Question

COMPARE AND CONTRAST CONFISCATION, EXPROPRIATION AND DOMESTICATION. EXPLAIN WHAT A COMPANY CAN DO TO PREVENT OR LESSEN THE LIKELIHOOD OF OCCURRENCE OF THE ABOVE.

Answer 1

answer-

Expropriation is the seizure of foreign assets by a government with payment of compensation to the owners. In other terms, it is involuntary transfer of property, with compensation, from a privately owned firm to a host country government. Expropriation may generate some funds for the owners. However, procedures to get paid from the government are sometimes protracted and the final amount remains low. Furthermore, if no compensation is paid, conflicts may erupt between the host country and the country of the expropriated firm.

Confiscation is another type of ownership risk similar to expropriation, except compensation. It is involuntary transfer of property, no compensation, from a privately owned firm to a host country government. In confiscation, firms do not receive any funds from government. Thereby, it represents a more risky situation for foreign firms. Some industries are more vulnerable to confiscation than others because of their importance to the host countries and their lack of ability to shift operations. Sectors such as mining, energy, public utilities, and banking have been targets of such government actions.

Domestication offers to governments a subtle control over the foreign investments. There is a partial ownership transfer and companies are urged to prioritize local production and to retain a large share of the profit within the country. Domestication can negatively impact the international marketer activities, as well as that of the entire firm. For example, if foreign companies are forced to hire nationals as managers, poor cooperation and communication can result. If domestication was imposed within a short time span, poorly trained and inexperienced local managers would head the firm operations with possible lost of profits.

Steps a Company can adopt to prevent or lessen the likeligood of occurence of the above are-

1. Effective research and planning Action to limit political risk starts by researching the target country and developing a strategy to monitor changes there. This initial research should also include an analysis of the country’s past actions and attitudes toward foreign businesses so that these can be used as predictors of the future.

2-Risk sharing where Company can do partnership like strategic alliance with other company in host country.Partners are able to provide local intelligence, share the financial risk, and offer advice on how to respond to events as they unfold.

3-Planned domestication If the firm feels that expropriation is a possibility, it is possible to take preemptive action by pursuing a strategy of planned domestication. This provides the firm with the possibility of recovering at least some of its investment prior to expropriation.

4-Good corporate citizenship A firm will win many friends in its foreign markets if it acts as a good corporate citizen.