Chapter 6 The Political Environment: A Critical Concern

Question 1

What is Sovereignty

Answer 1

Powers exercised by state in relation to other countries.

Supreme powers exercised over country’s own
members.

Question 2

Characteristics of a sovereign state

Answer 2

• 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.

Question 3

What are causes for instability in Government Politics

Answer 3

1. Inherent instability
2. Political shifts during elections impact trade
   conditions
3. Nationalism
4. Animosity toward specific countries
5. Trade disputes

Question 4

What are the different forms of Government?

Answer 4

• Monarchy/dictatorship – rule by one.
• Aristocracy/oligarchy – rule by few.
• Democracy – rule by many.

Question 5

What is important for international marketer to take into

Answer 5

• 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

Question 6

Nationalism in the persepctive of management

Answer 6

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.

Question 7

Distinction between nationalism and targeted animosity

Answer 7

Nationalism: directed generally to all foreign countries.

Targeted animosity: directed toward a particular
country.

Question 8

What are the political risks of Global business

Answer 8

• Confiscation
• Expropriation
• Domestication

Question 9

What are the economical risks (also political) of Global Business

Answer 9

• Exchange controls
• Local content laws
• Import restrictions
  -Tax controls
• Price controls
• Labor problems
• Political sanctions

Question 10

what is Expropration

Answer 10

Government seizes investment but makes some reimbursement for the assets

• Investment sometimes becomes
  government-run entity.

Question 11

What is Domestication

Answer 11

Host country gradually gains control of investment

• Series of government decrees that
  mandate local ownership and
  national involvement in company’s
  management.

Question 12

What is Confiscation

Answer 12

Seizing of a company’s assets without payment

Question 13

What is exchange control (risk)

Answer 13

When there is a shortage of foreign exchange in the country and the government restricts the spending in foreign currency.

Question 14

What are local laws (risk)

Answer 14

When countries often require a portion of any product sold within the country to have local content—that is, to contain
locally made parts.

Question 15

what are import restrictions (risk)

Answer 15

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.

Question 16

Tax controls (as a risk)

Answer 16

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

Question 17

Price controls (risk)

Answer 17

Essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars,
often are subjected to price controls.

Question 18

Labor Problems (risk)

Answer 18

In many countries, labor unions have strong government support that they use effectively in obtaining special concessions from business.

Question 19

Political sanctions (risk)

Answer 19

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.

Question 20

the risk of Political and Social activists and NGO´s

Answer 20

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.

Question 21

the political risk of global business, violence terrorism and war

Answer 21

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.

Question 22

Cyberterrorism and cybercrime

Answer 22

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.

Question 23

How to asses political vulnerability

Answer 23

• Some companies are more vulnerable than others
• Politically sensitive products and issues

-Politically Sensitive Products and Issues

-Forecasting political risk

Question 24

What are some differences between vulnerable companies and less vulnerable companies

Answer 24

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.

Question 25

what are some politically sensitive products and issues?

Answer 25

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.

Question 26

Forecasting political risk

Answer 26

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”.

Question 27

how can we lessen political Vulnerability

Answer 27

• Relations between governments and MNCs are good
• strategies to reduce political vulnerability

Question 28

Why is the relations between governments and MNCs generally positives if they invest:

Answer 28

• Improves country’s balance of payments.
• Uses locally produced resources.
• Transfers capital, technology, and skills.
• Creates jobs.
• Makes tax contributions.

Question 29

What are some strategies to reduce political vulnerability and risk

Answer 29

• Joint ventures.
• Expanding the investment base.
• Licensing/franchising.
• Planned domestication.
• Political bargaining.
• Political payoffs (bribery).

Question 30

what are some reasons a government encourages foreign investment?

Answer 30

• Accelerate development of economy.
• Create local employment.
• Transfer technology.
• Generate export sales.
• Stimulate growth and development of local industry
• Conserve foreign exchange.

Question 31

Via what instrument does the US governrment help companies seek opportunities worldwide

Answer 31

• Department of Commerce.
• International Trade Administration.
• International Development Finance Corporation.
• Export-Import Bank.