What Is Expropriation Risk

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The Answer is Expropriation is the seizure of businesses with little, if any, compensation to the owners. Such seizures of foreign enterprises by developing countries were quite common in the old days. In the main, expropriation is more likely to occur in non-Western countries that are poor, relatively unstable, and suspicious of foreign multinationals. Some firms are more vulnerable to expropriation than others. Often, those at greatest risk are in extractive, agricultural, or infrastructural industries such as utilities and transportation, because of their importance to the country. In addition, large firms often are more likely targets than small firms, because more is to be gained by expropriating from large firms. MNCs can take a wide variety of strategies to minimize their chances of expropriation. They can bring in local partners. They can limit the use of high technology so that if the firm is expropriated, the country cannot duplicate the technology. They also can acquire an affiliate that depends on the parent company for key areas of the operation, such as financing, research, and technology transfer, so that no practical value exists in seizing the affiliate.

What Is Expropriation Risk

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