Answer to Question 1
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Answer to Question 2
Adaptation means incorporating risk into business strategies, often with the help of local officials. Companies can incorporate risk by means of four strategies:
1. Partnerships help companies leverage expansion plans. They can be informal arrangements or include joint ventures, strategic alliances, and cross-holdings of company stock. Partnering helps a company to share the risk of loss, which is especially important in emerging markets. If partners own shares (equity) in local operations, they get cuts of the profits; if they loan cash (debt), they receive interest. Local partners who can help keep political forces from interrupting operations include firms, trade unions, financial institutions, and government agencies.
2. Localization entails modifying operations, the product mix, or some other business element even the company name to suit local tastes and culture.
3. Development assistance lets an international business assist the host country or region in improving the quality of life for locals. For example, by helping to develop distribution and communications networks, both a company and a nation benefit.
4. Insurance against political risk can be essential to companies entering risky business environments. The Overseas Private Investment Corporation insures U.S. companies that invest abroad against loss and can provide project financing. Some policies protect companies when local governments restrict the convertibility of local money into home-country currency, while others insure against losses created by violent events, including war and terrorism. The Foreign Credit Insurance Association also insures U.S. exporters against loss due to a variety of causes.
Pursuing adaptation in a nation that practices civil law would most likely be less costly and time-consuming because of the lack of room for arbitrary interpretation of the law. A civil law system is based on a detailed set of written rules and statutes that constitute a legal code. Civil law can be less adversarial than common law because there tends to be less need to interpret what a particular law states. Because all laws are codified and concise, parties to contracts tend to be more concerned only with the explicit wording of the code. All obligations, responsibilities, and privileges follow directly from the relevant code. Less time and money are typically spent, therefore, on legal matters.
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