International bussiness the challenge of global competition 11e chapter 09

chapter nine
Political Forces

McGraw-Hill/Irwin
International Business, 11/e

Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.


Learning Objectives


Identify the ideological forces that affect business



Discuss the fact that although most governments own
businesses, they are privatizing them in growing numbers



Explain the changing sources and reasons for terrorism



Explain steps that traveling international business executives
should take to protect themselves from terrorists



Evaluate the importance to business of government stability and
policy continuity



Explain country risk assessment by international businesses
9-3


Ideological Forces

 Communism

 The belief that the government should

own all the major factors of production
 Production in these countries is at stateowned factories and farms (some
exceptions)
 Labor unions are government-controlled

9-4


Communism
• Conceived by Karl Marx as “classless
society”
– Developed by his successors into control of
society by the Communist Party and an
attempted worldwide spread of communism

• Expropriation and Confiscation
– Government seizure of property within its
borders owned by foreigners, followed by
prompt, adequate, and effective
compensation to the former owners
– Generally expropriated becomes confiscation
(no compensation)
9-5


Ideological Forces
• Capitalism
– An economic system in which the means of
production and distribution are for the most part
privately owned and operated for private profit

• Ideal capitalism
• Government restricted to functions that the
private sector cannot perform
– National defense
– Police, fire, and other public services
– Government-to-government international
relations
9-6


Ideological Forces
• Socialism
 Public, collective ownership of the
basic means of production and

distribution, operating for use rather
than profit

 Socialist governments frequently perform in
ways not consistent with the doctrine
 Many European countries have practiced
socialism: Great Britain, France, Spain,
Greece, Germany

9-7


Socialism

• Socialism in Developing Countries
 Government typically owns and controls

most of the factors of production
 Shortages of capital, technology, and
skilled management and labor are
characteristic
 Many of the educated citizens connected
with government
9-8


Conservative or Liberal

Conservative

 A person, group, or party that wishes to
minimize government activities and
maximize private ownership and
business

 Right wing is a more extreme conservative
position

9-9


Conservative or Liberal
 Liberal

 In the contemporary U.S., a person,

group, or party that urges greater
government involvement in business
and other aspects of human activities

 Left wing is a more extreme liberal
 Careful! Terms may have entirely different
meanings outside the U.S.

9-10


Government Ownership
of Business
• Why Firms are Nationalized

– To extract more money from the firms
– To increase the firm’s profitability
– For ideological reasons
– To preserve jobs
– To follow previous government support (control
follows money)
– happenstance
9-11


Unfair Competition?
• Private-owned companies complain that
government owned companies

– Can cut prices unfairly
– Get cheaper financing
– Get government contracts
– Get export assistance
– Can hold down wages with government
assistance

9-12


Privatization
• The transfer of public sector assets to the
private sector, the transfer of management
of state activities through contracts and
leases, and the contraction out of activities
previously conducted by the state

• Britain’s Margaret Thatcher, leader of
privatization movement
• Airports, garbage, postal services frequent
examples
9-13


Privatization in on the Move
• Trend all over the world
• China is allowing state-run enterprises to diversify
ownership
• Usually the buyers have financial success

9-14


Privatization Anywhere
Any Way

 Not always ownership transfer from government to
private entities

 Activities previously conducted by the

state may be contracted out
 Governments may lease state-owned
plants to private entities
 Governments may combine a joint
venture with a management contract
with a private group to run a previously

government-operated business
9-15


Privatizations by Region

9-16


Government Protection

 Terrorism

 Unlawful acts of violence committed for a wide

variety of reasons, including for ransom, to
overthrow a government, to gain release of
imprisoned colleagues, to exact revenge for
real or imagined wrongs, and to punish
nonbelievers of the terrorists' religion
 Since the 1970s, the world has been plagued by
terrorism

9-17


Government Protection

 World Wide Terrorist Groups

 Al Qaeda, IRA, Hamas, other Islamic

fundamentalist groups, ETA, Japanese Red Army,
German Red Army Faction

 Government-Sponsored Terrorism: Act of War
• Countries finance, sponsor, and train terrorists
and/or provide sanctuaries for them
– Iran, Iraq, Libya, Syria, Afghanistan, Cuba,
Lebanon, North Korea, and Sudan
9-18


Government Protection
 Kidnapping for Ransom

 Victims held for large ransoms
 Columbia and Peru dangerous places
for American executives
 U.S. executives practice “commando
management” to avoid kidnap risk

 Arrive secretly, meet for a few days and fly

off before kidnappers learn of their presence

9-19


Countermeasures by Industry

• KRE (kidnap, ransom, and extortion)

– Insurance to cover ransom payments,
antiterrorist schools
• Cassidy and Davis
– The world’s largest kidnapping and extortion
underwriting firm is located in London
• Antiterrorist Schools
• Checklists for executives

9-20


Terrorism Developments
• Ethnoterrorism
– Tribe against tribe,
race against race,
religion against
religion

• Nuclear Terrorism
– Failing security
standards at former
Soviet installations
permit uranium to
be stolen, then sold
to terrorists

• Chemical and
Biological

Terrorism
– Recipes from selftaught terrorists that
can be downloaded
from the Internet

9-21


Government Stability
 Stable Government

 Maintains itself in power and whose

fiscal, monetary and political policies
are predictable and not subject to
sudden, radical changes

 Unstable Government

 Cannot maintain itself in power or
makes sudden, unpredictable, or
radical policy changes

9-22


Traditional Hostilities
 Long-standing enmities between tribes, races,
religions, ideologies, or countries

 Arab Countries—Israel
 Hutus and Tutsis in Burundi and
Rwanda

 Tamils and Sinhalese in Sri Lank
9-23


ICs and Political Forces
• International Companies (ICs)

– Make decisions about where to invest,
where to conduct research and
development, and where to
manufacture products
– The financial size of many ICs provides
them with a strong negotiating position

9-24


Country Risk Assessment
(CRA)
• An evaluation that assesses the country’s
economic situation and policies and its politics to
determine how much risk exists of losing an asset
or not being paid

9-25