Political Environment of Global
Markets
Alexander Consulting Enterprise
3/21/2016
Political Risks
- Confiscation
- Expropriation
- Domestication
- Protectionism
-Regulations:
 Export Controls
 Import Restrictions
 Exchange Controls
 Local-Content Laws
 Tax Controls
 Price Controls
 Labor Problems
- Political and Social Activity
-Violence, War
-Spill over of Country Perception
Alexander Consulting Enterprise
3/21/2016
Image of American Brands in Foreign Countries
The Bush Factor?
100
80
60
2002
40
2003
2004
20
0
Alexander Consulting Enterprise
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Handelsblatt 11 August 2004, p.9
3/21/2016
Protectionism
Governmental Restrictions on Trade to Protect its Interests
Arguments for Protectionism:
 Infant Industry
 Jobs at Home
 Protection of Home Industry
 Conservation of natural Resources
 National Defense
 Retaliation
Lasting Protectionism has always been detrimental to countries
in the long run.
Alexander Consulting Enterprise
3/21/2016
The Price of Protectionism
Industry
Total Costs to
Consumers
(in $ millions)
Number of
Jobs Saved
$27,000
640,000
Carbon Steel
6,800
9,000
$ 750,000
Autos
5,800
55,000
$ 105,000
Dairy products
5,500
25,000
$ 220,000
Shipping
3,000
11,000
$ 270,000
Meat
1,800
11,000
$ 160,000
Textiles and
apparel
SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,”
Fortune, May11, 1987, pp. 125.
Alexander Consulting Enterprise
3/21/2016
Cost per
Job Saved
$
42,000
Protected industry Jobs saved Total cost (in millions) Annual cost per job saved
Benzenoid chemicals
216
$297
$1,376,435
Luggage
226
290
1,285,078
Softwood lumber
605
632
1,044,271
Sugar
2,261
1,868
826,104
Polyethylene resins
298
242
812,928
Dairy products
2,378
1,630
685,323
Frozen concentrated orange609
juice
387
635,103
Ball bearings
146
88
603,368
Maritime services
4,411
2,522
571,668
Ceramic tiles
347
191
551,367
Machine tools
1,556
746
479,452
Ceramic articles
418
140
335,876
Women's handbags
773
204
263,535
Canned tuna
390
100
257,640
Glassware
1,477
366
247,889
Apparel and textiles
168,786
33,629
199,241
Peanuts
397
74
187,223
Rubber footwear
1,701
286
168,312
Women's nonathletic footwear
3,702
518
139,800
Costume jewelry
1,067
142
132,870
Total
191,764
$44,352
Average (weighted)
$231,289
Source: 2002 Annual Report—Federal Reserve Bank of Dallas
Alexander Consulting Enterprise
3/21/2016
Managing Political Risk
1. Identify Financial Exposure
- Relative Importance of Market
- Mode of Entry
2. Quantify Political Risk
- Use of Internal and External Experts
- Use of Risk Management Companies
Alexander Consulting Enterprise
3/21/2016
Quantify Political Risk
Economic Freedom Index
http://www.heritage.org/Index/Ranking.aspx
Market Potential Index
http://globaledge.msu.edu/resourcedesk/mpi/
• Business Environment Risk Intelligence (BERI)
Beri Provides a Rating of Countries According
to Their Political Risks
1. Identification of Risk Factors
2. Correlation of Factors with Occurrence of Damage
3. Quantitative Weighing of Risk Factors
Alexander Consulting Enterprise
3/21/2016
Strategies to Lessen Political Risk
- Joint Ventures
- Good Citizen
- Planned Domestication
Alexander Consulting Enterprise
3/21/2016
Some web pages:
http://www.state.gov/
The U.S. Department of state provides a wide variety of information on
international topics including a rudimentary analysis of political and economic risk
in foreign countries.
http://www.census.gov/foreign-trade/www/index.html
This governmental site provides information about foreign trade statistics
http://www.beri.com
This privately held for-fee site provides information about country risk. Upon
request BERI analyses and evaluates industry specific political risk in foreign
countries
Alexander Consulting Enterprise
3/21/2016