Which method can companies use to mitigate political risk?

Companies can mitigate political risk effectively by diversifying investments across different countries. This method helps to spread exposure and limit vulnerability to any single market's political instability or adverse regulatory changes. By operating in multiple regions, a company is less likely to be adversely affected by political turmoil, such as changes in government, civil unrest, or economic sanctions that may occur in one particular country. Diversification allows firms to balance potential losses from one market with gains from others, enhancing overall financial stability and resilience against political fluctuations.

In contrast, increased reliance on a single market raises the level of risk, as events within that country can have a significant impact on the business. Ignoring local regulations can lead to severe legal consequences and jeopardize a company’s operations. Reducing product variety might streamline operations, but it does not effectively address the risks associated with political environments and may limit a company's adaptability in volatile markets.