Political risk assessment (PRA) is an integral part of environmental scanning, which in turn is one of the key requirements for effective strategic planning and corporate decision making. Why, then, have a number of multinational corporations (MNCs) discontinued their practice of this vital corporate function? Examines the tendency of both European and US‐based MNCs to discontinue the function and postulates three reasons for this occurrence: (1) the increased riskiness of international business has caused a retrenchment of overseas operations, particularly by the smaller MNCs, and thus a decreased need for PRA; (2) a profit squeeze has led to the “externalization” of many corporate staff functions, including that of PRA; and (3) the failure adequately to incorporate the results of PRA into corporate decision making. Nevertheless, there has never been a greater need for PRA. The principal challenge facing management is better to integrate PRA into corporate decision making.
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