Chapter 6 The Political Environment: A Critical Concern Flashcards
What is Sovereignty
Powers exercised by state in relation to other countries.
Supreme powers exercised over country’s own
members.
Characteristics of a sovereign state
- Enjoys full legal equality with other states.
- Independent and free from all external control.
- Governs its own territory.
- Selects own political, economic, and social systems.
- Has power to enter into agreements with other nations.
What are causes for instability in Government Politics
- Inherent instability
- Political shifts during elections impact trade
conditions - Nationalism
- Animosity toward specific countries
- Trade disputes
What are the different forms of Government?
- Monarchy/dictatorship – rule by one.
- Aristocracy/oligarchy – rule by few.
- Democracy – rule by many.
What is important for international marketer to take into
- Know philosophies of all major political parties within a country
- Know direction each party is likely to take after shift in power
- understad all aspects pf the political landscape
Nationalism in the persepctive of management
Intense feeling of national pride and unity.
- National interest and security more important than
international relations. - Minor harassment and controls of foreign investment
are supported.** Restrictions on imports, tariffs, other barriers to trade. ** Encouragement of citizens to buy domestic products only.
Distinction between nationalism and targeted animosity
Nationalism: directed generally to all foreign countries.
Targeted animosity: directed toward a particular
country.
What are the political risks of Global business
- Confiscation
- Expropriation
- Domestication
What are the economical risks (also political) of Global Business
- Exchange controls
- Local content laws
- Import restrictions
-Tax controls - Price controls
- Labor problems
- Political sanctions
what is Expropration
Government seizes investment but makes some reimbursement for the assets
- Investment sometimes becomes
government-run entity.
What is Domestication
Host country gradually gains control of investment
- Series of government decrees that
mandate local ownership and
national involvement in company’s
management.
What is Confiscation
Seizing of a company’s assets without payment
What is exchange control (risk)
When there is a shortage of foreign exchange in the country and the government restricts the spending in foreign currency.
What are local laws (risk)
When countries often require a portion of any product sold within the country to have local content—that is, to contain
locally made parts.
what are import restrictions (risk)
Selective restrictions on the import of consumer products, raw materials, machines, and spare parts to force foreign industry to purchase more
supplies within the host country and thereby create markets for local industry.
Tax controls (as a risk)
Taxes must be classified as a political risk when used as a means of controlling foreign investments. In such cases, they are raised without warning and in violation
Price controls (risk)
Essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars,
often are subjected to price controls.
Labor Problems (risk)
In many countries, labor unions have strong government support that they use effectively in obtaining special concessions from business.
Political sanctions (risk)
Nations can boycott others, stopping all trade.
- Possible to boycott or issue sanctions against
trade of specific products. - Sanctions are almost always unsuccessful at
reaching goals.
the risk of Political and Social activists and NGO´s
PSAs participate in peaceful or violent acts to effect change.
- Seek to change behavior of governments and corporations.
- Many focus on broad issue of globalization.
- Demonstrations against the World Bank and the IMF
in Seattle. - The Internet and cell phones have become tools of PSAs.
NGOs are involved in protests, lobbying, and collaborations with governments.
the political risk of global business, violence terrorism and war
Peaceful protests often turn violent.
Thousands of terrorist attacks each year worldwide.
- Multinationals are often targeted.
- Embarrasses government and its relationship with firms.
- Generates funds by kidnapping executives.
- Inflicts terror within country.
- Most U.S. attacks have been against businesses.
- Need to consider proximity of the violence and advice of
local and foreign stakeholders.
Far-reaching economic consequences of war.
Cyberterrorism and cybercrime
Growing potential with rise of the Internet.
Can inflict real harm.
- Viruses can spread and do damage quickly before
being stopped.
Hard to determine the source of attack.
Reasons may be espionage, robbery, political punishment, and potential national security
attacks.
How to asses political vulnerability
- Some companies are more vulnerable than others
- Politically sensitive products and issues
-Politically Sensitive Products and Issues
-Forecasting political risk
What are some differences between vulnerable companies and less vulnerable companies
Vulnerable companies.
* Subject to political attention.
* May face unpredictable government restrictions.
Less vulnerable companies.
* Often are in high-priority industry for host country.
* Excused from taxes, duties, quotas, controls.
what are some politically sensitive products and issues?
Generally perceived to have an effect on host country.
- Environment.
- Exchange rates.
- National and economic security.
- Welfare of people, particularly children.
- Publicly visible.
- Subject to public debate.
- Associated with their country of origin.
Forecasting political risk
Firms attempt to predict political instability in
foreign country.
- Evaluate influence of politics on international business
decisions. - Estimate level of risk company is assuming in making investment.
Government failure greatest source of risk.
* Causes chaos in streets and markets.
* Foreign Policy magazine’s “Failed States Index”.
how can we lessen political Vulnerability
- Relations between governments and MNCs are good
- strategies to reduce political vulnerability
Why is the relations between governments and MNCs generally positives if they invest:
- Improves country’s balance of payments.
- Uses locally produced resources.
- Transfers capital, technology, and skills.
- Creates jobs.
- Makes tax contributions.
What are some strategies to reduce political vulnerability and risk
- Joint ventures.
- Expanding the investment base.
- Licensing/franchising.
- Planned domestication.
- Political bargaining.
- Political payoffs (bribery).
what are some reasons a government encourages foreign investment?
- Accelerate development of economy.
- Create local employment.
- Transfer technology.
- Generate export sales.
- Stimulate growth and development of local industry
- Conserve foreign exchange.
Via what instrument does the US governrment help companies seek opportunities worldwide
- Department of Commerce.
- International Trade Administration.
- International Development Finance Corporation.
- Export-Import Bank.
