Reference no: EM133267281

Chapter 10 highlights the importance of managing political risk, government relations, and alliances. 

Political uncertainty has long been a part of doing business in Russia.  For over 20 years, Russia's often-unpredictable foreign policy actions have indirectly resulted in financial difficulties for British Petroleum (BP) and other multinational companies working within Russian borders.  Additionally, the Russian government's internal actions, which notoriously change the "rules" of business to best suit its needs, have led to risky and frustrating situations for foreign companies that have invested in the country.  Russia angered many in the international community by its annexation of the Crimean peninsula from Ukraine in early 2014, and now we are witnessing the invasion of Ukraine by Putin.

Many foreign companies, like BP, have found themselves incurring huge losses due to lost business and frozen assets.  French carmaker Renault, which through its Renault-Nissan alliance controls nearly 50 percent of Russian automaker AvtoVAZ, saw its Russian sales decrease by 8 percent in the immediate wake of the sanctions in early 2014.  Conducting business in Russia as a foreign company is not just risky for external political reasons; internal rule-changing by the Russian government also poses the potential to lead to significant losses and frustration.  International managers interested in expanding into Russia, or any emerging economy, must make a thorough assessment of its political risk and joint ventures' costs and benefits with local partners.

Discussion Question:

How have Russian policies affected foreign oil companies in the country?  Do you think the companies brought the problem on themselves? Why, or why not?  Considering recent events with Russia's invasion of Ukraine, do you believe MNCs will consider expansion into Russia in the near future?