A Short Guide to Political Risk, Essay Example

Introduction

Approximately ten years ago in a feature article on The Eurasia Group, The Economist declared political risk analysis to be the “new bull market.” (2003) A decade later, prestigious institutions such as the Columbia University School of International and Political Affairs have lent support to The Economist’s initial thesis, describing political risk analysis as a field whose growth has exponentially increased in the last twenty-five years, thereby making it one of the most attractive career options for students. (2013) The growth of political risk analysis thus indicates the extent to which the information services provided by companies working in this area are considered more valuable than ever.

Arguably, the reasons for this emergence can be traced to the paradigm of globalization. Firstly, as governed by a neoliberal economic model, the divisions between the private and the public sector are gradually eroding in the globalization era. (Kallianiotis, p. 214, 2013) Secondly, to the extent that borders have become more open, key opportunities arise in areas of international investment, which were previously absent. (Kallianoiotis, p. 214, 2014) Political risk analysis, in this regard, provides a crucial information service that evaluates the way in which politics determines various decision-making processes, not only in the field of politics, but also in the field of economics and business.

The Eurasia Group is clearly at the vanguard of this development. Having begun at the end of the last century, the organization has become the world’s largest political risk consultancy firm. (Thompson, 2014) This success indicates both the demand for the Eurasia Group’s services as well as the quality of its product. Whereas political risk analysis can be said to have emerged as a “new bull market” because of the nature of contemporary globalization, it can also be argued that this field has gained credibility because of the service quality of companies such as the Eurasia Group.

The following paper will thus analyze the Eurasia Group according to the following headings: 1) a synopsis of the company, 2) an account of service issues, 3) an analysis of issues regarding competition, and 4) a conclusion summarizing the main points of the paper.

Company Synopsis

The Eurasia Group was established in New York City by the American political scientist Ian Bremmer (PhD, Stanford University, 1994) in 1998. Since its founding, the Eurasian Group has become the world’s largest political risk consultancy firm, with over 150 full-time employees in addition to approximately five hundred freelance contracted experts from all over the world. (Thompson, 2014) The Eurasian Group, although focused on political science, also includes among its employees experts in more specialized areas such as investment and geopolitics. (Kallianotis, 2013, p. 265) According to the Eurasia Group’s official website, such services include “direct access to analysts, independent research and consulting reports, political risk assessments, strategic planning and scenario analysis and quantitative risk metrics and evaluations.” (Eurasia Group, 2014) A diversity of the information services offered in the specific field of political risk analysis is arguably one of the key factors in the Eurasia Group’s success.

Alongside the skill of its experts, another key factor is arguably the diversity of its client base. The Eurasia Group has approximately over four hundred clients, among them institutional investors, government agencies, multi-national corporations and major investment banks. (Kallianotis, 2013, p. 265) The diverse portfolio of the Eurasia Group’s clients emphasizes the wide-ranging informational services that the organization offers, underscoring their relevance across all segments of society.

Yet the Eurasia Group has also been active in the public eye. The organization has become known for various rankings which it releases to the public. For example, the Global Political Risk Index (GPRI) is the first index to measure political stability in emerging markets. (The Economist, 2014) The Eurasia Group also publically releases its annual top ten risks to global stability, an influential indicator of potential trouble spots for both politics and business. (Perlberg, 2014) Such publically available rankings complied by the Eurasia Group has arguably contributed to the expansion of its brand name in the market.

In order to understand the aims of the Eurasia Group it is worthwhile to quote its founder Ian Bremmer at length: “Political risk is about understanding that governments and businesses have different expectations and goals. To operate a global business successfully, you need to understand what motivates government action, particularly in places where politics matter at least as much as economics to market outcomes.” (Eurasia Group, 2014) In a nutshell, the Eurasia Group represents the intersection of economics and politics, as well as a global example of what information and consultancy services represent in the contemporary era.

Service Issues

The area of risk consultancy and, more specifically, political risk consultancy, clearly possesses its own unique service issues. On the basis of the dynamic nature of risk consultancy, firms that provide risk consultancy services are above all confronted with issues related to the quality of the information they provide to clients.

When analyzing the Eurasia Group from this standpoint, the primary service issues the company faces are inevitably shaped by the speculative nature of the product they offer. To the extent that it aims to provide consultancy at the intersection between politics and economy, that is, to private organizations as well as governments, the Eurasia Group must above all demonstrate accuracy in their analyses. Without a proven track record of accurate forecasting of how politics and economics interrelate, thereby underscoring the strength of their product, the Eurasia Group would quickly find itself marginalized in a highly competitive field. In short, the service issues of the Eurasia Group, as with the field of political risk consultancy as a whole, is dominated by quality of product, in this case analysis and forecasting.

