Question
What would be an informational response to the below post? As the world grows increasingly interconnected, it is important for managers to assess political risk
What would be an informational response to the below post?
As the world grows increasingly interconnected, it is important for managers to assess political risk when they think about doing business internationally. While research does indicate that countries and geopolitical regions with higher political risk earn higher than average returns (Gala, Pagliardi & Zenios, 2023), there are additional consequences to consider. A manager considering doing business internationally must pay attention to the political and economic stability of the country in question, become familiar with its regulatory environment and contract system, as well as keep the potential cultural impact of the expansion font of mind.
At this point in time, there are unfortunately several geographic areas that have sufficient political risk to discourage me from doing business in those locations. One of these is Taiwan. This morning it was announced that Warren Buffet sold all of his Taiwan Semiconductor Manufacturing Company (TSMC) stock, citing the tensions between Taiwan and China. He also expressed concern over Apple's complete dependance on TSMC for it's processors, considering the unstable political environment. Taiwan is an island in the Pacific Ocean, off the mainland of China, with a complicated political history. Officially known as the Republic of China (ROC), Taiwan is governed independently of the mainland and has been since 1946 (Maizland, 2023). That has been a tense situation for some time, but has escalated with Beijing taking increasingly aggressive actions. They have recently flown fighter jets near Taiwan, and some analysts fear a Chinese attack may be imminent. For this reason, I would agree with Buffet and divest from TSMC at this time, and would not feel secure pursuing business partnerships within Taiwain.
Gala, V. D., Pagliardi, G., & Zenios, S. A. (2023). Global political risk and international stock returns.Journal of Empirical Finance,72, 78-102. https://doi.org/10.1016/j.jempfin.2023.03.004Links to an external site.
Lovejoy, B. (2023b). Warren Buffett sold all TSMC shares over concerns about Taiwan's stability.9to5Mac.https://9to5mac.com/2023/05/16/buffett-sold-all-tsmc-shares/
Maizland, L. (2023, April 18). Why China-Taiwan Relations Are So Tense.Council on Foreign Relations.https://www.cfr.org/backgrounder/china-taiwan-relations-tension-us-policy-biden
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