Chap006

(1)

I n t e r n a t i o n a l M a r k e t i n g

The Political

Environment:

a Critical Concern

Chapter 6

(2)

What Should You Learn?

•

What the sovereignty of nations means and how it can

affect the stability of government policies

•

How different governmental type, political parties, nationalism,

targeted fear/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

(3)

Global Perspective

•

A crucial reality of international business

– Both host and home governments are integral partners

•

A government controls and restricts a company’s

activities

– By encouraging and offering support

– By discouraging and banning or restricting its activities

•

International law recognizes the sovereign right of

a nation

– To grant or withhold permission to do business within its political boundaries

(4)

The Sovereignty of Nations

•

A sovereign state

– Independent

– Free from all external control

•

Sovereignty

– Powers exercised by a state in relation to other countries

(5)

•

Nations can and do abridge specific aspects of

their sovereign rights in order to coexist with

other nations

– NAFTA – North America Free Trade Agreement – NATO – North Atlantic Treaty Organization

– WTO – World Trade Organization

•

The United States involvement in international

political affiliations is surprisingly low

•

The WTO is considered by some as the biggest

threat so far to national sovereignty

The Sovereignty of Nations

(6)

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 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

(7)

Forms of Government

•

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

– Almost all have at least nominally representative governments with universal suffrage for those 18 years and older

(8)

A Sampling of Government Types

(9)

Political Parties

•

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}

•

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

(10)

Nationalism

•

An intense feeling of national pride and unity

– 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

•

Nationalism comes and goes

– As conditions and attitudes change

(11)

Targeted Fear and/or Animosity

•

Marketers should not confuse nationalism with

a widespread fear or animosity directed at a

particular country

– Toyota in the U.S. (1980s)

– 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

(12)

Political Risks of Global Business

•

Confiscation – the seizing of a company’s assets

without payment

•

Expropriation – where the government seizes an

investment but makes some reimbursement for the

assets

•

Domestication – when host countries gradually

cause the transfer of foreign investments to national

control and ownership through a series of

government decrees

– Mandating local ownership

(13)

How Complicated Things Can Get

(14)

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

(15)

Economic Risks

•

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

(16)

Political Sanctions

•

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/Iran

•

History indicates that sanctions are often

unsuccessful in reaching desired goals

(17)

Political and Social Activists

•

Not usually government sanctioned

•

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

– Worldwide boycott of Nestle products

•

The Internet has become an effective tool of

PSAs to spread the word

(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

(19)

U.S. State Department

Travel Warnings

U.S. State Department

Travel Warnings

(20)

Violence and Terrorism

•

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 pawns in political or social disputes

– To inflict terror within a country as did September 11

•

In the past 30 years, 80% of terrorist attacks

(21)

Armed Conflicts Around the World

(22)

Cyberterrorism and Cybercrime

•

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

•

It is hard to determine if a cyber attack has been

launched

– By a rogue state

– A terrorist

(23)

Cyberterrorism and Cybercrime

•

Each wave of viruses

– Gets more damaging

– 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}

► _{A country’s infrastructure}

•

Mounting concern over the rash of attacks

(24)

Politically Sensitive

Products and Issues

Politically Sensitive

Products and Issues

•

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

•

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

(25)

Forecasting Political Risk

•

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

•

Risk assessment of investments

– Used to estimate the level of a risk a company is assuming

(26)

Top 20 States in Danger of Failing

(Ranked)

Top 20 States in Danger of Failing

(Ranked)

(27)

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

– Creates jobs

– Makes tax contributions

•

Political parties often focus public opinion on the

negative aspects of MNCs whether true or false

– As scapegoats for their own failure

(28)

Lessening Political Vulnerability

•

Strategies that MNCs use to minimize

political vulnerability and risk

– Joint ventures

– Expanding the investment base

– Licensing

– Planned domestication

– Political bargaining

(29)

Government Encouragement

•

Most important reason to encourage foreign

investment

– To accelerate the development of an economy

•

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}

•

Agencies that provide assistance to U.S. companies

– Export-Import Bank (Ex-Im Bank)

– Foreign Credit Insurance Association (FCIA)

(30)

Summary

•

The foreign firm

– Must strive to make its activities politically acceptable or it may be subjected to a variety of politically condoned harassment

•

The foreign marketer frequently faces the problem

of uncertainty of continuity in government policy

•

Marketing firms accepted under one administration

might find its activities undesirable under another

– As governments change political philosophies

•

Unfamiliar or hostile political environment does not

necessarily preclude success for foreign marketers

– If the company becomes a local economic asset and responds creatively to the issues raised by political and social activities