Analysis and forecasting is, of course, complicated by the fact that political risk consultancy firms such as the Eurasia Group are offering a service in an area that is by definition heterogeneous and volatile. Forecasting movements in economics and in politics can be ultimately summarized as a matter of conjecture with regard to, on the one hand, how to interpret data, and, on the other hand, how to correlate this data with the precise demands of clients.

This presents various corollaries that entail some specific service issues. One of the key service issues faced by all political risk consultancy firms is that they may be too grounded in a specific area of specialization. (McKellar, 2012, p. 177) For example, the Eurasia Group describes itself as a political risk consultancy firm and therefore the analysis of politics is central to its product. Hence, whereas the Eurasia Group underscores its multi-disciplinary approach to consultancy, its product is nonetheless galvanized by a politically-oriented outlook, such that this specialization may “tend to dominate the firm’s wider interpretation of risk consultancy.” (McKellar, 2012, p. 177) In other words, the quality of the service offered is always potentially threatened by an over-emphasis on particular aspects of analysis – politics in the case of the Eurasia Group — which could potentially undermine or, more specifically, render somewhat myopic the quality of the provided analysis.

In order to address this service issue concern, the Eurasia Group has employed two primary strategies. Firstly, despite its grounding in politics, the Eurasia Group employs specialists in numerous areas, such as economics. (The Eurasia Group, 2014) Secondly, the Eurasia Group has sought out partnerships with other companies involved in risk consultancy, thereby combining its own politically-centered analyses with the specializations of other firms. For example, the Eurasia Group has embarked upon a working relationship with PricewaterhouseCoopers (PwC), a company focused specifically on business consulting. (PwC, 2014) Hence, whereas the Eurasia Group “brings in-depth country knowledge and contacts, a long term view of political risk as a predictor of economic risk and a pragmatic approach” (PwC, 2014), the partnership with PwC adds a dimension of “business process understanding in and across functions and industries, enterprise risk management framework design and implementation capabilities, and risk mitigation experience with a focus on overseas investments.” (PwC, 2014) With such a partnership the Eurasia Group has identified and sought to address a potential service issue that may compromise the quality of the product offered, i.e., its own specialization.

With such strategies, the Eurasia Group recognizes two of the most fundamental service issues which face its industry: the speculative and volatile nature of the information it is to analyze and interpret, as well as the danger of specialization negatively influencing the product offered. While both are industry-wide challenges, the latter is inevitably tied to the specialization of the particular political risk consultancy firm. Decisions about how to address this service issue thus take a contextually-dependent approach, whereby strategies are carried out whereby the strengths associated with specialization do not ultimately turn into a weakness, thus improving the quality of the services offered.

Competitor Analysis

The growth of the field of political risk analysis is correlative to the growth of the realization that corporations and other investors cannot make successful decisions based merely on economic data, but must also include “the forces and dynamics that shape these countries’ politics.” (Bremmer, 2009) In so far as globalization makes such investment opportunities more abundant, there is an increased need for political risk analysis. Whereas the Eurasia Group is the world’s largest political risk consultancy firm, it still is faced with competitors, a fact that demonstrates the demand for such types of analysis.

Medley Global Advisors is one of the Eurasia Group’s key competitors, described by a Columbia University (2013) report as “the leading macroeconomic and political intelligence service for the world’s top hedge funds, investment banks and asset managers.” A crucial distinction between Medley and the Eurasia Group in this regard is its focus on hedge funds, investment banks and asset managers: the Medley Group has, in other words, specifically targeted these segments of the business world as its primary market. The Eurasia Group, although intensively focused on corporate investment, has a much broader client target. On the one hand, this creates a broader market for their product, while, on the other hand, those looking for political risk analysis in the specific fields mentioned which Medley specializes in may choose MGA over the Eurasia Group on the basis of its specialization. Namely, MGA has specified its service marketing, which has enabled it to excel in this particular area. From the contrasting perspective, however, the attested success of the Eurasia Group demonstrates that it is still an industry leader in political risk analysis, which means that its product is high demand from the business world.

CountryWatch, another competitor of the Eurasia Group, provides the diametrically opposite approach of Medley, fitting more in line with the Eurasia Group’s service marketing strategy. CountryWatch namely is “an information provider for corporations, government agencies, universities, schools, libraries and individuals needing up-to-date news and information on each of the recognized countries of the world.” (Columbia University, 2013) The wide client base thus mirrors the market strategy of the Eurasia Group. CountryWatch has, like the Eurasia Group, eschewed excessive specialization in terms of the clients to which it will offer services, instead preferring such a broad approach.

From this perspective, a company such as CountryWatch is arguably a more direct challenge to the Eurasia Group from a competitive standpoint, to the extent that target markets are the same. However, the Eurasia Group has arguably remained the dominant firm in its area by promoting its brand name in a more diverse way that faithfully imitates its diverse client base. One of the key ways in which the Eurasia Group has marketed itself is by issuing publically available rankings, such as the Top 10 Security Risk list, which are then cited in numerous media outlets. This type of information sound bite provides insight into the type of product the Eurasia Group offers in a digestible and ubiquitous format, making the Eurasia Group an identifiable name in the field of political risk analysis.

