In preparation for our joint webinar with the Austrian Business Council (WKO) titled "Current Situation in Ukraine Risk and Crisis Management" on Thursday, 24 February (please follow the link to our slides), L&M PRISK carried out a comprehensive analysis based on HUMINT background conversations with people from our network in the region.

The three major statements are: Firstly, the invasion of Ukraine shows that Putin ranks geostrategic and historical-nationalistic interests over economic interests. “Putin is willing to pay highest costs. He will not take Western sanctions seriously. (…) Anyway, he does not believe that the West is able to agree on powerful sanctions. He regards the EU as weak and discordant. “

Secondly, the invasion will be aimed at forcing a regime change in Ukraine. The goal is to trigger chaos, bringing the country to collapse, forcing president Selenskyj to leave the country. At the same time, Russia will install a new pro-Russian regime. Our sources emphasised that this is Putin’s iron target. “There won’t be any concessions”.

Thirdly, Putin will try to establish a new security order in Eurasia and beyond. In this context, he aims at implementing the “Near Abroad Doctrine” that was formulated after the dissolution of the Soviet Union, stating that the newly independent republics, which emerged after the dissolution of the Soviet Union, belong to Moscow’s sphere of influence and to nobody else. As one of our sources highlighted, “the last chapter of the post-Soviet states has just begun”. In other words, Putin will tighten his grip on other post-Soviet states as well, no matter the cost. Countries with governments that do not resist or willingly accept Russia’s military power – like Kazakhstan recently – will quietly slide into the new reality. In other countries, however, Russia is ready to carry out open and hidden military attacks as well as cyber-attacks. Against this backdrop, battlefields of the future could be Moldova, Georgia and Kyrgyzstan in particular.

What can companies do now? How can they manage associated political risks?

In Ukraine, in the short term, companies now have to develop and implement acute emergency plans to safeguard staff and employees as well as the most important company resources, for example by hiring private security providers. Parallelly, they have to develop an contingency plan to ensure company operations and safeguard control to the highest degree possible.

In the mid- and long-term, companies have to adapt the organisational structure and procedures to a continuous situation of uncertainty. In Ukraine and the other post-Soviet states political risks will increase: Political instability, corruption, deficiencies concerning the rule of rule of law will have to be managed. Under the new rulers in Ukraine, expropriation measures will take place with certainty. Such measures can be directed at the own company and/or important business partners. Companies have to follow these developments carefully by carrying out HUMINT in-depth research on the new rulers and their business aspirations. The reform pressure by the EU on states concerns will break abruptly (Ukraine) or slowly decrease in other cases. At the same time, trade agreements with the West will become less important. In the Eastern Partnership region, this particularly concerns the Deep and Comprehensive Free Trade Agreements (DCFTA) with the EU.

Companies are affected very differently by these political developments. For example, exporting companies have a different risk exposure than companies that have invested locally. However, in any case, companies firstly have to identify specific risk factors affecting their company/their projects. They then have to evaluate the possible effects and prioritise along the dimensions “probability and impact.” They finally have to develop and implement mitigation strategies for the respective risk constellation.

In other words, country/regional risk always require tailor-made company solutions. L&M PRISK is ready to support you. Please feel free to contact us: info@lm-prisk.com

WKO Seminar in Cooperation with L&M PRISK on 24 February 3pm CET

What is the current situation in Ukraine? What is the impact on the economy and how can Austrian companies deal with increased risk in the short, medium and long term?

To answer your questions on these topics, the WKO is organising a Zoom meeting in cooperation with L&M Political Risk and Strategy Advisory on Thursday, 24.02.2022 at 3 pm. The working language is German.

For registration, please follow this link.

Johannes Leitner analyses in a blog article in the Austrian newspaper Der Standard what exactly happened in Kazakhstan between 5 and 11 January. and what the potential consequences for MNEs will be.

