Political stability - doing business around the world

01 Jan 1970 1:00 am by Mark Dunn

This blog is the first in a series focusing on the key considerations for a business before it decides to start operations in a new country. There are many organisations that provide assessments of a jurisdiction’s performance in important areas. The Global Competitiveness Report prepared by the World Economic Forum includes many of these areas as key indicators when assessing the attractiveness of each country as a place to conduct business. The CIA Factbook can also be a useful source of facts and figures on a country’s attractiveness as a place to do business.

Businesses are becoming increasingly global, helped in part by the expansion of the Internet. However, while business itself may transcend jurisdictional borders, every jurisdiction will maintain its own regulatory approach and will have its own customs and practices.

There may be increased political or legislative risks that should be taken into consideration before starting operations. These risks will vary from country to country and their importance will also vary depending on the specific operating sector and the concerns of each business.

Political stability

A country with a stable political system, in particular that manages peaceful transitions from one ruling power to another, will be more likely to benefit from economic stability. Politically-stable jurisdictions will find it easier to attract investment from outside, as evidenced by the rapid growth of the Northern Ireland economy during the mid-1990s after the signing of the Good Friday Agreement. Key considerations include the following:

* How has the country managed transitions of power in the past? Have elections been free from violence?

* Is there any recent historical evidence that an incoming ruling power has failed to honour the commitments to investors of the outgoing ruling power? For example, have incoming rulers revoked licences or permits awarded to foreign investors by the outgoing rulers?

* Is there any obvious reason why a change to the political balance may occur? For example, where a country has been ruled by a single individual for some time, is that individual in good health and what transitional procedures are in place?

* Are there any conflicts in neighbouring countries that could be likely to cause conflict?

* Are there any trade embargoes or sanctions that would prevent, or hinder, the operation of the business?

The easiest way to monitor these issues is likely to be through the country’s political and business news reports, and through business contacts and associates within the relevant country. Additionally, firms like Cordery who are experienced in doing business internationally but are also aware of the added risks multinationals face – like FCPA and Bribery Act exposure - can help.

In my next blog in this series, I will look at how a successful business operation will need to be serviced by the best possible infrastructure network.

Jonathan Armstrong is a Partner at Cordery. He qualified as a lawyer in the UK in 1991 and has focused on technology, risk and governance matters for almost 20 years. He is a Fellow of The Chartered Institute of Marketing and has spoken at conferences in the U.S., Canada, China, Brazil, Singapore, Vietnam and across Europe. Cordery is a trading name of Cordery Compliance Limited which is authorised and regulated by the Solicitors Regulation Authority; SRA number 608187. Cordery Compliance Limited is a separate legal entity to Reed Elsevier (UK) Limited trading as LexisNexis.