Political instability diminishes the transactional practices and productivity of a country. Do you wonder why some countries are stagnant for a long period? It could be due to political instability.
This article provides techniques and strategies that the host countries can adopt to reduce the effects of political instability.
What is political instability?
Political instability is the susceptibility of a government collapse either due to competition between different political parties or conflicts. Indicators of political instability include; demonstrations, strikes, government crises, ethical heterogeneity, among others. When given a political essay assignment, ensure you research the indicators of political instability.
How to minimize political instability
- Minimizing fixed investments political instability affects local investments directly. To reduce investments risks in unstable countries, a company can opt to lease instead of buying facilities. It can also choose to rely on outside suppliers if they exist. Companies should ensure that their exposed assets are minimal to reduce any damages that political instabilities may cause.
- Hiring terrorism consultantsTerrorism is an unlawful use of violence or force against a person or their property to coerce the government or its citizens to further social or political objectives. To manage the risks of terrorism, countries can hire consultants to advise them on the techniques to reduce it. They can also train some employees to help cope with the threat of terrorism.
- LobbyingLobbying is the act of private interest groups or individuals to influence the government’s decisions. A company can hire people to represent its political matters and business interests to the government. The representatives meet with government officials and try to influence them on issues related to the company. The representative’s goal is to get favorable legislation to enable them to perform their businesses effectively.
- Threatening the host country’s political instability can be reduced by proving to the host country that it cannot do without the activities that take place in firms. This can be achieved by controlling raw materials, distribution channels, and technology in the host country. Firms may threaten the host country that technology, materials, and distribution channels will be stopped if production is disrupted.
- AdaptationAdaptation is the act of incorporating any risks that might arise due to political instability into business strategies. Individuals and businesses can incorporate risks using the following strategies;
- InsuranceGlobal companies can opt to take insurance covers for political risks. Such risks include; theft, war, terrorism, fire, among others. This can help compensate for loss and damages caused by political instability in a country. Insurance is a major topic and a common area of dissertation writing. Every student should be ready for research if given an assignment on this area of research.
- Developmental assistanceDevelopmental assistance allows international organizations to assist the host country in becoming politically stable. When a nation partners with organizations, they all want to gain. For example, the France total and a US oil company invested billions of dollars in helping in improving gas fields, medical care, and local education.
- Local debt and equity coal debt and inequity involve financing subsidiaries with the assistance of trade unions, government financial institutions, and local firms. These groups make sure that political instabilities do not harm the operations of a country.
Companies can adopt localization to modify operations, mix products, or any other related activities to suit the culture and local tastes.
- Vertical integration organizations with specialized plants that depend on others in different countries are likely not affected by political instability. Independent and fully integrated countries are likely to suffer more losses due to political instabilities. Firms should practice distributed sourcing to offer economics of scale to local operations. This can help a country develop by reducing the effects of political instability.If a hosting company takes over a diverse plant, the output level will be spread over many units’ components and products. This would make the local company uncompetitive because it has cost disadvantages.Other political instabilities can be reduced by having several units engaging with the same operation. This will prevent the company from becoming a hostage as a result of specialization.
- The local borrowing government can encourage its citizens to borrow money from the local banks. This can help in maintaining a high level of local payable accounts. It would also minimize the effects of the local economy in case of political instability. Sometimes local borrowing is not possible. If local borrowing happens, the host government will be reluctant to cause problems that may affect local institutions. But, due to the restrictions placed by international financial institutions, investors prefer it.
In a nutshell
Political instability can lead to many adverse effects on the host country. The government should look for techniques and strategies to minimize the effects of political instability. This article has discussed several techniques that the government can adopt.
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