As the discussion highlights, political risk may be defined as the risk to the assets of an entity due to exposure to a political event. Political risks are related to a specific action from the government which can reduce the profitability of the firm. Political risks can be of 2 types – macro level political risk and micro level political risks. A macro level political risk is related to the general business environment of the country whereas a micro level risk is associated with the politics of a particular place and is site specific.
The risk faced by AutoPlast is clearly a micro level risk. Due to the pollution caused by the chemical leak from the site and the fire outbreak; the resentment against the factory among local population is on the rise. This resentment can force the local administration as well as various political parties to take action against the factory .Possible risks include expropriation of property, repudiation of the contract for the factory and civil disturbance in the form of protests against the factory. The likelihood of the risk is medium as the factory has been in existence for the past 25 years. Although people may be angry due to the current issues but long term relationships will help the factory tide over the risk. Mitigation plans for this risk can be taking the political representatives into confidence; making the people aware of the contributions by the factory and working with the administration to ensure no future repeat of the disasters take place. AutoPlast faces economic risks due to two factors – one is the competition from cheaper products from Eastern Europe which places a question mark over the viability of the factory and other is the possibility of additional investment to safeguard the factory from further hazard.