One benefit of a sound legal infrastructure and regulatory environment is that it allows economic forecast to be accomplished with confidence (OECD: 75). With predictable and transparent legal infrastructure and regulatory environment, a company can easily adjust to the immediate uncertainty brought by the new environment. Furthermore, the company’s operation would not be hampered by policy changes that might be detrimental to the investors’ interests and rights.
It has been mentioned earlier that infrastructure is concerned on the legal right of corporations as well about fiduciary duties of its directors and officers towards their share holders, thus any company moving its operation to another country should particularly take into account the legal infrastructure and regulatory environment of the selected country. Vermuelen (2003) pointed out that the neglect of such concerns will hamper productivity growth and job creation (2003: 19).
Another benefit that legal infrastructure and regulatory environment offers to an incoming company is the prospect of avoiding future risks by identifying the current potential risks. It could not be denied that other risks factors such as political risk itself is also important towards taking into account the political risk in a particular country when moving company production operation.
The reliability of the legal infrastructure and regulatory environment provides more concrete benefits for the companies putting up operation in a particular country because it does not only provide opportunities to make confident economic forecast, it also guarantees protection of the investors interests and rights, and, it also shape the corporate governance towards becoming more adaptive the culture of the host country. This benefit also provides the company necessary information that will help its directors and officers dispense their duties towards their shareholders.
This includes information on the degree to which skilled labor is available. Given all these benefits tendered by sound legal infrastructure and regulatory environment, the company can then forecast “the expected return of investment” and address the “anticipated variability of the associated risks” with appropriate measures (Brabant 1998: 410). It can avoid the unfair work practices as well as graft and corruption usually orchestrated by corrupt public officials.
Proctor (2000) pointed out that the legal infrastructure “provides remedy” for any abuse and to unwanted circumstances that might potentially hamper business operation. Reflecting on the above, though political risks are very important to take into account when transferring operation to a particular country, there is no doubt that the most important one is the legal infrastructure and regulatory environment not only for the benefits it offers but for the potential damage it might cause later on when laws, statutes, and enacted legislations are not taken into account before transferring operation to a particular country.
Combining the benefits and the potential problem it might cause creates the importance of these political risks. Reference Brabant, J. M. V. (1998) The Political Economyof Transition: Coming to Grips with History and Methodology London: Routledge Foreign Direct investment in China: Challenges and Prospect for Regional Development OECD (2002) OECD Publishing Hardt, J. P. & Kaufman (1995) East-Central European Economies in Transition USA: ME Sharpe
Hill, L. D. & Bender, K. L. (1995) Developing the Regulatory Environment for Competitive Agricultural markets USA: World Bank Publications Proctor, T. (2000) Strategic Marketing: An Introduction London: Routledge Rezaee, Z. (1995) Corporate Governance Post-Sarbanes-Oxley: Regulation, Requirements USA: John Wiley & Sons Vermeulen, E. M. (2003) The Evolution of Legal Business Forms in Europe and the United States The Netherlands: Kluwer Law International