What is procedural political risk? How does a nation's political and legal environment influence procedural risk for MNEs?
Answer: Procedural risk is associated with moving people, products, and funds from point to point in the global market. Each move creates a procedural transaction between companies or countries. Political actions sometimes impose frictions that slow or stop transactions. The repercussions of, say, public fraud or a partisan judicial system can raise business costs; corrupt officials, for instance, might pressure a foreign firm to pay additional monies to clear goods through customs or obtain a permit to open a factory. Politically motivated interference escalates expenses, thereby lowering returns. Procedural political risk is often classified as a micro risk—that is, it affects some but not all companies.