Welcome to
International Marketing
Chapter Six
The Political Environment:
A Critical Concern
Chapter Learning Objectives
1. What does the sovereignty of nations mean and how can it affect
the stability of government policies, political parties and
nationalism.
2. The ppolitical risks of gglobal business and
the factors that affect stability
3. The importance of the political system to international marketing
and its effect on foreign investments
Chapter Learning Objectives
4. The impact of political and social activists, violence and
terrorism on international business
Introduction
• The political environment of countries is a critical
concern for the international marketer
• International law recognizes the sovereign right of
a nation to allow or deny foreign firms to conduct
5 Assessing and reducing the effect of political
5.
vulnerability
6. How and why governments encourage foreign investment
A sovereign state, in the context of
international law, has all of the following
characteristics EXCEPT:
A. is obligated to be a member of the United
Nations.
B. is independent and free from all external
control.
C. enjoys full legal equality with other states.
D. governs its own territory.
E. is allowed to make decisions regarding its laws
without outside interference.
• Sovereignty refers to both the powers exercised
by a state in relation to other countries and the
supreme powers exercised over its own members
• A sovereign state is independent and free from all
external control; enjoys full legal equality with
other states; and governs its own territory
Stability of Government Policies
Q: Radical shifts in government philosophy can occur when:
1. An opposing political party ascends to
power
2. Pressure from nationalist and self-interest
groups
3. Weakened economic conditions.
4. Bias against foreign investment or
conflicts between governments
1
Stability of Government Policies
•
•
•
•
•
The ideal political climate for a
multinational firm is:
The stability or instability of prevailing government policies is
a major concern of foreign businesses
A change in government, whether by election or coup, does not
always mean a change in the level of political risk
A. a country where there are no laws.
B. a country where favors can be purchased
cheaply.
C a stable,
C.
stable friendly government
government.
D. a government where absolute power is a
reality.
E. an authoritarian government that can be
dealt with through non-legal channels.
Conversely, radical changes in
policies toward foreign business
can occur in the most stable
governments as well
The ideal political climate for a multinational firm to conduct
business is a stable, friendly government
Be knowledgeable about the philosophies of all major political
parties and their attitudes towards trade
Albania
Nationalism
•
•
Nationalism refers to feelings of national pride and unity
Feelings of nationalism are manifested by:
1. Call to “buy our country’s products
only,” e.g., “Buy American”
2. Restrictions on imports, restrictive
tariffs, and other barriers to trade
In spiritual sphere, in possessing or creating
values never have Albanians had any reason to
envy or covet others, much less have they any
for such today.
The Albanians are the creators and bearers of
one of humankind’s fundamental languages, a
language that has its unshakable place among a
dozen or so of the main languages of the world.
One of the first of Europe’s Christian countries,
Albania has consequently been the original soil
of the Western European civilization.
civilization
From the great hymn of Christianity “Te Deum”
written by an Albanian Archbishop over fifteen
hundreds years ago, to the teacher of Western
civilization George Kastriot, the most sublime
and renowned character in the world not only of
Albanians, but of all Balkan peoples as well,
described as “the Athlete of Christ”, to the
Albanian nun Mother Teresa, the most famous
Albanian women in today’s world, the proof of
civilization passes through like a brilliant
thread, so much and so persistently denied by
the ill-wishers of Albanian nation.
Ismail Kadare
Alabanian National Anthem
Hymni Kombëtar
• Rreth flamurit të përbashkuar,
Me një dëshirë dhe një qëllim,
Të gjithë Atij duke iu betuar,
Të lidhim besën për shpëtim.
The National Anthem
• United around the flag,
With one desire and one goal,
Let us pledge our word of honor
To fight for our salvation
Prej lufte veç ay largohet,
Që është lindur tradhëtor,
Kush
K
h ëështë
htë burrë
b ë nukk friksohet,
f ik h t
Po vdes, po vdes si një dëshmor.
