Chapter
Strengthening International
Government Relations
Key Points
Sources of Trade Regulation
Opportunities, Threats and Political Strategy
Impact of International Business-Government interaction
Proactive Management of Government relations
12
Sources of Trade Regulation

GATT and WTO


Set up to deal with tariffs and non tariff
barriers to trade
Tokyo Round in mid 1970s


Tariff barriers reduced significantly
Partial success with non-tariff barrier reduction
mainly due to complexity and sensitivity
Sources of Trade Regulation

GATT and WTO

Uruguay Round – 1986-1993




Challenging problems addressed – technical
barriers, trade in services, intellectual property
rights, trade in technology etc.
More member countries – 117
Problems of developing countries addressed
WTO formed – meets every 2 years
Trade Agreements and Associations

U.S. – Canada Free Trade Agreement



Formed January 1988 – world’s largest free trade
area
Dispute resolution mechanisms established
NAFTA formed with Mexican representatives
Trade Agreements and Associations

Association of Southeast Asian Nations



ASEAN formed August 1967 with 5 member
states, presently has 10 members
Regarded as a loose economic cooperation
channel but expected to change, FTA with China
expected
Move towards ASEAN FTA
Trade Agreements and Associations (cont.)

Asia-Pacific Economic Corporation




ANDEAN and MERCOSUR


APEC established 1989, presently has 21 members
Primary vehicle for open trade and economic cooperation
Agreement to develop free trade yet to be reached
Composed of South American nations with an objective of
setting a common external tariff
European Union


Slow process of European integration
Founded on the principle of supra-nationality
Opportunities and Threats
Opportunities and Threats from Government Actions
Threats
Increase costs
Reduce ROI
Competitive disadvantage
Increased competition
Co-opt
Government Actions
Regulation
Taxation
Expenditure
Privatization
Consultation
Opportunities
Control competition
Competitive advantage
Subsidies, grants,
customers
Level playing field
Influence policy
Political Strategy


Essential for a firm to form and implement
political strategy
Formulation




Objectives
Issues
Stakeholders (allies, opponents, targets)
Position/Case (“public interest”)
Political Strategy

Implementation




Timing
Techniques
 Direct (negotiate, litigate)
 Indirect (advocacy advertising, political
contributions)
Vehicles (e.g. coalition, Government Relations
department, consultants)
Style (e.g., confrontation or conciliation)
Impact of International Business-Government Interaction
Objectives and Motivations of MNC-SOE Alliances and
Acquisitions

Objectives of MNCs






Increase profits, reduce potential risks and
achieve economies of scale
Control/preempt competition, expand market
share, achieve first mover advantage
Obtain lower-cost production or distribution
facilities
Develop or adapt technology jointly, obtain new
labor or technology resources
Expand domestic sales through overseas
operations
Obtain new labor or technology resources
Impact of International Business-Government Interaction
Objectives and Motivations of MNC-SOE Alliances and
Acquisitions

Objectives of SOEs or Privatized Enterprises



Ensure survival and financial viability
Gain competitiveness and become profitable
Acquire new technology and improve managerial
competence
Impact of International Business-Government Interaction
Objectives and Motivations of MNC-SOE Alliances and
Acquisitions

Objectives of Governments




Generate public revenues from SOE sales
Reduce subsidies to loss making SOEs, foreign
debts and public budget deficits
Strengthen private sector, increase national
productivity and stimulate growth
Expand shareholding among citizens and reduce
government role in economy
ENSURING THE SUCCESSFUL PRIVATIZATION OF ONTARIO HYDRO
Rolling blackouts in California have drawn attention to Ontario’s plans to
privatize the production and distribution of electricity. The failure of
privatization in California makes it all the more important for Ontario to
understand what went wrong there, and why others (such as British Airways
and British Telecom, for example) succeeded. This article describes the
best practices in privatization, and provides lessons for both the Ontario
government and the parties who would manage the privately owned
corporations. For government, we recommend a controlled deregulation
over time that would enable Ontario Hydro to adjust to market dynamics
and avoid the California situation. For potential investors, we offer
new ideas and business models to capitalize on the opportunities the
opening of this market will provide.
BY DAVID W. CONKLIN AND TREVOR HUNTER
IVEY BUSINESS JOURNAL
JULY/AUGUST 2001
Proactive Management of Relations
MNE’s objectives in Business – Government
Interactions
MNE’s approach to
Government Policy
To achieve
Benefits of
integration
To achieve
Benefits of
National
Responsiveness
MNE’s Perception of Government Policy
Viewed as outside the Influence
Of MNE Managers
Viewed as Potentially Influenced
by MNE Managers
1
“Government Policy as lever for
global competitiveness”
approach
3
Non-location bound firm
specific characteristics in MNE
government interaction
Example: Use of strategic trade
policy arguments to obtain
government favors.
Example: Porter’s home
base/cluster concept
2
“Good corporate citizen”
approach
Government policy not viewed
as a major determinant of
international competitiveness
4
Location bound firm specific
characteristics in MNE
government interaction
Government policy viewed as
something which can be
influenced through lobbying,
i.e., a proactive strategy
Bargaining Power


Discriminatory enforcement occurs due to
differing characteristics of subsidiaries –
Bargaining Power
Sources of Bargaining power for host country



Growing capability to replace the MNE’s products
Control over access to raw materials, labor and
capital
Sources of Bargaining power for MNE

Vertical integration