In this "Business Talk Black Sea Region" Johannes Leitner, head of the Competence Center for Black Sea Region Studies, takes a close look at risk factors in the markets of the Black Sea Region that are beyond economic risks such as GDP development, demand structures and competition. Instead, he unveils political risk factors that impact firm performance in these markets and will highlight the pitfalls of political systems which are characterized through the parallel existence of formal and informal institutions. Following a brief theoretical insight into political risk analysis he will discuss a number of cases from the Black Sea Region and conclude with managerial implications of these political risk factors.

1. Risky but not Attractive?
Mapping Political Risk in the BSR.
Dr. Johannes Leitner

2. Internationalisation &
Risks for Business
Source (Hoskisson et al. 2000; Meschi 2005; Brouthers et al. 1998; Alcantara 2013; Diamonte et al. 1996)

3. Risks in International
Business
Risks in a Business Location
General
Environment
The Industry
Firm specific
Variables
Source: Miller (1992,1993); van Wyk (2010); Werner et al. (1996)

4. Nonmarket Environment
General
Environment
Source: Boddewyn (2003); Kobrin (2015); Rajwani and Liedong (2015); Baron (1995); Boddewyn (2015)

5. Distribution of
Political Risks…
Source: Bremmer (2009); Taleb (2007)

6. Low probability -
high impact events

7. Metro in Eastern Ukraine

8. Distribution of
Political Risks…
Source: Bremmer (2009); Taleb (2007)

9. Market Entry Armenia

10. Expansion Moldova

11. Which problems arose?
Competitors?
Demand?
Political
Instability?
Judiciary?
Socio-
economic?
Low GDP?
Political
System?
Formal Informal

12. International Context…
Political Risk
Political Risk
Fuzzy Concept
(e.g. Kobrin 1979, Fitzpatrick 1983,
Sottilotta 2013, 2015)
Public actions….
interference with private business…
in the host country of international activities…
with (mostly) adverse effects for the business.
Coredeterminantsovervariousauthors…
(Leitner,forthcomnigspring2016)

13. Political Risk Factors
Political stability (Miller 1992)
.
Geopolitical Risk Factors (MIGA 2015)
Internal (de la Torre et al 1988)
Systemic Corruption (Meissner 2016)
Regional, Bilateral
Conflicts and Diplomatic
Ties (Alon & Martin 1998)
Host country‘s attitude
towards international
companies (Kobrin 1980)
Macropolitical Risk Factors
(Robock, 1971; Alon & Martin, 1998)
.
Micropolitical Risk Factors
(Robock 1971, Alon & Martin 1998)
LevelofAnalysis
.
External (de la Torre et al 1988)
Systemic Favouritism (Meissner 2016)
Institutional Ambiguity (Meissner 2016)

14. The Risk Map
Source: AON Political Risk Maps at: https://www.riskmaps.aon.co.uk/site/map.aspx

15. Business Environment
in ENP Markets
Source: (EBRD BEEPS Report 2016 at: http://ebrd-beeps.com/reports/beeps_v_report/)

16. GDP Growth (annual %)
Source: World Bank at: http://data.worldbank.org

17. State Capture
Political stability (Miller 1992)
.
Geopolitical Risk Factors (MIGA 2015)
Internal (de la Torre et al 1988)
Systemic Corruption (Meissner 2016)
Regional, Bilateral
Conflicts and Diplomatic
Ties (Alon & Martin 1998)
Host country‘s attitude
towards international
companies (Kobrin 1980)
Macropolitical Risk Factors
(Robock, 1971; Alon & Martin, 1998)
.
Micropolitical Risk Factors
(Robock 1971, Alon & Martin 1998)
LevelofAnalysis
.
External (de la Torre et al 1988)
Systemic Favouritism (Meissner 2016)
Institutional Ambiguity (Meissner 2016)

18. State Capture
Systemic Corruption
Systemic Favouritism
Institutional Ambiguity
State Capture:
“private actors seize public institutions
and legal-political processes to realise
their particularistic interests of
accumulating power and private
wealth. For that reason,
they more or less systematically
abuse, side-step, ignore, or even
tailor formal institutions to fit
their interests” (Larulle 2012)
State Capture works through systemic corruption, systemic
favouritism and institutional ambiguity and poses severe political
risks to enterprises

19. Example: Azerbaijan

20. Risk Assessment
Stakeholder
analysis
Political
terrain
analysis
Risk factors
Probability
Impact
Be prepared
Be aware
Focus
Monitor
Severity
Source: McKellar 2010

21. Risk Management
Generic Strategies Refined Examples
Accept You simply accept
the risk and do not
take any action
Start the business
and hope for the best
Mitigate You try to reduce
either the probablity
or the impact of the
risk
• Political strategies
• Stakeholder Mgmt
• Portfolio Mgmt
• Intelligence
Transfer You transfer the risks
to other partners who
are willing to bear
them
• Insurance
• Outsourcing risky
actions
• Brokers
• Decoupling
Avoid You do not take
actions that
inherently are
associated with
certain risks
• You do not pursue
a business
opportunity

22. Risky but not attractive?
…political risks root in the parallel existence of
formal and informal institutions…
No surprises in economic development,
trough being experienced in 2015…
…paired with state capture in most of the
post-Soviet markets.
But these issues can be managed if decision
makers in the firm are aware of these risks.