Only he who is a born traitor
Averts from the struggle.
gg
He who is brave is not daunted,
But falls - a martyr to the cause.
Në dorë armët do t'i mbajmë,
Të mbrojmë Atdheun në çdo vend,
Të drejtat tona ne s'i ndajmë,
Këtu armiqtë s'kanë vend.
With arms in hand we shall remain,
To guard our fatherland round about.
Our rights we will not bequeath,
Enemies have no place here.
Se Zoti vet e tha me gojë,
Që kombe shuhen përmbi dhé,
Po Shqipëria do të rrojë,
Për te, për te luftojmë ne.
For the Lord Himself has said,
That nations vanish from the earth,
But Albania shall live on,
Because for her, it is for her that we fight.
2
The phrase “Buy Albanian rather than buy
foreign goods” would most closely be
associated with which of the following?
A.
B
B.
C.
D.
E.
Expropriation is where the government
seizes an investment, but some
reimbursement for the assets is made;
often
ft the
th expropriated
i t d investment
i
t
t is
i
nationalized to become a government run
entity
Domestication occurs when the government mandates local
ownership and greater national involvement in a foreign
company’s management
Economic Risks
•
Risks of global business include:
1 C
1.
Confiscation,
fi ti Expropriation,
E
i ti
and Domestication
2. Economic Risks, and
3. Price Controls
Confiscation, the most severe political risk, is the seizing of a
company’s assets without payment
•
•
•
Socialism
Albanianism
Alb
i i
Nationalism
Mercantilism
Anti-foreignism
Confiscation, Expropriation, and Domestication
•
Political Risks of Global Business
International firms face a variety of economic risks
Governments can impose restraints
on business activity to:
a) Protect national security
b) Protect an infant industry
c) To conserve scarce foreign
exchange
d) Raise revenue
e) Retaliate against unfair trade
practices
When a government seizes an investment
of a foreign investor but some
reimbursement for the assets is made, the
government is following a process called:
A
A.
B.
C.
D.
E.
confiscation.
fi
i
expropriation.
domestication.
exchange controls.
local-content laws.
If there is a substantial amount of capital
leaving the country, the country is likely to
implement which of the following to
control the situation?
A.
B.
C.
D.
E.
exchange
g controls
local-content laws
import restrictions
tax controls
price controls
3
Forecasting Political Risk
•
•
Decide if risk insurance is necessary
Devise an intelligence network and an early warning system
•
Develop contingency plans for
unfavorable future political events
•
Build a database of past political events
for use in predicting future problems
•
Interpret the data gathered by a company’s
intelligence network in order to advise
and forewarn corporate decision makers
about political and economic situations
Other Political Risks of Global Business
1. Political Sanctions
2. Political and Social
Activists
3. Violence and
Terrorism
4. Cyberterrorism
Assessing Political Vulnerability
•
•
No absolute guidelines to assess if a firm faces political risks
No specific guidelines to determine a product’s political
vulnerability, but there are some generalizations
•
1.
2.
3.
4.
Reducing Political Vulnerability
Relations between governments and MNCs are generally
positive if the investment:
improves the balance of payments by increasing
exports or reducing imports through import
substitution
Politically sensitive products include
those that:
effect on the environment,
exchange rates
national and economic security
affect public health, e.g., genetically
modified (GM) foods
uses locally
y produced
p
resources
transfers capital, technology, and/or skills
creates jobs, and/or
makes tax contributions
Reducing Political Vulnerability
MNC’s can use the following strategies to minimize -political
vulnerability and risk:
Joint Ventures
Expanding the Investment Base
Licensing
Planned Domestication
Political Payoffs
The most effective solution to a situation
where a foreign government is demanding
local participation in a multinational
corporation's business activities in the host
country is:
A.
B.
C.
D.
E.
joint ventures.
licensing.
expanding the investment base.
planned domestication.
political payoffs.
4