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Political economy

Managing political risks and the political risks faced by foreign investors on operating business on the U. S. territory is a significant issue to be considered before opening a hotel. Any business performance directly depends on the level and the quality of political risks management, provided by the specific company. In order to properly address these risks, it is essential to be aware of major risks and to evaluate their probability. According to Brink (2007), the major political risks in the U. S. for 2007 are connected with the issues in American international relations and do not impact inner political structure and situation in the country.

These risks have their origin in the political and military conflicts supported or connected with the political activity of the American President G. W. Bush. These risks can be identified as follows: Table 2. The probability level of political risks impacting the overall state of the U. S. economy. (Brink, 2007)

Evidently, the fact of Pakistan being included into the list of major political risks impacting international business in the U. S. is a serious sign to be accounted in producing relevant decision towards creation of the hotel by a Pakistani investor. Despite the level of

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risk being the lowest in the provided table, there is still serious concern as for the possible losses which can be caused in case the conflict touches Pakistani territory, its economy or other aspects of international business activity. Along with the serious political risks which will potentially impact Pakistani/ American business relations, the results of the recent studies state that the majority of international companies display serious disability to properly manage the existing political risks.

(Global Direct Investment Solutions, 2007) Proper political risks’ management is the direct pathway towards insuring and protecting company’s investments; as a result, global business performance will substantially improve. However, political risks frequently appear beyond the scope of a company’s management, and are not controlled by company’s structures. Integrating political risk management should thus be emphasized by the potential Pakistani investor; the possible solution may be found in constant monitoring changes in political situation between the two countries.

The knowledge and understanding of the political risks implications will provide the investor with the long-term vision of hotel business development. International trade theories The USA leading position in the international trade and economy implies the need to objectively evaluate strengths, opportunities and risks connected with building a hotel by a Pakistani investor.

The SWOT analysis and the Diamond Framework structures will allow performing this analysis for the provision of relevant results to be used in the further research. The hotel industry in the U. S. is characterized by highly developed infrastructure and the constantly growing need in new facilities and services. The diversity of hotel industry services and products is encouraged to produce better conditions of industry competition. However, the lack of distinction between management and ownership remains the major weakness to be addressed within the hotel industry. According to the statistics, 33. 1% of hotels in the U. S. face the risk of business failure due to improper management. (Rutes & Penner, 2001)

Opening hotel in the U. S. is the decision, in which Pakistani investors should objectively assess opportunities and threats of this business performance. Joint-venture creations in hotel industry currently occupy 48. 4% of the U. S. hospitality market (Forster, 2004); this data supports promising perspectives of constructing and running a hotel in the U. S. Striving to diversify the range of the hotel services, Pakistani investors may face a threat of services’ standardization, high level of competition and possible economic slowdown in the U. S. (Rutes & Penner, 2001)

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