My mandate is to deal with the organizational and institutional responses that foreign direct investors have developed in their efforts to deal with international risk. The boundaries of that mandate are not very sharp.

One problem in drawing the boundaries is to define an institutional response. By implication, some responses to risk exist that are thought to be separable from institutions; I have had some difficulty in picturing what those responses may be. I hope I shall be forgiven therefore if, from time to time, this discussion wanders beyond the organizational and institutional dimensions into areas that some would regard as economics.

A second problem in drawing the boundaries of this chapter has been to decide which of the many different types of international risk could usefully be addressed. In one respect, the decision on boundaries is easy. This chapter is concerned both with the risks that arise from the investor's ignorance and with the risks that arise from random error. In other respects, however, the boundaries are less easily drawn. Direct investment internalizes a set of international transactions that otherwise would be conducted at arm's length with independent buyers or sellers, and one major purpose of this internalization is to avoid some of the risks that exist when dealing with such independent parties. Accordingly, a direct investment commonly represents a response to certain kinds of international risk. An exploration of this phenomenon seems almost indispensable as a preliminary for exploring the responses to the risks associated with the direct investment itself.