History assignment on: Political Risk and Foreign Investment

Answer 1. Political risk can be best described as a problematic situation in which a country’s government starts interfering with a particular business operation sometimes intentionally and sometimes unintentionally, causing enough problems for it to hold out its operations there (Iliou & Iliou 2008). As the case highlights, Azerbaijan is a politically risky state for businesses which is still under the tremendous influence of Heydar Aliyev who was the former head of Azerbaijani branch of KGB and a prominent leader of Soviet Azerbaijan, holding the presidential office for more than 10 years between 1993 & 2003 as the third Azerbaijani president. The current president of Azerbaijan, Ilham Aliyev, is the son of Heydar Aliyev.Azerbaijan is bounded in the east by the Caspian Sea which holds vast reserves of petroleum oil. Many a companies want to tap these oil reserves. Unocal and The Azerbaijan International Operating Company are the two companies who are in contention for developing infrastructure for exploring the oil regions and thus planning to devise pipeline roots to transport the oil back to the market. Since the investment regarding pipelines development is very high and their proposed lay-out roots are very risky, companies are assessing the political risks attached with both the roots.

The two pipeline roots which are in contentions here are the one passing through Turkmenistan, Afghanistan and Pakistan and the second one tapping various Chinese cities. According to me, on a vulnerability scale of one to ten, I’ll assign the highest rating of ten to those investments who are very time-consuming and costly and thus most vulnerable. One should also make assessment of the importance these investment holds to host countries as in a not very ideal situation, they can confiscate or expropriate such properties (Holburn 2001). Since pipeline development is one such process which commands high cost and an ample amount of time, I think it will be most vulnerable to the political instability of Afghanistan and China and a rating of 10 could be assigned to this proposed investment.Answer 2. As it has been mentioned in the case study that Unocal is currently considering two roots for pipeline transportation of oil and natural gas, one taps the regions of Turkmenistan, Afghanistan and Pakistan, and the second one travels through the China. Both the reasons are fraught with political instability (Chow 2010). An assessment of political situation of the countries aligned with these roots gives us a clear idea that Chinese root will be a lot safer than the Pakistani root. The first pipeline passes through Afghanistan and western Pakistan where a lot of tribal communities like Baluch and Pathan (Pashtun people) live who are known for their separatist behaviors. Secondly this region is also known as the habitat for many terrorist groups like Al-Qaida and Lashkar-e-Taiba. It is an evident fact that these terrorist groups can cause a havoc in any country and thus a costly investment such as pipeline layout is strictly not recommended for this root as the terrorists, given the lack of infrastructure and a security framework in this region, can confiscate this property easily and sustain their destructive activities with the help of this oil-money for a long, long time (Herberg 2010).

Talking about the Xinjiang root of China, we can say that China commands a higher authority on Uyghur community despite their separatist stature and it is only because of China’s authoritarian leadership that they demonstrate their protests against China, just like Tibetans. However, they are only a minority Islamic group in the northwestern part of China, generally known for their jovial nature and thus are very unlikely to provide any harm to this pipeline development plan. And as China is known for its stern policies, oil companies can be assured for a full-proof security system for this key intervention. In this way, Chinese root will be more preferred than the Pakistan-Afghanistan one in terms of least political risk.Answer 3. Assessment of the political risk is one of the integral parts of modern international business operations. There is not an ideal approach which can be employed to fight such terse political imbroglios (Holburn 2001). A one-size-fits-all approach is unsuitable in these situations; however, it will be advisable for the companies to make themselves as much as familiar with the local culture and economics as they possibly could so that they can operate in foreign markets peacefully. These companies will be less likely to bear the brunt of negative actions of the separatists or the terrorists as they will employ local labor, bring foreign investments as well as the technological expertise and all the other good measures to such markets (Hendrix 1991). These companies can also approach the experts of foreign affairs who can provide such companies with valuable insights about their culture, local politics and economical and sociological scenario. And finally, to make their investments more secure, they can purchase insurance against political risk from OPIC (Overseas Private Investment Corporation), MIGA (Multilateral Investment Guarantee Agency), or a private firm (Hendrix 1991).

If you want History Assignment Help study samples to help you write professional custom essay’s and essay writing help.

Receive assured help from our talented and expert writers! Did you buy assignment and assignment writing services from our experts in a very affordable price.

To get more information, please contact us or visit www.myassignmenthelp.Com