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(1)

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

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 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

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

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

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

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

A Sampling of Government Types

(9)

Political Parties

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

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

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

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

How Complicated Things Can Get

(14)

Economic Risks

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

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

PharmaceuticalsFood

Gasoline

Labor problems

(16)

Political Sanctions

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

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

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

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

Armed Conflicts Around the World

(22)

Cyberterrorism and Cybercrime

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

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

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

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

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

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

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

References

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