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Please proof read the trailing note from political angle, Institution angle is under production. I had also attached word document i which u can track changes and respond

A. What are main factors attracting firms to invest in emerging markets and what are the main deterrents? From Political Angle.

When firms looking to expand into emerging markets, one of the key aspect they consider is the political climate, a stable governance with lack of violence would off course score better, as a ground for investment, than a high potential for economic growth market with unstable political climate. Market with more violence are less attractive than those with less violence due to the high risk and related cost like insurance etc.. . While FDI from emerging market are generally in an advantageous position to tackle more fluid situations to transparency in business regulation than FDI from developed economy due to the fact that they had emerged from markets where business climate is adverse, when it comes to political unrest and stability, both developed and emerging markets investors are not indifferent1.



For a frim to conduct business efficiently, markets with enforced law and order are paramount. Political instability can put a huge stress on law and order situation wherein it can put pressure on firm’s performance. Firms from developed nations had exposed to stable governance and regulatory body which had helped them in developing sound strategy for long term planning and financial forecast. Whereas in the emerging market they are faced with more fluid situation which unless an organization is flexible enough to accommodate frequent policy change they are bound to face problems. Results from a world bank research1 quotes “Political risk is more of a deterrent for non-investors than for potential and actual investors. While only 4 percent of actual investors ranked political risk as their top concern, when we asked potential investors and non-investors this number rose to 8 and 17 percent, respectively. Almost half of non-investors said that political risk was one of the two main location factors they looked at when considering a host market”.
The table one shows that the political risk ranks second to macro economics instability. The World Investment and Political Risk (WIPR) 2013 further quotes “The persistent global economic uncertainty appears to have tainted the overall mood, with economic pessimism underpinning the expected stagnant FDI levels. Against this backdrop, the survey continues to find political risk to be a significant concern for investors operating in developing markets”. World bank indicators suggest that emerging economies often do poorly – relative to OECD - in terms of; Accountability of government, competitiveness of press, political stability, lack of violence, policy making and public service delivery2. World bank surveys1 also show that some firms are more risk-averse than others. It’s the more export-oriented companies, and those from India and South Korea, that care most about political risk. This is reasonable considering these firms are often part of international production networks and face greater costs of unexpected changes in regulations that may disrupt just-in-time, just-in-sequence processes.

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