What are effective strategies for minimizing political risk in developing countries?

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thanatassa eNotes educator| Certified Educator

Political instability can result in wide fluctuations of exchange rates, and so you need to think about currency hedging.

Locals will always have more knowledge than foreign companies. It’s important to have well-politically connected locals involved in all levels of tactical and strategic planning.

Be very familiar with local laws and customs. During times of political instability, foreign countries who violate them are often viewed as targets for nationalization.

Consider local partnerships rather than doing business as an entirely foreign-owned entities.

Calculate political risk as a factor in projecting returns. You need a substantially higher rate of return in a developing market to compensate for political risk than you would in a more stable market.

Have an exit strategy.