Thirty years ago, the Soviet Union broke up and released 15 republics into independence, including the three states of the Baltic. They chose a path towards the West. Hannes Meissner speaks as an expert in the 43 minutes documentary, available in the ZDF media library.

Turkmenistan is one of the most repressive countries in the world, shaped by political risks for MNEs. The country is closed and thus offers only rare insights into political and economic contexts. Hannes Meissner is one of the few researchers that have carried out researches in the country. In an NTV podcast, he gives insights into Turkmenistan.

Thirty years ago, the Soviet Union broke up and released 15 republics into independence, including the states of Central Asia. ZDFinfo asks: What has become of them in Russia's shadow? Hannes Meissner speaks as an expert in the 44 minutes documentary, available in the ZDF media library.

The actions of companies are closely embedded in the political and institutional context of each country. The best current example of this is the Telekom subsidiary A1 Belarus.

Read the latest article by Hannes Meissner and Johannes Leitner in the Austrian newspaper “Der Standard”.

The governments of Azerbaijan, Kazakhstan and Ukraine have repeatedly paid Western European ex-politicians for lobbying functions. Asked about the reasons, Hannes Meissner, Managing Partner of L&M PRISK, gave the following answers in a ZIB 2 interview:

In recent years, the international public has become witness of tremendous political and socio-economic changes and challenges. Their root causes are complex and only some of them can be associated with certain countries and/or regions. In our highly integrated world, they have far-reaching effects. For multinational enterprises (MNEs), the global environment has therefore become more uncertain. Consequently, MNEs need appropriate strategies on how to deal with political risk (identify, analyze and manage political risks) more than ever before. Political risks comprise any occurrence in the international business context where public actions or non-state actors that are active in the host country of the international activities interfere with private international businesses and adversely impact the performance of the international operation.

On the one hand, there is a need of practice oriented political risk management. On the other hand, the academic field of political risk research is still heterogeneous and underdeveloped. The interest and methodology characteristic of Business Studies determine the political risk literature. This leads to the dominance of highly sophisticated quantitative/econometric studies, drawing on previous models to test the significance of individual political risk factors. This approach is associated with a lack of qualitative, in-depth context studies and practice oriented political risk management models, MNEs can apply.

Given this background, Johannes Leitner and Hannes Meissner have edited a special issue of “Wirtschaft and Management” that aims at reconsidering political. It launches an open discussion on how political risk management takes/might take place in practice.

Ethical criticism is a highly challenging issue, as companies are not only referred to as economic actors, but as responsible corporate citizens that have a stake in society. In this context, MNEs have to consider that actions are not only evaluated locally, but globally. Unethical behaviour can provoke civil opposition, going along with shaming and blaming. Social protests typically organize along human rights violation, cooperation with authoritarian regimes, compliance breaches and environmental damage (etc). In a newspaper article, we analyse the case of Coop Himmelb(l)au – an Austrian architectural office that came under serious pressure after planning an opera house on Crimea for a Russian foundation. Read our article (in German)

The military escalation of the Nagorno-Karabakh conflict leads to rising geopolitical risks and poses growing threat to international businesses in the region. Our Senior Expert Elkhan Nuriyev has contributed to a newspaper article on the escalation of the Nagorno-Karabakh conflict and Russia's role as a key mediator.

L&M PRISK is contributing to a webinar on 24 Septemer 11am CET. The webinar is organised by the Schneider Group and deals with the question of how to export to the emerging economies of Central Asia. Please follow the link for more information and sign-in now free of charge.

As China recovers from the Covid-19 crisis, the apparatus of the state is about to be devoted to a new form of social control. By the end of 2020, China plans to introduce its national social credit system. Read David Morris’ article

In the last few years, China has been rolling out its plan for a bigger role in the global economy. A closer look, therefore, at the Belt and Road Initiative and China’s new institutions and platforms for geo-economic influence can help to understand – and manage – the risks ahead. Read our article in China Contact 3/2020 p20-21….

