The Political Environment: A Critical Concern Chapter 6 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint presentation prepared by: Alfred Lowey-Ball Associate Professor of Marketing UBI-United Business Institutes Brussels, Belgium Chapter Outline • Chiquita bananas case the influence of politics • Sovereignty of nations • Stability of government policies • Political risks of global business • Confiscation, expropriation, domestication • Economic risks • Political sanctions • Assessing political vulnerability • Politically sensitive products & issues • Reducing political vulnerability • Joint ventures Expanding the investment base • Licensing Planned domestication • Political payoffs • Government encouragement • Chiquita bananas case the influence of politics • Sovereignty of nations • Stability of government policies • Political risks of global business • Confiscation, expropriation, domestication • Economic risks • Political sanctions • Assessing political vulnerability • Politically sensitive products & issues • Reducing political vulnerability • Joint ventures Expanding the investment base • Licensing Planned domestication • Political payoffs • Government encouragement McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Louis Vuitton handbags caught in a net • USA slapped 100% duty on LV bags etc in retaliation for EU favoring bananas from former colonies iso Chiquita ban. • Chiquita bananas (from LA) sold by US firms • Dispute with EU • WTO ruled in favor of US • Chiquita campaign contributions in US • Unrelated products affected Be aware of the political implications and risks Be aware of the political implications and risks Chapter Learning Objectives 1. What does the sovereignty of nations mean and how can it affect the stability of government policies, political parties and nationalism. 1. What does the sovereignty of nations mean and how can it affect the stability of government policies, political parties and nationalism. 2. The political risks of global business and the factors that affect stability 2. The political risks of global business and the factors that affect stability 3. The importance of the political system to international marketing and its effect on foreign investments 3. The importance of the political system to international marketing and its effect on foreign investments Chapter Learning Objectives 4. The impact of political and social activists, violence and terrorism on international business 4. The impact of political and social activists, violence and terrorism on international business 5. Assessing and reducing the effect of political vulnerability 5. Assessing and reducing the effect of political vulnerability 6. How and why governments encourage foreign investment 6. How and why governments encourage foreign investment Introduction • The political environment of countries is a critical concern for the international marketer • International law recognizes the sovereign right of a nation to allow or deny foreign firms to conduct business within its borders • Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members • A sovereign state is independent and free from all external control; enjoys full legal equality with other states; and governs its own territory Stability of Government Policies Q: Radical shifts in government philosophy can occur when: Q: Radical shifts in government philosophy can occur when: 1. An opposing political party ascends to power 2. Pressure from nationalist and self-interest groups 1. An opposing political party ascends to power 2. Pressure from nationalist and self-interest groups 3. Weakened economic conditions. 4. Bias against foreign investment or conflicts between governments 3. Weakened economic conditions. 4. Bias against foreign investment or conflicts between governments Stability of Government Policies • The stability or instability of prevailing government policies is a major concern of foreign businesses • A change in government, whether by election or coup, does not necessarily mean a change in the level of political risk • The stability or instability of prevailing government policies is a major concern of foreign businesses • A change in government, whether by election or coup, does not necessarily mean a change in the level of political risk • The ideal political climate for a multinational firm to conduct business is a stable, friendly government • Be knowledgeable about the philosophies of all major political parties and their attitudes towards trade • The ideal political climate for a multinational firm to conduct business is a stable, friendly government • Be knowledgeable about the philosophies of all major political parties and their attitudes towards trade • Conversely, radical changes in policies toward foreign business can occur in the most stable governments as well • Conversely, radical changes in policies toward foreign business can occur in the most stable governments as well Nationalism • Nationalism refers to feelings of national pride and unity • Nationalism refers to feelings of national pride and unity Feelings of nationalism are manifested by: 1. Call to “buy our country’s products only,” e.g., “Buy American” 2. Restrictions on imports, restrictive tariffs, and other barriers to trade Feelings of nationalism are manifested by: 1. Call to “buy our country’s products only,” e.g., “Buy American” 2. Restrictions on imports, restrictive tariffs, and other barriers to trade Political Risks of Global Business • Risks of global business include: • Risks of global business include: 1. Confiscation, Expropriation, and Domestication 2. Economic Risks, and 3. Price Controls 1. Confiscation, Expropriation, and Domestication 2. Economic Risks, and 3. Price Controls