ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
A multinational has moved its manufacturing to a low-cost country while selling the same standardised product worldwide and managing the supply chain as one global system. Which of the following is a recognised risk to the company arising specifically from the political and legal environment in the host country?
Expropriation or nationalisation of local assets is the recognised political and legal risk. A host government may seize or take control of foreign-owned facilities, or restrict profit repatriation. The other options relate to economic or social factors, or are advantages, not political risks.
- AExpropriation or nationalisation of its local assetsCorrect
- BHigher domestic interest rates in the home country
- CChanges in consumer fashion in the home market
- DGreater availability of skilled graduates
Explanation
Political risk in a host country includes expropriation, nationalisation, restrictions on profit repatriation and sudden legal changes. Interest rates are macroeconomic, fashion is social, and skilled graduates are a benefit rather than a political or legal risk. Only expropriation fits the question.
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