UNIVERSITY OF SUNDERLAND

ASSESSMENT COVER SHEET / FEEDBACK FORM

MBA

Student ID: 139127153

Student Name: NGAI Pek May

Module Name: International business environment

Due Date:

Module Code: PGBM04

Centre / College: Segi Subang Jaya College

Due Date:8/9/2015

Hand in Date:

Assessment Title: The impact of political risks to its business operations

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Question four. The extent and potential impact of political risks to it s business
operations.
Political risk is refers to potential impact of a political decision made by a host country that
will impact the business operations of an organization. Political risk can be affect the
business for a firm because of non market factors as macroeconomic and social policies
such as taxation, environment policies or events related to instability of political of the
country such as riots or terrorism. There are two types of political risk which are the macro
risk and micro risk. Macro risk is the adverse reaction actions that will only affect a certain
industrial segment or business such compliance bribery against companies from foreign
countries.
To start a business operation, one must understand the political risk as part of probabibilty
and know the impact to business to minimize risks. For business operators , political risks
could impacts the profits through direct impact such as high taxation and in direct impact
such as opportunity cost forgone. As a result, if there is a high political risks in a particular
country it will reduce the desire investors to expand the business.
The garment sector, the countrys top exporting industry, was hit last year by tragic factory
collapses, thereby putting it under the spotlight. Since then, the government and worlds
major textile groups have been cooperating with the aim to improve future working
conditions. Even though the low-cost advantage is expected to remain, there is an
underlying risk due to Bangladeshs economic dependence on a sector in a transition phase
and subject to fierce regional competition. Moreover, the economy is vulnerable to climate
change, with frequent natural disasters, and poverty remains huge despite significant
progress in human development and a decade of resilient and strong growth. Weak public
finances, especially regionally low fiscal revenues, hamper anti-poverty policy and public
investments in infrastructure that are badly needed, thus hindering economic development.
Looking forward and despite several vulnerabilities, Bangladesh has the potential to raise its
growth trajectory, notably thanks to a fast-rising middle class, provided the business
environment and political stability are improved, which is a big challenge for the country.

The Political unstable in Bangladesh has become one of the political risks for business
operators. The elections have result to unstable politics and violence in Bangladesh. The
political system of Bangladesh is running by representative democracy. Despite it is a

democracy country but the practiced has not been practiced properly and it has become a
negative impact to business operations.

Political unstable is almost a daily occurrence in Bangladesh which hinders the daily national
and international trading business of the country. Bangladesh is a democratic country in
name but not in action. The main political risk in the near term is linked to the outcome of the
election. It is so common to see the political protests, riots and strikes that it becomes the
countrys political landscape. This has result to disrupt of business operations.
Corruption also has become an internal political risk in Bangladesh. In 2014, Bangladesh
ranked no. 16th in the top corrupted countries in Asia Pacific (star, 2014). The corruption in
Bangladesh goes unchecked therefore it is difficult for a foreign investor which most foreign
companies now practise anti bribery under compliance rules and regulations.
The political security risk in Bangladesh has been a problem.
Over the past years ,tensions arise in the political system have been serious by a series of
violence and bombings, which included bombings of high level opposition leaders, mass
bombings on August 17th 2005 and a series of suicide attacks on state institutions (Ilahi,
2015). These incidents have thrown the potential impact of growing Islamic extremism in
Bangladesh and the need for measures to tackle both its immediate and underlying causes
into sharp relief. Recently there is a petrol bomb in the city that target at public transport
(Ilahi, 2015). This has been impact the business transportation especially for garments
business which needed to transport raw materials for production. The political friction
between governments entity is unstable as the ruling and the main opposition party shares a
historical animosity, severely obstructing any progress on the policy agenda. A series of
general strikes and riots have impacted the business since beginning of the year and it
impacted the business environment of Bangladesh. Losses of sales and assets have
impacted business operators. Hundreds have died in violent clashes between rival political
frictions. Some of the top opposition leaders and human rights activists have been arrested
during the riots. Courts have delivered guilty verdicts and death sentences that flout the most
basic standards of due process. Business operations are effected and sales have been slow
impacted by the violent crashes.
It is considered not to be a politically stable country as it involves corruption and bribery as
key obstacle that needs to be handled. Bangladesh is considered the most corrupt country in
the world according to most major banking institution (Solutions, 2014). Many foreign

