Chapter 6 - The political environment: A critical concern. What you should learn from chapter 6: What the sovereignty of nations means and how it can affect the stability of government policies; how different governmental types, 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;...
International Marketi ng 14th Edition P h i l i p R C a t e o r a M a r y C G i l l y John L Graham The Political Environment: a Critical Concern Chapter McGrawưHill/Irwin InternationalMarketing14/e Copyrightâ2009byTheMcGrawưHillCompanies,Inc.Allrightsreserved 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 • How to assess and reduce the effect of political vulnerability • How and why governments encourage foreign investment 6-2 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 business within its political boundaries – To control where its citizens conduct business 6-3 The Sovereignty of Nations • A sovereign state – Independent – Free from all external control • Sovereignty – Powers exercised by a state in relation to other countries – Supreme powers exercised over its own members 6-4 The Sovereignty of Nations • Nations can and 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 6-5 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 – Trade disputes themselves 6-6 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 – In about 10% of the states voting is required, in the rest it is voluntary 6-7 A Sampling of Government Types Exhibit 6.1 6-8 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 potential 6-9 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 – Foreign companies welcomed today may be harassed tomorrow and vice versa 6-10 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 – Particularly when ignored by other major nations’ traders 6-16 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 – Protest rallies against the U.S – Iraq War 6-17 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 Habitat for Humanity 6-18 U.S State Department Travel Warnings Exhibit 6.3 6-19 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 against the U.S have been aimed at American businesses 6-20 Armed Conflicts Around the World Exhibit 6.4 6-21 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 – A hacker as a prank 6-22 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 considerable damage ► ► ► To a company, An entire industry A country’s infrastructure • Mounting concern over the rash of attacks – Business leaders and government officials addressed a Group of Eight conference 6-23 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 hormonetreated beef for more than a decade 6-24 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 – Helps determine the amount of risk a firm is prepared to accept 6-25 Top 20 States in Danger of Failing (Ranked) Exhibit 6.5 6-26 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 – To serve their own interests 6-27 Lessening Political Vulnerability • Strategies that MNCs use to minimize political vulnerability and risk – – – – – – Joint ventures Expanding the investment base Licensing Planned domestication Political bargaining Political payoffs 6-28 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) The Agency for International Development (AID) The Overseas Private Investment Corporation (OPIC) 6-29 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 – If a company is considered vital to achieving national economic goals, the host country often provides an umbrella of protection 6-30 ... company’s management 6- 1 2 How Complicated Things Can Get Exhibit 6. 2 6- 1 3 Economic Risks • Exchange controls – Stem from shortages of foreign exchange held by a country • Local-content laws – Countries... – – – – – Red Cross Red Crescent Amnesty International Oxfam UNICEF Care Habitat for Humanity 6- 1 8 U.S State Department Travel Warnings Exhibit 6. 3 6- 1 9 Violence and Terrorism • The State Department... Helps determine the amount of risk a firm is prepared to accept 6- 2 5 Top 20 States in Danger of Failing (Ranked) Exhibit 6. 5 6- 2 6 Lessening Political Vulnerability • Relations between governments