University of Huddersfield Repository
Total Page:16
File Type:pdf, Size:1020Kb
University of Huddersfield Repository Mshelia, James Buba Political risk assessment by multinational firms in Nigeria Original Citation Mshelia, James Buba (2015) Political risk assessment by multinational firms in Nigeria. Doctoral thesis, University of Huddersfield. This version is available at http://eprints.hud.ac.uk/id/eprint/30193/ The University Repository is a digital collection of the research output of the University, available on Open Access. Copyright and Moral Rights for the items on this site are retained by the individual author and/or other copyright owners. Users may access full items free of charge; copies of full text items generally can be reproduced, displayed or performed and given to third parties in any format or medium for personal research or study, educational or not-for-profit purposes without prior permission or charge, provided: • The authors, title and full bibliographic details is credited in any copy; • A hyperlink and/or URL is included for the original metadata page; and • The content is not changed in any way. For more information, including our policy and submission procedure, please contact the Repository Team at: [email protected]. http://eprints.hud.ac.uk/ POLITICAL RISK ASSESSMENT BY MULTINATIONAL FIRMS IN NIGERIA JAMES BUBA MSHELIA A thesis submitted to the University of Huddersfield in partial fulfilment of the requirements for the degree of Doctor of Philosophy The University of Huddersfield Business School December 2015 ABSTRACT ABSTRACT The study offers an insight into the dynamics of the relationship between political risk and multinational firms in the context of emerging markets. Political Risk Assessment (PRA) importance for multinational firms investing in emerging markets has increased significantly with the growing rate of Foreign Direct Investment (FDI) globally. It is used for managing political risk, and decision-making processes during firms’ internationalisation, and has been identified as one of the key determinants of FDI into developing countries. However, only a few empirical studies on PRA have been undertaken in emerging markets. Previous studies have shown that political risk has been evolving and has resulted in a range of consequences that have influenced the type of strategies which firms adopt. It is in recognition of this that the need to identify a country’s specific political risk factors and their consequences for multinational firms that this study is undertaken in Nigeria. Despite the flux in the political environment of the country with its population divided along cultural, ethnic, language and religious lines within its different geographical regions, Nigeria has witnessed a continuous inflow of FDI. This research contributes to the assessment of political risk by critically analysing the determinants and indicators to examine how the consequences of political risk impact upon multinational firms, with a view to understanding the managerial practices associated with managing political risk in Nigeria. Six objectives were identified as follows: to investigate the determinants of political risk; to examine their impacts; to investigate the variables and indicators used to forecast political risk; to investigate the consequences of political risk; to explore practices of PRA in multinational firms and to identify strategies used to manage and mitigate political risk in Nigeria. Likewise, four hypotheses underpinning these objectives were formulated to understand the dynamics of the relationship between political risk and multinational firms. This study empirically used a sequential mixed method strategy to analyse statistically as well as using thematic and content analysis data collected through a multi-method approach from 74 multinational firms in Nigeria. The dataset of the International Country Risk Guide (ICRG) PRA annual rating for Nigeria within the period 2011 to 2015 was also analysed. The study identifies eight determinants that contribute to the emergence of political risk. It highlighted factors that influence the consequences of political risk on multinational firms which supports the conceptual premise for identifying reasons why firms manage and mitigate political risk in countries, and why some internationalise into specific countries. Empirically, it showed that the impact of political risk varies from one part of a country to another, as do the consequences of their impacts which inform why multinational firms are located more in some parts of the country, and how the consequences of political risk will differ between firms, depending on their location in a country. These findings have implications for practice and showed that firms could improve their conduct of PRA, influence the type of strategies they adopt and how to explore quantitative PRA methodologies when operating in similar emerging markets. This study also showed that some risk indicators used for forecasting political risk appeared major and did not retain the same value within the country. The case of Nigeria showed that the presence of high political risk does not deter firms if the financial and economic risk is low. It reveals also that the practice of PRA differs within firms and that the strategies used to mitigate political risk mostly involve the conduct of PRA and engagement in Corporate Social Responsibility (CSR). 2 LIST OF TABLES LIST OF CONTENTS ABSTRACT ..................................................................................................................... 2 LIST OF CONTENTS ..................................................................................................... 3 LIST OF TABLES ........................................................................................................... 8 LIST OF FIGURES.......................................................................................................... 9 LIST OF APPENDICES ................................................................................................ 10 LIST OF ABBREVIATIONS ........................................................................................ 11 ACKNOWLEDGMENTS.............................................................................................. 13 DECLARATION ........................................................................................................... 14 CHAPTER 1 : INTRODUCTION ............................................................................. 16 1.1 Background ............................................................................................... 16 1.2 Rationale for the Research ........................................................................ 19 1.2.1 Relevance ............................................................................................ 19 1.2.2 Challenge ............................................................................................ 20 1.3 Aim and Objectives of the Research ......................................................... 21 1.3.1 Exploring Political Risk in Nigeria ..................................................... 21 1.3.2 Practices of Political Risk Assessment in Nigeria .............................. 23 1.3.3 Managing Political Risk in Nigeria ..................................................... 24 1.4 Research Hypotheses ................................................................................ 24 1.5 Research Methodology ............................................................................. 26 1.6 Explanations of Terms .............................................................................. 27 1.6.1 Consequences ...................................................................................... 27 1.6.2 Forecasting .......................................................................................... 28 1.7 Contribution of the Research .................................................................... 29 1.8 Style, Format and Organisation of the Thesis ........................................... 30 CHAPTER 2 : POLITICAL RISK IN INTERNATIONAL BUSINESS .............. 35 2.1 Introduction ............................................................................................... 35 2.2 Theoretical Framework ............................................................................. 35 2.3 Conceptual Clarification ........................................................................... 38 2.3.1 Risk Defined ....................................................................................... 38 2.3.2 Classifications of Risk ........................................................................ 40 2.3.3 General Risks in International Business ............................................. 41 2.3.3.1 Country Risk ................................................................................. 42 2.3.3.2 Financial Risk ............................................................................... 44 2.3.3.3 Cultural Risk ................................................................................. 45 2.4 Political Risk ............................................................................................. 46 2.4.1 Political Risk Defined ......................................................................... 49 2.4.2 Classification of Political Risk ............................................................ 51 2.4.3 Political Risk in International Business .............................................. 53 2.5 Political Risk Assessment ........................................................................