 127—137

www.elsevier.com/locate/bushor

A stranger in a strange land: Micro political risk and
the multinational firm
Ilan Alon, Theodore T. Herbert *
Crummer Graduate School of Business, Rollins College, 1000 Holt Avenue - 2722, Winter Park,
FL 32789, U.S.A.

KEYWORDS
Micro political risk;
Risk assessment;
Environmental
analysis;
Multinationalcorporation

Abstract When a firm chooses to enter or continue business in a foreign market, it
becomes exposed to associated political risks which should be assessed and managed.
Help is available for becoming aware of the level of macro political risk; that is, the
political risk across industries or all businesses in entire countries or geographic
regions. Yet, surprisingly little guidance existsby which to identify and assess firmspecific political risks, termed micro political risk. Herein, we offer some new
perspectives on the nature of micro political risk within a host country, illustrating
how it stems from economic, societal, and governmental forces. We have compiled a
number of firm-specific variables which can affect the firm’s micro political risk
profile, and advance aninnovative methodology by which executives can address
these variables and develop an assessment of their firm’s micro political risk.
Examples of micro political risk situations are provided, along with discussion of
implementing the proposed methodology.
# 2008 Kelley School of Business, Indiana University. All rights reserved.

1. Micro political risk: An overview
International commerce has grownincredibly, yet
much of it is susceptible to diverse types of risks.
One major risk is political risk, which encompasses
political events and processes that can negatively
affect doing business. This risk has both a macro
perspective, affecting all firms in a country, and a
micro perspective, affecting only select industries,
firms, or projects. Simply put, micro political risk is
*Corresponding author.
E-mail addresses: ialon@rollins.edu (I. Alon),
therbert@rollins.edu (T.T. Herbert).

the political risk affecting a particular firm, project,
or industry. At this level of specificity, the unit of
analysis is not only the target country (as in macro
political risk) but also the firm’s nationality, industry, and particular project characteristics and their
relationship to thecountry. Macro and micro political risks overlap, sharing some of the same determinants; depending on the firm’s nationality,
industry, and particular situation, micro and macro
risks can intersect to varying degrees (see Figure 1).
Micro political risk is similar to macro political risk in
that it, too, emanates from internal and external as
well as economic, societal, and governmental
forces.The two types of risks are different in that

0007-6813/$ — see front matter # 2008 Kelley School of Business, Indiana University. All rights reserved.
doi:10.1016/j.bushor.2008.09.004

128
Figure 1.

I. Alon, T.T. Herbert
Micro vs. macro political risk

specific aspects of the firm either increase or decrease its political risk exposure. Micro political risk
is thus important to theinternational firm because
of its higher level of relevance and specificity.
Academic research on micro political risk is still in
its infancy. Most of the research to date has focused
on macro political risk, yielding broadly-based insights about specific countries or regions. The paucity of research on micro political risk is probably
due to the difficulty in generalizing about risk that isparticular. Previous attempts to develop micro political risk assessment models have ended in conceptualization of the concept (e.g., Alon, Gurumoorthy,
Mitchell, & Steen, 2006) or delineation of some of its
components (e.g., de la Torre & Neckar, 1988).
Herein, we build on the scant literature of micro
political risk to provide a more comprehensive and
systematic analysis of factors affecting...