In a short essay, describe the methods used by governments to seize the assets of foreign firms. How would proactive environmental scanning mitigate this risk?

What will be an ideal response?

Governments seize corporate assets in two major ways: confiscation and expropriation. Confiscation refers to the seizure of foreign assets without compensation.

Nationalization generally refers to government takeover of an entire industry, with or without compensation. In 2006, the government of Bolivia nationalized much of the oil and gas industry in that country. Nationalization occurs in advanced economies as well. Following the recent global financial crisis, the federal government of the Netherlands nationalized part of the financial-services company Fortis NV, and Britain nationalized the Royal Bank of Scotland.

Proactive environmental scanning can mitigate the risks of these types of seizure. Anticipating country risk requires advance research. Initially, managers develop a comprehensive understanding of the political and legal environment in target countries. They then engage in scanning to assess potential risks and threats to the firm.

One of the best sources of intelligence in the scanning process is employees working in the host country. They are knowledgeable about evolving events and can evaluate them in the context of local history, culture, and politics. Once the firm has researched the political climate and contingencies of the target environment, it develops and implements strategies to facilitate effective management of relations with policy makers and other helpful contacts in the host country. The firm then takes steps to minimize its exposure to country risks that threaten its performance.