Globalism the Hawthorne Studies International

Globalism

The Hawthorne Studies

International investments hold the promise of mammoth profits for the investor. Developing economies in Asia, Latin and Central America are fertile fields for making money from the right kinds of investments. Many of these countries are also highly volatile, and accompanying the opportunity of high capital acquisition is the possibility of multiple losses. Economic and political instability contributes to the creation of a high risk investment environment; while returns are attractive, risk is a perpetual companion.

The foremost risk to companies from political and economic instability is "capital loss or reduced rates of return" (Bollen & Jones, 1982, p.1072). Where there is political and economic instability companies may decide to jettison projects or reduce the size of the investment to reduce the risk associated. While capital may be lost through multiple avenues, a notable path may be the inability of governments to repay loans; as a result of economic mismanagement or disaster. The Greek situation is an ongoing example of the risk of capital loss.

An immediate risk may arise from the government's intervention in the economy. The action of Hugo Chavez in Venezuela highlights this major risk for investors. Following a change of political leadership Venezuela nationalized of some of the key economic sectors. Nationalization began with oil and gas, and then other sectors were included. The assets of companies like CARGIL and the French retailer Casino have been nationalized by Chavez's government (Venezuela Chavez, 2010). This means a direct loss of income and assets for the affected companies.

In politically and economically unstable countries opportunities to invest are often linked to the investors proximity to some government official, or other individual who can provide the investor with a back door into a favored position. To invest in a country like Russia, the investor is required to have connections, or to be able to access deferred treatment of some form (Davis, 2009). Investors without these kinds of political and other associations run the risk of missing critical opportunities, and having limited access to the information necessary to maximize their investments.

Companies run the risk of having their image tarnished by accusations of corruption. In an attempt to correct the imbalances created by the preferred investor's ability to influence government regulatory policy, corporations may engage in corrupt practices through the use of bribes, kickbacks and other inducements. These gifts are at times considered as necessary in some climates. However the exposure of these practices is a public relations disaster for many companies. In addition to a sullied image, there is also the possibility of legal sanctions arising out of the situation.