Internationa Global Marketing

1. INTERNATIONAL MARKETING
1 5 T H E D I T I O N
P H I L I P R. C A T E O R A
M A R Y C. G I L L Y
J O H N L . G R A H A M
The Political Environment:
A Critical Concern
Chap 6

2. WORLD TRADE GOES BANANAS!
• The Banana wars and conflict between the
U.S. and Europe started out as a simple tariff
dispute between France and U.S. companies
exporting bananas from Latin American
countries to France
• France gave preferential treatment for
bananas coming from its former colonies in
the Caribbean and Africa

3.  Reflected in the government’s policies are its
attitudes towards government’s ideas of how
to best promote the national interest,
considering its own resources and political
philosophy
 International law recognizes the sovereign right
of a nation to allow or deny foreign firms to
conduct business within its political boundaries
and to control where its citizens conduct business.

4. SOVEREIGNTY OF NATIONS
• A sovereign state is independent and free from
all external control
▫ enjoys full legal equality with other states
▫ governs its own territory
▫ selects its own political, economic, and social
systems and
▫ has the power to enter into agreements with other
nations.
• Sovereignty refers to both the powers
exercised by a state in relation to other
countries and the supreme powers exercised
over its own members

5.  If countries can increase their share of world
trade and increase national income, perhaps
they will be willing to cede some sovereignty.
In Europe, the individual EU countries are
giving up the right to have their own
currencies, ceding the right to set their own
product standards, and are making other
sacrifices in exchange for improved market
access.
 Keegan-Global Marketing

6. STABILITY OF GOVERNMENT POLICIES
• Radical shifts in government philosophy can
occur when:
▫ An opposing political party ascends to power
▫ Radical shift in philosophies of previous and
current governments
▫ Italy-Unstable Government, stable foreign business
▫ India-Unstable Government, unstable foreign trade
▫ Mexico-Stable government but unstable foreign
business environment.

7. INSTABILITY OF GOVERNMENTS AND POLICIES:
POLITICAL REASONS
 Some forms of government seem to be
inherently unstable
 Changes in political parties during elections
can have major effects on trade conditions
 FDIs are important for a nation to prosper

8.  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 – economic and cultural
 Animosity targeted toward specific countries
 Trade disputes themselves

10. POLITICAL PARTIES
 Be knowledgeable about the philosophies of
all major political parties and their attitudes
towards trade

11. NATIONALISM
 Nationalism refers to feelings of national
pride and unity
 Feelings of nationalism are manifested by
 Call to “buy our country’s products only,” e.g.,
“Buy American”
 Restrictions on imports, restrictive tariffs, and
other barriers to trade
 The World is Not Merchandise, Who is Killing
France? The American Strategy and No Thanks
Uncle Sam”, (Daley, 2000).

12. TARGETED FEAR AND/OR ANIMOSITY
Nationalism
Targets all foreign
countries
Animosity
Targets specific
nations

13. POLITICAL RISK
 Political Risk
Political risk is the possibility of a change in a country’s political
environment or government policy that would adversely affect a
company’s ability to operate effectively and profitably.
As Ethan Kapstein, a professor at INSEAD, has noted:
 Perhaps the greatest threats to the operations of global corporations,
and those that are most difficult to manage, arise out of the political
environment in which they conduct their business. One day, a foreign
company is a welcome member of the local community; the next day,
opportunistic politicians vilify it.
 https://www.youtube.com/watch?v=-EJ8TZYvadE
 Keegan-Global Marketing

14. Political Risks of Global Business
• Risks of global business include:
1. Confiscation, Expropriation,
and Domestication
2. Economic Risks, and
3. Price Controls

15. POLITICAL RISKS OF GLOBAL BUSINESS
 Confiscation
 Expropriation
 Domestication
 The world bank group has reported that between
1960 and 1980 a total of 1535 firms from 22
different capital-exporting countries were
expropriated in 511 separate actions by 76 nations.

16. Confiscation
• the most severe political risk, is the seizing of a company’s assets without payment
• 1960: All US Businesses in Cuba are nationalized without compensation. US breaks
all trade relations with Havana and imposes a trade embargo with Cuba in response
to Castro’s Reforms (bbcnews.com)
Expropriation
• is where the government seizes an investment, but some reimbursement for the
assets is made; often the expropriated investment is nationalized to become a
government run entity
• “Loot the Looters”
• Mexico expropriated all the major foreign oil companies around 1938 and had
negative consequences on its exports of all as the other oil companies boycotted
Mexican exports of oil.
• One common example, in many countries: When the government needs to build a
new road or railway, it expropriates the affected terrain from their owners. It usually
compensates them adequately, at least in developed countries. If an owner does not
agree on the offered price, she can seek arbitration or litigate to get a better
compensation.
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
• An example of domestication is given on the next slide

17. DOMESTICATION EXAMPLE
• A good example of domestication can be seen in the
nationalization of Air-India (formerly called as Tata
Airlines). Tata owned and operated Air-India and
Indian Airlines until they were nationalized by the
Indian Government, much to Tata’s chagrin. Very
recently, the Indian government has asked Mr. Ratan
Tata, chairman of the Tata group, to head an
advisory panel to revive Air India.
http://www.bloomberg.com/apps/news?pid=newsarchiv
e&sid=ag_NJBLk6TVo

