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The Political Environment:: A Critical Concern

The document discusses the political environment as a critical concern for international business. It identifies factors that can cause government instability like shifts in political parties or economic conditions. Five main causes of political instability are certain forms of government being inherently unstable, changes during elections, nationalism, animosity toward countries, and trade disputes. The document also examines different types of governments, political risks businesses face like confiscation and expropriation, how social activists and NGOs can influence policy, assessing political risk, and strategies businesses use to minimize vulnerability like joint ventures or licensing.

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Md.Azizul Islam
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66 views

The Political Environment:: A Critical Concern

The document discusses the political environment as a critical concern for international business. It identifies factors that can cause government instability like shifts in political parties or economic conditions. Five main causes of political instability are certain forms of government being inherently unstable, changes during elections, nationalism, animosity toward countries, and trade disputes. The document also examines different types of governments, political risks businesses face like confiscation and expropriation, how social activists and NGOs can influence policy, assessing political risk, and strategies businesses use to minimize vulnerability like joint ventures or licensing.

Uploaded by

Md.Azizul Islam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 21

The Political Environment:

A Critical Concern

Stability of Government Policies


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 instability in international markets:


- 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
6-5

Forms of Government
Ancient Greeks Circa 500 B.C. criticized three fundamental forms
of government:
- Rule by one (monarchy)
- Rule by few (aristocracy)
- Rule by many (democracy)

Following the collapse of communism circa 1990 the world


seemed to have agreed that free-enterprise democracy was the best
solution.
Of the more than 200 sovereign states on the planet almost all have
at least nominally representative governments with universal
suffrage for those 18 years and older.
In about 10% of the states voting is required, in the rest it is
voluntary.
6-6

A Sampling of Government Types


Insert Exhibit 6.1

6-7

A Sampling of Government Types


Insert Exhibit 6.1

Women Wait to Vote in Iran


6-8

Economic Risks
Exchange controls
- Stem from shortages of foreign exchange held by a country.

Local-content laws
- Countries often require a portion of any product sold within the
country to have local content.

Import restrictions
- Selective restrictions on the import of raw materials to force foreign
industry to purchase more supplies within the host country and
thereby create markets for local industry

6 - 12

Economic Risks (continued)


Tax controls
- A political risk when used as a means of controlling foreign
investments.

Price controls
- Essential products that command considerable public interest
Pharmaceuticals
Food
Gasoline

Labor problems
- Labor unions have strong government support that they use
effectively in obtaining special concessions from business.

6 - 13

Political Risks of Global Business


Confiscation the seizing of a companys assets without payment.
Expropriation where the government seizes an investment but
some reimbursement for the assets is made.
Domestication when host countries gradually cause the transfer
of foreign investments to national control and ownership through a
series of government decrees by mandating local ownership and
greater national involvement in a companys management.

6 - 14

Political and Social Activists

Korean Students Protest Daewoo Sale to GM

6 - 16

Political and Social Activists

Bharatiya Party Protesting in Bhopal


6 - 18

Nongovernmental Organizations
Nongovernmental organizations (NGOs) are increasingly affecting
policy decisions made by governments.
- Protests
- Lobbying
- Collaborations with governmental organizations
Many also are involved in mitigating much of the human misery
plaguing parts of the planet.
-

Red Cross
Red Crescent
Amnesty International
Oxfam
UNICEF
Care
Habitat for Humanity
6 - 19

U.S. State Department Travel Warnings


Insert Exhibit 6.3

6 - 20

Violence and Terrorism


The State Department reported 3,200 terrorist incidents worldwide
in 2004.
Goals of terrorism
- Multinationals are targeted to embarrass a government and its
relationship with firms
- To generate funds by kidnapping executives to finance terrorist goals
- To use as pawns in political or social disputes not specifically
directed at them
- 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 - 21

Cyberterrorism and Cybercrime


The internet is a vehicle for terrorist and criminal attacks by
foreign and domestic antagonists wishing to inflict damage on a
company with little chance of being caught.
It is hard to determine if a cyber attack has been launched by a
rogue state, a terrorist, or by a hacker as a prank.
Each wave of viruses gets more damaging and spreads so rapidly
that considerable harm is done before it can be stopped.
Tools for cyberterrorism can be developed to do considerable
damage to a company, an entire industry, or a countrys
infrastructure.
Because of mounting concern over the rash of attacks, business
leaders and government officials addressed a Group of Eight
conference.
6 - 22

Forecasting Political Risk


Political risk assessment is an attempt to forecast political
instability to help management identify and evaluate political
events and their potential influence on current and future
international business decisions.
The greater the risk to international marketers is the threat of
the government actually failing, causing chaos in the streets
and markets.
Risk assessment is used to estimate the level of a risk a
company is assuming when making an investment and to help
determine the amount of risk it is prepared to accept.

6 - 24

Top 20 States in Danger of Failing (Ranked)


Insert Exhibit 6.4

6 - 25

Lessening 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
- Uses locally produced resources
- Transfers capital, technology, and/or skills
- Create jobs
- Make tax contributions

Political parties seeking publicity or scapegoats for


their failure often serve their own interests by
focusing public opinion on the negative aspects of
MNCs whether true or false.

6 - 26

Lessening Political Vulnerability

French Farmers toss


Tomatoes at
McDonalds to Protest
the Companys Fast
Food.

6 - 27

Lessening Political Vulnerability

Taiwanese Fishermen Protest Japanese Fishing


6 - 28

Lessening Political Vulnerability (continued)


Strategies that MNCs use to minimize political
vulnerability and risk:
-

Joint ventures
Expanding the investment base
Licensing
Planned domestication
Political bargaining
Political payoffs

6 - 29

Government Encouragement
The most important reason to encourage foreign investment is
to accelerate the development of an economy.
The U.S. government is motivated for economic as well as
political reasons to encourage American firms to seek
business opportunities in countries worldwide, including
those that are politically risky.
Agencies that provide assistance to U.S. companies include:
-

Export-Import Bank (Ex-Im Bank)


Foreign Credit Insurance Association (FCIA)
The Agency for International Development (AID)
The Overseas Private Investment Corporation (OPIC)
6 - 30

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