The Political Environment
Cateora and Graham Chapter 6
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Agenda
Stability of Government and Its Policies Political Risks of Global Business Assessing Political Vulnerability Reducing Political Vulnerability
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Stability of the Government
One of the top concerns of an international business is the stability of the government and its policies.
The international marketer is not as concerned with who is in power as much as she is concerned with the stability of the policies that affect the marketing of her product.
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Stability of the Government Cont.
The keys to international marketing as related to governments are predictability and stability. The international marketer should understand both the political parties that exist and the nationalistic tendencies of the people.
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Stability Questions
How often does the government change power within the country? Is there predictability of how stable the government and/or the government policies?
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Political Parties
A political party is a group of people who come together in politics that share many common economic and societal goals. An international marketer needs to understand the philosophies of the major political parties.
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Political Parties Cont.
It is important for the marketer to try not to endorse any particular political party. Consideration needs to be given to what influential factors affect the country’s political parties.
E.g., Lobbyist groups
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Political Party Questions
How will the political party in power affect trade regulations? Is there any way to stay politically neutral? Is there any cycle to the rise and fall of political parties?
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Nationalism
Nationalism has been defined by Cateora as an “intense feeling of national pride and unity, an awakening of a nation’s people to pride in their country.” Nationalistic tendency tend to focus on what is better for the state rather than the world.
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Nationalism Cont.
Nationalism can cause:
Restriction on imports Tariffs Restrictive barriers A desire to only by commodities produced in the home country
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Nationalism Questions to Consider
What level of nationalism exists in the potential international market? How will nationalism affect the political environment you are trying to market in? How will nationalism dictate how you produce and sell your product?
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Political Risk of Global Business
Risks in international marketing can range from: Confiscation Expropriation Domestication
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Confiscation
One of the major political risks that can occur is the confiscation of assets. This is when a government goes into a business and seizes all of its assets without compensation. Expropriation is a lesser form of confiscation because the government will make some compensation available for seizing the assets.
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Domestication
Domestication is when a foreign government tries to take foreign investment and transfer it to national control and ownership.
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Domestication Cont.
Domestication can occur by the government mandating the following:
Transfer ownership to nationals Managers in the company must be nationals Decisions must be made by nationals Inputs for the product are produced locally
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Risk Questions
What has been the track record of the host government with treating international businesses? What are the major sources of risk in the international market? What steps can you take to reduce the risks?
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Economic Risks
Exchange controls Local-content laws Import restrictions Tax controls Price controls Labor problems
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Other Political Risks
Political Sanctions
This is when countries pose trade restrictions on other countries in order to cause change.
This is a group of people who have a political or social agenda who see your company as a means to further their agenda.
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Political and Social Activist
Other Political Risks Cont.
Violence and Terrorism
There are times when your product and/or company may be seen as a symbol of a particular country in which a group of people seek to do harm to that country by acts of violence.
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Question to Consider
In what way is my product viewed as having a country of origin that has an unfavorable reputation and is there a group of people who would like to act against the product or company to further their agenda?
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Assessing Political Vulnerability
When examining the potential of a foreign market, the marketer should assess the following:
Politically Sensitive Products and Issues Forecasting Political Risk
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Politically Sensitive Products
To figure out if your product is subject to political sensitivity, you should ask yourself is your products perceived as affecting:
The environment Exchange rates National and Economic security Welfare of people
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Forecasting Political Risk
Forecasting can occur using in-house political analysis or hiring external sources that specialize in examining political risk.
This analysis can be used to help determine whether you should market your product in the foreign market and what conditions must be met for you to pull out off the foreign market.
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Forecasting Questions
How able are you at forecasting the political risk? What is the best method for you to forecast political risks? How much political risk exists in the potential foreign market?
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Reducing Political Vulnerability
Good Corporate Citizenship Through Managing External Affairs Strategies to Lessen Political Risk Political Payoffs
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Qualities of Good Corporate Citizenry
Realize and act as if you were a guest in the country. Distribute some of the profits back to the foreign market. Do not try to Americanize the market. Try to do business in the mother language.
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Qualities of Good Corporate Citizenry Cont.
Should try to develop some worthwhile public projects. Executives should respect the foreign culture. Staff foreign offices with competent nationals rather than all US citizens.
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Strategies to Lessen Political Risk
Joint Ventures Expanding the Investment Base Control Marketing and Distribution Licensing Planned Domestication
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Political Payoffs
Pay people in power to intervene on your behalf. Make sure you spread the money out to all major parties, not just the one currently in power.
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Reducing Political Vulnerability
What is the cheapest way to reduce political vulnerability? What strategies exist to reduce political vulnerability? What means can you use to be a good corporate citizen?
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