Political, Economic and Social Risks of Developing Countries

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Political, Economic and Social Risks of Developing Countries

International trade barriers, for most, have long fallen. In developed nations, markets are becoming saturated; specific natural resources are often exhausted or non-existent and labour rates and material resources are too costly. Meanwhile, emerging economies such as China, India, or even Brazil are finally opening themselves up to the rest of the world. For businesses, this means a chance to take advantage of opportunities that are too often scarce at home. However, opportunity does not come without risks; foreign countries have different political, economic and social frameworks which all affect MNCs in different ways, especially in
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First, a government from a developing country may not provide political/economic and social stability. Many emerging economies may present

important risks in relation to the stability of their fundamental legal and political frameworks. Some may still not have an established rule of law, so government's role in business varies because those in control can determine policy with some degree of enforceability. David Holt calls this the "rule of man":

This situation often results in frail commercial regulations, unpredictable economic policies, and trade agreements subject to the prerogatives and whims of those in power.[2]

This means that a business could arrive in a country, understand, accept and comply with all the current regulations; but the host-government may change policy and suddenly decide that one of these regulations (e.g. import/export taxes) does not fit their ideologies anymore. This regulation may have a direct effect on foreign businesses and thus represent a risk to the flow of its production. Although China has been attracting multinational ventures from all over the world because of its new membership to the WTO and the economic reforms this triggered, the "Economist" still claims that "the risk of political instability will rise sharply in 2003"[3]. Zemin is to hand over the state presidency in March 2003, but will this be done smoothly
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