If you were representing a company negotiating investments in Indonesia, what steps would you take to manage (or reduce) the potential political risks associated with these investments?

Companies operating in International Market function in a highly competitive environment and require strategies to differentiate their products and enhance their perceived value. Political environment refers to the type of government, the legislations, govt. rules and regulations under which a foreign firm operates. Every country in the world follows its own legal systems. A foreign company operating in that particular country has to abide with the systems of law as long as it is operating in that country. A particular concern of international firms is the degree of political risk in a foreign location. Political risk refers to the likelihood of government activity that has unwanted consequences for the firm. These consequences can be dramatic as in forced divestment, where a government requires the firm lo give up its assets, or more moderate, as in unwelcome regulations or interference in operations. In any case the risk occurs because of uncertainty about the likelihood of government activity occurring. Generally, risk is associated with instability and a country is thus seen as more risky if the government is likely to change unexpectedly, if there is social unrest, if there are riots, revolutions, war, terrorism, and so on. Firms naturally prefer countries that are stable and that present little political risk, but the returns need to be weighed against the risks, and firms often do business in countries where the risk is relatively high. In these situations, firms seek to manage the perceived risk through insurance ownership and management choices, supply and market control, financing arrangements, and so on. In addition the degree of political risk is not solely a function of the country, but depends on the company and its activities as well- a risky country for one company may be relatively safe them another. Thus, in analyzing political-legal environment of country like Indonesia, an Government organization may broadly consider the following aspects: Political system governing the business; Government approaches towards business; Facilities and incentives offered by the govt.; Legal restrictions such as licensing requirement, reservation to a specific sector like public sector, private or small-scale sector; Restrictions in importing technical know-how, capital goods and raw materials; Restrictions in exporting products and services; Restrictions on pricing and distribution of goods; Procedural formalities involved in setting up of the business.