This approach is also re-iterated in the Eurasia Group’s presence on various media outlets offering analysis: from April 2014 to May 2014, Eurasia Group experts have appeared on PBS Newshour, BNN Commodities, and Bloomberg. (The Eurasia Group, 2014b) In addition, its founder Ian Bremmer is a prolific writer, penning national bestsellers such as 2012’s Every Nation for Itself: Winners and Losers in a G-Zero World. (The Eurasia Group, 2014a) PhD holder Bremmer has also maintained his relevance in the academic world, serving as a Global Research Professor at New York University. (The Eurasia Group, 2014a)

In summary, the Eurasia Group has maintained its competitive advantage with a service marketing strategy that seeks to be ubiquitous. The work of the Eurasia Group is present in academic and popular discourses, in the business world as well as the world of politics. It has therefore attempted to compete with firms with specialized markets, such as Medley, by taking a broader market approach. At the same time, in order to compete with firms with a similar broad market approach, such as CountryWatch, the Eurasia Group has sought to become all the more ubiquitous. The Eurasia Group’s service marketing strategy is thus defined by a desire to make its brand name visible in all areas of society that deal with politics and business.

Conclusion

In a globalized world informed by neoliberal economics, political risk analysis is not only relevant to state actors and “grand strategies” of political agents, but also relevant to the business and investment communities. Services provided by the Eurasia Group address this development, demonstrating how politics and economics have become all the more intertwined in the 21^st century.

Although operating in a cutting-edge field, the Eurasia Group is nevertheless subject to the same type of obstacles which other service firms experience. A company, in the end, is only as relevant as the services it provides. While the services offered by the Eurasia Group are speculative and thus susceptible to error and misinterpretation, the company has attempted to minimize this endemic danger through various strategies, such as the formation of alliances with other companies possessing different specializations. At the same time, the increasing interrelationship between politics and economics and the importance of political risk analysis has increased the Eurasia Group’s competition in the marketplace. One of the key ways in which the Eurasia Group has maintained its position in the market is through the diversity of its information services, not only providing direct services to clients, but also maintaining a presence in the mainstream media, through publically available rankings, the publication of mainstream books and mainstream media appearances. The demand for the Eurasia Group’s opinions on this public level thus further underscores how the mainstream itself recognizes the significance of the politics-economics nexus.

Certainly, it could be said that politics and economics have always been interrelated. Arguably, however, this relationship is all the more relevant within a globalization paradigm where there exists an unprecedented economic openness between nation-states, in the form of, for example, multi-national corporations and free trade agreements. The Eurasia Group has, in a sense, anticipated the increasing importance of this phenomenon, offering information services that address the very structure of the current world order.

References

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Bremmer, I. (2001). “Political Risk: Countering the Impact on Your Business.” QFinance. Retrieved 5 August 2014 at http://www.qfinance.com/business-strategy-best-practice/political-risk-countering-the-impact-on-your-business?page=1

Columbia University SIPA (2013.) “Political Risk Analysis Firms.” Columbia University SIPA. Retrieved 5 August 2014 at https://sipa.columbia.edu/…/Political%20Risk%20Analysis%20Firms.pdf

Kallianiotis, J. N. (2013). International Finance Transactions and Exchange Rates: Trade, Investment and Parities. London: Palgrave MacMillan.

McKellar, R. (2012). A Short Guide to Political Risk. Surrey, UK: Gower Publishing.

Perlberg, S. (2014). “Eurasia Group: Here are the Greatest 10 Risks to Global Stability.” Business Insider, January 14. Retrieved 5 August 2014 at http://www.businessinsider.com/eurasia-group-10-greatest-risks-2014-1

PwC. (2014). “An alliance between PwC and Eurasia Group.” PwC. Retrieved 5 August 2014 at http://www.pwc.com/gx/en/political-risk-consulting-services/alliance-between-pwc-and-eurasia-group.jhtml

The Eurasia Group. (2014). “Ian Bremmer.” The Eurasia Group. Retrieved 5 August 2014 at http://eurasiagroup.net/about-eurasia-group/who-is/bremmer

The Eurasia Group. (2014). “Media Center.” The Eurasia Group. Retrieved 5 August 2014 at http://eurasiagroup.net/media-center

The Eurasia Group. (2014). “What we do”. The Eurasia Group. Retrieved 5 August 2014 at http://eurasiagroup.net/about-eurasia-group/what-we-do

Thompson, D. (2006). “Here’s How the World Works.” The Telegraph, 30 September. Retrieved 5 August 2014 at http://www.telegraph.co.uk/news/worldnews/1530208/Heres-how-the-world-

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