Political Forces : Affecting international business 1. Ideological forces 2. Government ownership of business 3. Privatization 4. Government stability 5. Country-Asset risk analysis

1. Affecting international business
Political Forces:
MisbahJavid

2. Political personalities, leaders and pressure groups
Influence economic and political stability
Plays vital role in international trade
Political Forces

3. 1-Ideological Forces
Set of beliefs and ideas characterized by a particular
culture. Such as:
Communism
Capitalism
Socialism

4. Communism
Theory proposed by Karl Max
All businesses and assets are controlled by govt.
Individuals are not supposed to own property
People are treated equally

6. Capitalism
An economic system in which means of
production and trade of goods and services are
privately owned
Individuals own private properties
Primary focus is earn profit

8. Socialism
A political and economic system n which some
businesses are controlled by government rather
then by individuals.
Purpose is collective consumption and
distribution of resources rather than profits
People enjoys equal rights to some benefits
(education, health care)
People hold individual properties

9. Denmark
Norway
New Zealand
Ireland
Canada
Sweden
Belgium
China
Finland

10. 2-Government ownership of Business
• Mostly Government own business in the
countries which are neither communist nor
socialist.
• Extent and industries are different.
• State is the only stakeholder
• Examples are OPEC, General motors (US)
Pakistan steel mills, Pakistan railway and
Pakistan state oil.
• BOD are appointed by Government.
• Remunerations are determined by government.
• In Pakistan Approximately 192 companies are
owned by Government.

11. Why Firms are nationalized?
• Extract more money
• Increase firms Profitability
• Ideological reasons
• Preserve jobs
• Control

12. Unfair Competition?
Private owned companies complain that
government owned companies have unfair
advantage:
• Can cut prices
• Get cheaper financing
• Get government contracts
• Get export assistance
• Can hold down wages
• Get direct subsidies

13. Government –Private firm collaboration difficult
Firm
Objective
Raise return
Market
penetration
Lover cost or
taxes
Risk reduction
Long range
planning
Competitive
advantage
Local technology
Agency
objective
Job creation
Political goals
Raise
domestic
income
Service to
community
Regional
economic
impact
Planning
resource use
increase tax
base

14. 3-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

15. 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

16. Privatization anywhere, anyway
 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

17. Privatizations by Region

18. Government versus private
 In the past two decades, many governmental social
services have been privatized by contracting out to
private corporations.
 This has happened in many human service fields.
 The push for privatization is accompanied by a push
for downsizing government and transferring
governmental functions to for-profit enterprises

19. Characteristic of a government
that maintains itself in power and
fiscal, monetary and political
policies are whose predictable
and not suddenly change
4-Government stability

20. Instability
Characteristic of a government that cannot maintain
itself in power or that makes sudden, unpredictable,
or radical policy changes

21. Example from stability to instability
1974, Lebanon prospered as the trading, banking,
international company regional headquarters,
business services, transportation, and tourist center of
the Middle East.
Then civil war broke out in Lebanon. Offices, banks,
stores, transportation, communications, and hospitals
were destroyed. Almost all of the previous
commercial activities ended.

22. Benefit of stability
• More investor due to safety and security
• More tourists because they think it’s safer to make
holiday in political stable country
• Citizens feel safe
• Tax system would be consist with the minor change
• Changes of governance will be smoother and
respected by all the parties

23. Political stability impact on business
Even in country perceived as politically stable, political
change can have a significant impact on business. If
government stable then employees have following
additional rights:
• Paternity right on the birth of child
• Additional employment protection
• Equal employments status for part-time workers
• A minimum working age of 16
• Protection for disabled workers

24. Political instability impact on business
Political instability can have an
even greater impact on business
and it may make them reluctant
to invest in new capital or enter in
new markets. It may even inspire
relocation of activities to a more stable and predictable
area as business owners hate risk.

25. Can political stability hurt economic growth?
• Economic growth and political stability are deeply
interconnected.
• The uncertainty associated with and unstable political
environment may reduce investment and the peace of
economic development.
• Poor economic performance may lead to government
collapse and political unrest.

26. 5-Country Risk Assessment
Country risk assessment is a study of
business environment of different countries
and the purpose of this study is to predict
the various from of risk that MNC’s face in
those countries.

27. Importance of CRA
• Used to monitor the countries where MNC’s
is presently engaged in international
Business.
• By using CAR can aviod those countries
where high risk is exist.
• Used to analyse the particular from of risk
associated with project in foreign country.

28. Factors that Affect the CRA
Political Risk Factor
Attitude of consumer in the Host Country:
Consumer are loyal with domestic product.
Attitude of Host Country:
The host country may imposed taxes, restrict fund
transfer, subsidise local fund or fail to enforce copyright
laws.

29. Cont....
War:
Internal and external battle, and even threat of war have
devastating affect on business.
Corruption:
It increase the cost of business or decrease the profit of
the business.

30. Cont....
Financial Risk Factor
Current and potential state of the country’s economy:
In recession deduces the demand of the MNC’s product
and financial distress can also cause the government to
restrict the MNC’s business.
Indicator of Economic Growth:
Economic growth is dependent on several factor like
interest rate, inflation rate, exchange rate etc.

31. Type of Country Risk Assessment
Macro Assessment:
It is an overall risk assessment of a country without
consideration of MNC’s business.
Micro Assessment:
It is an risk assessment of a country which related to
MNC’s type of business.

32. Technique of Assessing Country Risk
Checklist Approach:
This technique involve rating and consolidating the
rates and weight to produce an overall assessment.
Delphi Technique:
It involve collecting various independent opinion and
then averaging and measuring the dispersion of those
opinion.

33. Cont....
Quantitative Technique:
This technique applied on historical data to assess the
sensitivity of a business to various risk factor.
Inspection Visit:
Visit the country and meet with government officials, firm
executive and/ or consumer to clarify the uncertainties.

34. Developing A Country Risk Rating
A checklist approach will require the following
steps:
1.Assign weights to the political and financial rating
according to their perceived importance.
2.Multiply the rating with their respective weight
and sum up to give the overall risk rating.
3.Drive the financial risk rating similarly.