Summary of the article Essay Example | Topics and Well Written Essays - 750 words - 2

Summary of the article - Essay Example For instance, before the 2007-2009 economic recessions, there was increased acquisition of attractive global investment opportunities, the engagement in foreign direct investments, and the migration of business operations to host countries, a trend that reversed after the economic recession because of the contraction of financial markets. Therefore, undesirable and unanticipated geopolitical events, such as governmental shifts, regulatory changes, civil disobedience, acts of terrorism, and sovereign defaults can negatively affect global supply chains and disrupt business activities resulting in massive operational and investment losses for multinational corporations. For instance, in the wake of the governmental uprisings, consecutive surges and social disturbance in the MENA region, it is likely that the European agricultural and textile industries will be negatively impacted by supply shocks in countries such as Morocco, Tunisia and Egypt, hence necessitating critical examination of such political events before transitioning into foreign markets (Fabiani, 2011). However, many aspects of political risks are difficult to measure and quantify before transitioning into such foreign markets. Although organizations like Aon, Euromoney, the World Bank, The Economist and Freedom House, have attempted to develop political indices, which score countries on an individual or regional basis to proxy for political risk; consequently serving corporations with early warning signals of pending disruptions, which can cause undesirable financial losses and consequential reductions in shareholder’s value in the corporation. However, regardless of their merits in helping corporations pre-examine their foreign market interests, these indices have some shortcomings, which render their reliability questionable. For instance, these indices are based on historical data, which could be inaccurate in making determinations and forecasts about the