Because political events can determine the success or failure of an
investment abroad, transnational companies must make every effort
to analyze political risks as part of the decisionmaking process.
States and Companies, written especially for students of
international business and executives of transnational companies,
presents a conceptual framework for the analysis of political risk.
Although the author focuses his study on the international oil
industry, his explanatory model of political risk is applicable to
most transnational companies. Lax's study is important because it
focuses on developing a context for understanding political risk
rather than simply offering a predictive methodology. He provides
the theoretical groundwork for this understanding by explaining
political risk in terms of a broader theory of interaction between
host states and transnational corporations. The inherent conflict
of interests and issues hierarchies between these two actors, Lax
argues, is the root cause of political risk.
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