companies often find themselves paying for costly and unnecessary licences or permit for
business. This impact the garments business as some garments raw material needs permit
to be process for final materials.
One of political risk might be facing is the currency depreciation. Bangladesh has had a
floating exchange rate since 2003. The IMF classifies the exchange rate as a managed float.
Interventions by the central bank have been increasingly rare since 2011. The currency, the
Taka, has weakened over a period of many years. For non residents, there will be currency
restrictions. For local garment business, some of the machinery and equipments purchased
from overseas become more expensive.
Poor banking facility has been become one of the political risks which poor banking
administration which doesnt comply with the international regulations has make it a
challenge for company to invest in the garments sectors which required high numbers of
higher credit terms.
Internal politics could be corruption, interference by authoritarian regimes, actual and
potential social unrest, personalized power centres, conflicting faction within government,
fragile coalition government, risk of terrorist attacks, fragmented political allegiances,
presence of groups who feel alienated.

Bangladesh is thus over-reliant on a single garment sector for its exports. Given intense
competition with South-East Asian countries (Cambodia, Vietnam, Indonesia and potentially
Myanmar), the authorities would have to consider somehow developing export diversification
in the long term. It is advised to reduce the risk that a top economic and social force
becomes one day a weakness and to alleviate negative shocks.

Bangladash is facing political risks interruption from government as well. Indeed, last year,
the sector was tragically shaken by deadly factory collapses due to poor safety conditions,
particularly the Rana Plaza building disaster that left over 1,100 workers dead, triggering
protests and western criticism. A government national action plan and agreements between
local factory owners and foreign fashion retailers were set up. The overall goal of this local
and international cooperation is to raise safety standards at Bangladeshs 4,000 existing
textile factories and improve working conditions. As a result, more than a quarter of factories
have already been inspected and several shut down (Burke, 2015) and business gain a
major lost.
Increased in international reserved become part of political risks. Export of goods and
remittances are two of the important components of the country balance of payments.

Bangladesh's have made the country the worlds second largest textile garments producers
behind China as it accounts for 80 per cent of the countrys revenue. Low pay and duty free
access to the EU have resulted in a steady increase in exports in recent years and
Bangladesh has thus claimed its place on the map of textile manufacturing. However, the
sector has been hit by several tragic incidents,
including the collapse of a Rana factory place building in April 2013 (News, 2013), which put
the spotlight on the difficult working conditions that often exist in the factories. Both foreign
importers and local authorities are keen to show that reform work aimed at improving
working conditions is in progress and that the accident is unlikely to have any appreciably
adverse effect on exports. This has resulted the government to shut down 18 of the
garments factories for safety reason and now the government taking the safety of workers
seriously especially in garment business .

Another country which shares the similar political risks in garments business is Vietnam.
Vietnam economy is mainly driven by tourism and exports. Vietnam is ruled by part
communist which control the judiciary and corruptions are common. Inflations had become a
problem since it fails to attract many foreign investors. In 1986, Vietnam decided to start on
reform process with focus more market oriented economy.

Vietnam textile and garments business are facing the two main political risks which are the
unstable politics that affected the employment issues. Employment become one of the
political risks is social risks where by Vietnamese workers are often organized strike or
other demonstrations due to they are not free to join or form unions unless they are affiliated
with and have been approved by the Communist Party controlled Vietnam General
Confederation of Labour (VGCL). Under the Vietnamese Labour Code, the VGCL is required
to organize a union within six months of the creation of any new business. However, only
85% of state owned enterprises, 60% of foreign invested enterprises, and 30% of private
enterprises actually have been unionized .Where VGCL affiliated unions have been
established, the representatives often have close ties to the management. Workers at their
own initiative have set up hundreds of unaffiliated labour associations to demonstrate their
dissatisfaction of their employment benefits. This will impact the business operations in
terms of lack off workers for production in garment sector and some companies have to go
to court case to unsettled issues with the unaffiliated labours associations.
Corruption has become one of the biggest political problems in most developing countries.
Vietnam corruption and bribery between business operations and contractors has been
significant. The contractors often receive kickbacks on equipment purchases, the problem is