18. Economic Risks
• International firms face a variety of economic risks
Governments can impose restraints on
business activity to:
a) Protect national security
b) Protect an infant industry
c) To conserve scarce foreign exchange
d) Raise revenue
e) Retaliate against unfair trade
practices

19. ECONOMIC RISKS
 Exchange Controls
 Local Content Laws
 Import Restrictions
 Tax Controls
 Price Controls
 Labor Problems

20. The consequences of the U.S. embargo of Cuba: A relatively new Chinese
Chery Q (red provisional plate), and one of the newest American cars you can find
on the island, a 1957 Chevy (yellow citizen’s plate), certainly with a refurbished
engine. A variety of other European and Asian brands ply the streets of Havana,
almost all recent models. No new American models are in sight.

21. EXAMPLE OF PRICE CONTROL
 DCO 1982 (Bangladesh): Selling or importing
medicines higher than the maximum price
fixed by the government – 2 years of
imprisonment + fine
 Sourcehttps://books.google.com.bd/books?id=iq4yDAAAQBAJ&pg=PT55&lpg=PT55&dq=drug+ordinance+to+reduce+th
e+price+of+medicine+in+bd&source=bl&ots=FWMweqViol&sig=B2jQIAxFJqwOxXnfoHkn-
X_rJV0&hl=en&sa=X&ved=0ahUKEwiXwOav84XNAhWKgI8KHej8BEoQ6AEIQDAG#v=onepage&q=drug%20ordinance
%20to%20reduce%20the%20price%20of%20medicine%20in%20bd&f=false

22.  Profit Repatriation Definition:

The profit repatriation definition, according to the Webster's
New World Finance and Investment Dictionary, states that
profit repatriation is "to return foreign-earned profits or
financial assets back to the company's home country." For
example, when the Volkswagen Group earns huge profits
anywhere in the world, it takes a share back home to
Germany, after converting it into Euro and this 'taking profits
back home' process is called profit repatriation. There are
different legal and illegal ways of profit repatriations.
 Source:Internet

23. Other Political Risks of Global Business
2. Political and Social
Activists
3. Violence and Terrorism 4. Cyberterrorism
1. Political Sanctions

24.  Sanctions are viewed as a lower-cost, lower-
risk, middle course of action between
diplomacy and war.
 Sanctions have become the defining feature
of the Western response to several
geopolitical challenges, including Iran’s
nuclear program and Russia’s intervention in
Ukraine.
 What Are Economic Sanctions?
 Author: Jonathan Masters, Deputy Editor

25. POLITICAL SANCTIONS:
EXAMPLES FROM THE U.S.
 Cuban crisis of the 1960s
 The Iranian revolution in the 1980s
 The Persian Gulf War in the 1990s

26. POLITICALAND SOCIALACTIVISTS
 The most entertaining protest technique was
pioneered by French farmers. French farmers like
to throw their food. Here they tossed tomatoes
and such at McDonald’s; they’ve also lobbed
lamb chops at their own trade ministers.

27. Political Activism Apparently they pay attention in Taiwan. Most recently,
fishermen pitched perch in Taipei to protest the Japanese fishing fleet’s
presence in their waters.

28. VIOLENCE, TERRORISM AND WAR
 Violence and terrorism may be closely
related to politics
 War-torn regions are areas of concern for
foreign businesses to operate in

29. CYBERTERRORISM AND CYBERCRIME
 Cyber terrorism is in its infancy
 The internet provides a vehicle for terrorist
and criminal attacks
 Internet Virus attacks can disrupt businesses
 “I Love You”
 Melissa
 Slammer
 Goner Worm

30. CYBERTERRORISM AND
CYBERCRIME (2 OF 2)
 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
30
Roy Philip

31. ASSESSING POLITICAL VULNERABILITY
 No absolute guidelines
 No specific guidelines to determine a
product’s political vulnerability
 Countries seeking investments in high-
priority industries may well excuse
companies from taxes, customs duties,
quotas, exchange controls, and other
impediments to investment.

32. POLITICALLY SENSITIVE PRODUCTS AND ISSUES
 Politically sensitive products include those
that have an effect on:
 the environment,
 exchange rates
 national and economic security
 public health, e.g., genetically modified (GM)
foods

33. FORECASTING POLITICAL RISK
 Decide if risk insurance is necessary
 Devise an intelligence network and an early
warning system
 Develop contingency plans for unfavorable future
political events
 Build a database of past political events for use
in predicting future problems
 Interpret the data gathered by a company’s
intelligence network in order to advise and
forewarn corporate decision makers about
political and economic situations

34. POLITICALLY RISKY COUNTRIES
Not Risky Moderate Risky
USA Poland Afghanistan
United Kingdom Hungary Iraq
Switzerland China Congo
Canada Tunisia Sudan
Germany Mexico Georgia
France Egypt Cuba
Sweden Thailand Armenia
Japan India Russia
Singapore Turkey
Source: Euromoney

35. 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, and/or
makes tax contributions