Lecture International marketing (14/e) - Chapter 6

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 6
McGraw­Hill/Irwin
International Marketing 14/e

Copyright © 2009 by The McGraw­Hill Companies, Inc. All rights reserved.


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 do 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 do 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


Targeted Fear and/or Animosity
• Marketers should not confuse nationalism with
a widespread fear or animosity directed at a
particular country
– Toyota in the U.S. (1980s)
– Animosity toward the United States in France
– The unhappiness of citizens and politicians in many other countries
concerning the war in Iraq

• No nation-state, however secure, will tolerate
penetration by a foreign company into its market
and economy
– If it perceives a social, cultural, economic, or political threat to its wellbeing

• Trade disputes
6-11

Political Risks of Global Business
• Confiscation – the seizing of a company’s assets
without payment
• Expropriation – where the government seizes an
investment but makes some reimbursement for the
assets
• Domestication – when host countries gradually
cause the transfer of foreign investments to national
control and ownership through a series of
government decrees
– Mandating local ownership
– Greater national involvement in a company’s management
6-12


How Complicated Things Can Get
Exhibit 6.2

6-13


Economic Risks
• Exchange controls
– Stem from shortages of foreign exchange held by a country

• Local-content laws
– Countries often require a portion of any product sold within the
country to have local content

• Import restrictions
– Selective restrictions on the import of raw materials to force
foreign industry to purchase more supplies within the host
country and thereby create markets for local industry

6-14


Economic Risks
• Tax controls
– A political risk when used as a means of controlling foreign
investments

• Price controls
– Essential products that command considerable public interest
►
►
►

Pharmaceuticals
Food
Gasoline

• Labor problems
– Labor unions have strong government support that they use
effectively in obtaining special concessions from business
6-15

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 do 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