pervasive. This resulted to high investment of equipments purchases for business especially
most equipments for textile and garments are imported from German and Japan .Business
operations should aware that Vietnam high level corruptions still occurred (solutions, 2014).
The use of gifts and facilitation of payment when dealing with government sectors are
common. This has resulted to non transparency deal with governments licensing. Business
operators needs to aware compliance issues and if non facilitation of payments may result
in a slow process of getting licensing. Vietnams leaders know that corruption could
ultimately hurt the country. However they know that much of the problem is at the grassroots
base of the culture itself and if the government were attack the problem comprehensively
and systematically, it would risk hurting he very underpinning of the most government body
which benefit most from corruption. It also given the local authorities to demand for bribes to
issue licensing or permits for importing and exporting. Business operators for textile and
garment business which rely on imports machinery from Germany, Japan and Singapore
might face licensing issue and compliance issues. Therefore, Hanoi is careful in selecting
which cases it wants to prosecute and which ones it wants to ignore. This approach is
unlikely to change. Therefore to do garment business, the trading import and export
sometimes involve corruption to export out the goods.
Most institutions in Vietnam are relatively weak with the exceptions of the Communist Party
and the military. The local economy still dominated by the state sector and many institutions
are geared to support this sector rather than private enterprise and foreign investment. This
includes the banking system, stock market the health care industry and the media.
All of these institutions are vulnerable to political interference and corruption.

Political risk included political corruption has not progressed nearly as far as China in
reforming its legal system, which means not only drafting new laws needed by a modern
economy but also training the lawyers and judges in how to apply these laws. Communist in
country still control courts at all level. Although a national bar association has been
established and the ministry of justice is seeing the system however the challenge will be still
implementing the system. The system is not very good in settling dispute or enforcing
contracts. Therefore business operators sometimes might have to pay compensation instead
of winning the right. The courts rarely take any cases against the members government in
fear of sensitivity issue (solutions, 2014). Therefore if a business operator encountered any
problem with government, the case might not be resolve. As a result companies might
encounter problem with property rights and contracts.

Vietnam social unrest has seen a rise of riots, strikes and protest. Relations with China could
deteriorate over disputed territory in the South China Sea and prevent smooth economy
interfacing between the two countries. The local community strikes protest against China
and the China government are watching closely Vietnam exporting business to China.
Business operation of textile and garments which supply to China is facing a huge impact
where by the China might resort to another country to purchase garments such as India.
The risk of a change government is one of the political risks for garment business as well.
This political risk relates to the frequent key leadership changes such as the presidency,
premiership, monarchy, cabinet positions and legislative leaders. The business environment
can be disrupted by a change in government leaders, be it in the form of a cabinet reshuffle,
the death of a person in power, elections, or coup. The change of government impacted the
political environment in Vietnam and regulations of business have to change with the change
of governments. The government still does not feel comfortable with free market policies and
is unwilling to push reform of the state sector hard or fast enough. Lately, policy has been
more reactive than proactive, and the result has been relatively radical economic swings to
which the government has responded by announcing new administrative controls and
measures that frequently do more to treat the symptom of problems than the problems
themselves.
Poor legal system does impact foreign company which one want to invest as the Vietnam
legal system is governed by state and intervention common. The poorly resourced judiciary
system result in poor handling dispute between of foreign and local firm. In the event of the
dispute between a foreign company and local partner, the judges usually favour the local
parties. Social unrest and international conflict risk have reared their ugly heads in
Vietnam this year. The placement of a Chinese oil rig in the South China Sea in May led to
collisions between ships from Vietnam and China as Vietnam tried to block
what it views as Chinese encroachment into its waters. It is worth noting that Vietnam is not
alone in questioning Chinas sovereignty in the South China Sea. Malaysia, Brunei and
Taiwan also have claims to parts of the potentially energy rich waters, as does the
Philippines, which submitted a case to an arbitration tribunalin China has refused to
participate and warned that its submission could damage economic and political ties
between the two countries.
One of the political risk in Vietnam which is the red tape policy where operating a business
will be difficult especially like garment business it involve importing and exporting. The red
tape policies are dealing with government authorities still lack of transparency. The
government policies can be change from time to time. Due to lack of consistency in
government policies, trading business in garments can be challenging.

