The Political Environment
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Different governmental type, political parties,
nationalism, animosity, and trade disputes can affect
the environment for marketing in foreign countries
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The political risks of global business and the factors
that affect stability
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The importance of the political system to international
marketing and its effect on foreign investments

The impact of political and social activists, violence,
and terrorism on international business
6-2
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A crucial reality of international business
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A government controls and restricts a
company’s activities
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Both host and home governments are integral partners
By encouraging and offering support
By discouraging and banning or restricting its activities
International law recognizes the sovereign right
of a nation
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To grant or withhold permission to do business within
its political boundaries
To control where its citizens conduct business
6-3
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Issues that can affect the stability of a
government
◦ Radical shifts in government philosophy when an opposing
political party ascends to power
◦ Pressure from nationalist and self-interest groups
◦ Weakened economic conditions
◦ Bias against foreign investment
◦ Conflicts between governments

Five main political causes of international
market instability
◦ Some forms of government seem to be inherently unstable
◦ Changes in political parties during elections can have major
effects on trade conditions
◦ Nationalism
◦ Animosity targeted toward specific countries
◦ Trade disputes themselves
6-4
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Circa 500 B.C – Ancient Greeks criticized three
fundamental forms of government
◦ Rule by one (monarchy)
◦ Rule by few (aristocracy)
◦ Rule by many (democracy)
Circa 1990 – Collapse of communism
◦ Free-enterprise democracy considered the best
solution
200+ sovereign states on the planet
◦ In about 10% of the states voting is required, in
the rest it is voluntary
6-5
Exhibit 6.1
6-6
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In countries where two strong political parties
typically succeed one another, it is important to
know the direction each party is likely to take
◦ Great Britain
 The Labour Party vs. the Conservative Party
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Unpredictable and drastic shifts in government
policies deter investments, whatever the cause
of the shift
A current assessment of a country’s political
philosophy and attitudes is important in
gauging their stability and attractiveness in
terms of market potential
6-7
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An intense feeling of national pride and unity
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An awakening of a nation’s people to pride in their
country
National interest and security are more
important than international relations
Countries use nationalism to protect
themselves against intrusions
◦ Threats from outside forces
◦ Declines in the domestic economy
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Nationalism comes and goes
◦ As conditions and attitudes change
◦ Foreign companies welcomed today may be
harassed tomorrow and vice versa
6-8
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Marketers should not confuse nationalism with
a widespread fear or animosity directed at a
particular country
◦ Toyota in the U.S. (1980s) –threat to American
◦ Animosity toward the United States in France
◦ The unhappiness of citizens and politicians in many other
countries concerning the war in Iraq

No nation-state, however secure, will tolerate
penetration by a foreign company into its
market and economy
◦ If it perceives a social, cultural, economic, or political threat to its
well-being

Trade disputes
6-9
Risks of doing business abroad:
 Confiscation – the seizing of a company’s assets
without payment
 Expropriation – where the government seizes an
investment but makes some reimbursement for the
assets-becomes gov. entity
 Domestication – when host countries gradually
cause the transfer of foreign investments to
national control and ownership through a series of
government ruling
◦ Authorization local ownership
◦ Greater national involvement in a company’s
management
6-10
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Tax controls
◦ A political risk when used as a means of controlling
foreign investments
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Price controls
◦ Essential products that command considerable public
interest
 Pharmaceuticals
 Food
 Gasoline
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Labor problems
◦ Labor unions have strong government support that they
use effectively in obtaining special consideration from
business
6-11
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One or a group of nations may boycott
another nation
◦ Stopping all trade between the countries
◦ Issuing sanctions against trade of specific products
 U.S. boycotts of trade with Cuba
 US and Iran
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History indicates that sanctions are often
unsuccessful in reaching desired goals
◦ Particularly when ignored by other major nations’
traders
6-12
Reasons:
 Iran’s support for international terrorism and
active pursuit of weapons of mass
destruction.
Objective:
 To put gov. of Iran under pressure.
Impact:
 Affect most transactions that would be done,
many cannot invest in Iran.
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Not usually government sanctioned
Example: Greenpeace and GM food (protest,
lobbying)
Can interrupt the normal flow of trade
Range from those who seek to bring about
peaceful change to those who resort to violence
and terrorism to effect change
◦ Malaysia boycott of Dutch products after anti-Islam
movie
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The Internet has become an effective tool of PSAs
to spread the word
◦ Protest rallies against the U.S. – Iraq War
6-14
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Nongovernmental organizations (NGOs) are
increasingly affecting policy decisions made by
governments
◦ Protests
◦ Lobbying
◦ Collaborations with governmental organizations
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Many also are involved in mitigating much of
the human misery plaguing parts of the planet
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Red Cross
Red Crescent
Oxfam
MERCY
Care
6-15
Exhibit 6.3
6-16
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The State Department reported 3,200
terrorist incidents worldwide in 2004
Goals of terrorism against multinationals
◦ To embarrass a government and its relationship
with firms
◦ To generate funds by kidnapping executives
◦ To use as collateral in political or social disputes
◦ To inflict terror within a country as did September
11

In the past 30 years, 80% of terrorist attacks
against the U.S. have been aimed at American
businesses
6-17
Exhibit 6.4
6-18
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The internet is a vehicle for terrorist and
criminal attacks to inflict damage on a
company with little chance of being caught
◦ By foreign and domestic antagonists
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It is hard to determine if a cyber attack has
been launched
◦ By a rogue state
◦ A terrorist
◦ A hacker as a prank
6-19
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Each wave of viruses
◦ Gets more damaging
◦ Spreads so rapidly that considerable harm is done
before it can be stopped
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Tools for cyberterrorism
◦ Can be developed to do considerable damage
 To a company,
 An entire industry
 A country’s infrastructure
6-20
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Politically sensitive products
◦ Perceived to have an effect on the environment,
exchange rates, national and economic security,
and the welfare of people
◦ Are publicly visible or subject to public debate
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Health is often the subject of public debate,
and products that affect or are affected by
health issues can be sensitive to political
concern
The European Union has banned hormonetreated beef for more than a decade
6-21
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Political risk assessment
◦ An attempt to forecast political instability
◦ To help management identify and evaluate political
events
◦ To predict their potential influence on current and future
international business decisions
Government failure is greatest risk to
international marketers
◦ Causing chaos in the streets and markets
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Risk assessment of investments
◦ Used to estimate the level of a risk a company is
assuming
◦ Helps determine the amount of risk a firm is prepared to
accept
6-22
Exhibit 6.5
6-23
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Most important reason to encourage foreign
investment
◦ To accelerate the development of an economy
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U.S. government motivated for economic as
well
as political reasons
◦ Encourages American firms to seek business opportunities in
countries worldwide including those that are politically risky
 Department of Commerce
 International Trade Administration
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Agencies that provide assistance to U.S.
companies
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Export-Import Bank (Ex-Im Bank)
Foreign Credit Insurance Association (FCIA)
The Agency for International Development (AID)
The Overseas Private Investment Corporation (OPIC)
6-24
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Different governmental type, political parties,
nationalism, animosity, and trade disputes can
affect the environment for marketing in foreign
countries
The political risks of global business and the
factors that affect stability
The importance of the political system to
international marketing and its effect on foreign
investments
The impact of political and social activists,
violence, and terrorism on international business
6-25
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Why would a country domesticate that
expropriate?
How can a change in the political party in
“power” affect an investor? Discuss and give
examples based on the Malaysian context.
What are the most common causes of
instability in governments? Discuss.
Thank you