L&M PRISK has contributed to a webinar organised by the Schneider Group dealing with challgenges and chances for foreign enterprises in Russia. The recording with lectures by Johannes Leitner and Hannes Meissner (in German) is available via the following link: https://www.youtube.com/watch?v=zHXVWt6NPTo&feature=youtu.be

A recent study among multinational companies in Austria reveals a lack of systematic risk management. As a consequence, corporate leaders tend to neglect their know-how about political frictions in the institutional system and do not consider political risk management strategies in their business planning. This results in missed business opportunities.

https://ccbsr.fh-vie.ac.at/risiken-analysieren-nicht-vermeiden/

In the view of some managers, (semi-)authoritarian rule has advantages for MNEs due to centralised and quick decision-making processes. Taking Hungary under Orbán as example, we show that this is only one side of the coin. On the other side, such systems are characterised by political risks such as quick policy changes, clientelism and favouritism as well as a weak rule of law.

https://www.derstandard.at/story/2000116661445/der-gefaehrliche-trend-zu-autoritaerer-herrschaft-politische-risiken-fuer-unternehmen

Most post-Soviet leaders are getting old – their average age is 60.5 years. It is no secret, therefore, that they are going to leave office in the not too distant future. Why, however, should the management of a multinational enterprise from the Western hemisphere consider age structure and terms of office in East European and Central Asian countries? The answer is simple: because there is an important political risk factor inherent in the transfer of power.

Such a power transfer might have immediate negative effects, for instance when a non- or poorly orchestrated change leads to chaos. This is not only associated with security risks. Rather, in such an environment, the networks a company has established over years often break away. Informal networks and good relationships are crucial success factors, though, particularly in the post-Soviet region. If they deteriorate, projects with public partners are at risk. In the worst case, the new leaders and their networks might regard MNEs maintaining strong relations to former leaders and their networks as opponents. In such constellations, the new elites will favour companies they themselves have good connections with.

The bad news for MNEs is that they are quite unprotected against such a transfer of power. Companies can insure themselves against certain risks such as expropriation, but there is no insurance covering transfer of power. The good news is that a transfer of power need not take MNEs by surprise. Establishing a broad local network and thorough monitoring provided by in-house or external experts are suitable mitigation strategies.

For more information on this topic, please follow the link to our article published in the journal OstContact (in German): https://owc.de/2019/10/14/machttransfer-im-postsowjetischen-raum-chancen-und-politische-risiken/

Political uncertainty in Russia is on the rise. The Political Uncertainty Index shows levels last seen in the mid-1990s when Russia had to deal with redefining its political role, internally and externally.

Today, Russia certainly has reinvigorated its role as an internationally active power. Nevertheless, the regime faces a number of geopolitical and domestic challenges. Syria, Ukraine, its relation to the EU and the USA, the sluggish economic development, and finally the question of Putin’s power transfer in the not-too-distant future are adding-up. Local firms and MNEs need to operate in an opaque political context.

The Political Uncertainty Index shows a level of uncertainty as high as in the mid-1990ies.

The Chinese Belt and Road Initiative and the associated New Silk Road are enormous investment and infrastructure strategies of historic dimension. Since October 2013, China has invested USD 421 billion into the 75 semi-official Silk Road countries. On one hand, these Chinese investments provide new opportunities for European enterprises, as the respective countries get the basic infrastructure they desperately need. On the other hand, however, the question arises which chances and political risks are associated with China’s New Silk Road in the post-Soviet space. Our newspaper commentary identifies two different trends in this regard. External political risks (at regional level) have recently lost significance: despite China entering Moscow’s Near Abroad (the post-Soviet space), China and Russia have opted to harness synergies. At country level, though, the Silk Road countries are shaped by political risks characteristic of post-Soviet countries, such as legal uncertainty, low guarantee of property rights and clientelism by the ruling elites.

For more information, please follow the link to our newspaper commentary (in German): https://apps.derstandard.at/privacywall/story/2000107131246/wie-bedeutet-chinas-neue-seidenstrasse-fuer-die-unternehmen-europas