Another major setback for garment business in political risk is high taxation for exporting to
US. Vietnamese garments are taxed at 17% by government for exports to US. There are
various taxation in Vietnam that may effect business operation such as special sale tax,
natural resources tax, properties taxes, export duties and environment protection tax.
The variable taxation has impact the business operation revenue. There are massive of 32
corporate tax payments to be made each year (group, 2014). Taxation has become of the
highest burden for business operator.
The Vietnamese banking system is relatively poor, with a high rate of non-performing loans
and weak capitalisation limit liquidity, plus access to credit is difficult. For business operators
to do importing will be difficult as the government required foreign exchange license. The
Dong is not a freely convertible currency. This result to local or foreign business operators
can struggle to meet payment obligations in a foreign currency.
Vietnam political risk included regulatory issues still lack of efficiency despite the country has
going through reform. For example no minimum capital investment is required to open a
business, but the process still takes over a month, and licensing requirements remain timeconsuming. Therefore for new business operation it might takes weeks to start off a business
and licensing requirements are unclear.
Another international political risk would be insecurity of energy and natural resources. For
business start up to get electrical connection is among the most challenging task as it takes
115 days to complete and inspection by local power corporation and complete the process
with the traffic and transport department (group, 2014). This has result to textile and
garments business unable to run the manufacturing plant.
The labours market remains rigid, and informal labour activity is considerable. Although
inflation has moderated, the state continues to influence prices though controls and stateowned and state-subsidized firms. The labour markets are unstable as Vietnamese labours
prefer to work in neighbouring countries with higher currency exchange rate to bring home.
For Garments business it has become a major challenge because most of the productions
required labours.
Inflation has become a problem in most developing countries .Vietnam and the country
struggle to attract foreign investors in the absent of lack of transparency in business. Many
international importer for garments have resolve to seek cheaper garments producer for
example India.

In conclusion, different political risks impacted a business in different ways, depends on their
different input, output, strategies and goals. Political risks might result to loss of sales, assets
and future profits. To prevent further impact on business , political risk can be managed with
political risk management. The goal is to succeed in spite of political risks and become more
competitive.
References
Burke, J. (2015, April 22). Bangladash workers suffer poor condition two years after reform vows.
Retrieved September 4, 2015, from The Guardian:
http://www.theguardian.com/world/2015/apr/22/garment-workers-in-bangladesh-still-sufferingtwo-years-after-factory-collapse
group, T. (2014). Vietnam business network. Retrieved September 5, 2015, from Global business
knowledge: http://www.tmf-group.com/en/media-centre/resources/top-challenges/apac/vietnam
Ilahi, I. (2015, February 16). Political Violence: A national threat to security. Retrieved September 4,
2015, from The Bangladash Chronicle:
http://www.bangladeshchronicle.net/index.php/2015/02/political-violence-threat-national-security/
News, B. (2013, May 10). Bangladesh factory collapsed. Retrieved September 5, 2015, from BBC New
UK: http://www.bbc.co.uk/news/world-asia-22476774
Solutions, G. I. (2014, June). Business Corruption in Bangladash. Retrieved september 4, 2015, from
Business anti corruption portal: http://www.business-anti-corruption.com/country-profiles/southasia/bangladesh/snapshot.aspx
solutions, G. i. (2014, June). Vietnam country profile. Retrieved September 5, 2015, from Business
anti corruption portal: http://www.business-anti-corruption.com/country-profiles/east-asia-thepacific/vietnam/snapshot.aspx
star, d. (2014, December 3). Bangladash 14th most corrupt country. Retrieved september 4, 2015,
from the daily star: http://www.thedailystar.net/bangladesh-14th-most-corrupt-country-53165

Turnitin report.