Entering Foreign Markets: Coping with Political Instability

The events in Ukraine have reminded us of the risks that firms face as they expand internationally.   Political instability can take a significant toll on a firm's performance.  More importantly, it can create unsafe conditions for employees and lead to high levels of stress and anxiety.   As firms consider the lessons from the events of the past month, they ought to:

1.  Revisit their entry strategies as they move into other geographic regions.   Should they enter via wholly owned subsidiary (if legally possible), or should they enter via joint venture or franchising?  Retailers and restaurant chains may choose franchising, for instance, not simply because it enables a firm to expand faster.  Franchising also may be advantageous because it minimizes the capital that you put at risk in a potentially unstable environment.  Moreover, franchising, alliances, and joint ventures enable a firm to access the specific local knowledge of people who understand the region, culture, politics, etc.  

2.  Reconsider the reliance that they may have on ex-pats.   Should the organization recruit more local citizens, so as to gain more knowledge of the region and so as to build relationships with local officials?   It's a tricky balancing act.   If you use fewer ex-pats, you may be relying initially on more inexperienced people without deep knowledge of the company operations and culture.   However, in a politically unstable situation, having locals involved could be advantageous.

3.  Reexamine the risk assessment that they have done with regard to each country in which they operate.  Does the organization have an accurate, updated assessment of the risk of political instability?  Is there someone monitoring geopolitical events closely?   Are these risk assessments factoring into the capital investment decisions that they company is making?