Effects of Politics onInternational business.....
Introduction The political environment of countries is a criticalconcern for the international marketer. International law recognizes the sovereign right of anation to allow or deny foreign firms to conduct.
Political Factors Affecting IB Political and Legal differences Political and Legal forces Trade and investment restriction Restraining forces Government Policies and regulation Political Environment
Political and Legal differences The political and legal environment of foreignmarket is different from that of domestic market. The complexity generally increases as the number ofcountries in which a company does businessincreases.
Political and Legal forces The most important considerations for globalbusiness firms are the political and legal forcesoperative in the countries in which they plan toconduct business. Some foreign governments areunstable, that is, there maybe frequent, dramatic andunpredictable regime changes. When this occursindustries may be nationalized; private property maybe seized or destroyed; normal business operationsmay be suspended, the workforce may go on strike.
Trade and investment restrictions A government imposed restriction onthe free international exchange of goods or services. Trade barriers are generally classified as: Import policies reflected in tariffs and other importcharges, quotas, import licensing, customs practices. Standards, testing, labeling, and various types ofcertification. lack of copyright protection. Restrictions on franchising, licensing, technologytransfer. restrictions on foreign direct investment, etc.
Restraining forces The factors which hamper globalization.External: It includes government policies, & controlswhich restrain cross-boarder business, social andpolitical opposition against foreign business etc.Internal: Organizations‘ internal factors
Government Policies and regulation Government policies & regulation may also motivateinternationalization. Many governments offer number of incentives 7other positive support to domestic companies toexport and to invest in foreign countries. Several countries give a lot of importance to importdevelopment & foreign investment.
Government Policies and regulation Some companies also move to foreign countriesbecause of certain regulations like the environmentallaws in advanced countries. Government policies which limit the scope ofbusiness in the home country may also provokecompanies to move to other countries.
Political Environment The political environment including thecharacteristics & policies of the political parties, thenature of the constitution and government system &environment encompassing the economic & businesspolicies. The most important policies are:Industrial policyPolicy towards foreign capital and technologyFiscal policyForeign trade policy
A Government that is big enough to giveyou all you want is big enough to take itaway from you.......
System Includes structure, processes and activities by whicha nation governs itself. Totalitarian State Democratic State
SystemTotalitarian State Democratic State• Imposed authority• Restricted Participation• Freedom• Rights• Companies might paybriberies to government.• The business law is vague• Stable business environment• Freedom and no censorship
Policies Taxation: Countries always have some sort ofsystem for tax collection purposes. Governments levytaxes for various reasons. For instance, a tax can belevied on imported products to make the productsmore expensive than similar products manufacturedlocally, this is referred to as an import tax. Taxes arealso a great source of revenue for governments to paytheir employees and to finance and maintain specificprojects.
Political StabilityA subjective authority indicator aggregated from avariety of sources and measuring perceptions of thelikelihood of decline. A stable government is one that is able to maintainitself in power , have predictable political policieswhich are not subject to radical and sudden changes.
Political Stability In totalitarian nations, government instability notonly threatens but also ruins international businessoperations Instability in some of these authoritariangovernments can be caused by internal turmoil ,military coups , or even war. Democratic nations have stable governments even asthe heads of state keep on changing every few years,both the economic and political policies will remainand no impact no matter how adverse will interferewith the international business operations.
Political Risks of Global Business The risk to business interests resulting from politicalinstability or political change. It exits in every country around the globe and variesin magnitude and type from country to country.
Political Risks of Global Business It may arise from policy changes by govt. to changecontrols imposed on exchange rates and interestrates. Political risk may be caused by actions of legitimategovt. such as control on prices, outputs, activities,and currency.
Political Risks of Global Business Political risks may also result from events outside ofgovernment controls such as war, revolution,terrorism, labor strikes.
Types of Political Risk Confiscation: The more severe political risk, is theseizing of company’s assets without payment. Expropriation: is where the govt. seizes aninvestment, but some reimbursement for the assetsis made. Domestication: occurs when the govt. mandateslocal ownership and greater national involvement ina foreign company’s management.
Types of Political Risk Economic Risks: International firms face a varietyof economic risks. Govt. can impose restraints onbusiness activity to: protect national securityProtect an infant industryRaise revenue
MNCs’ & Govt. Relation between governments and MNCs’ aregenerally positive if the investment:Improves the balance of payments by increasingexports or reducing imports.Uses locally produced resourcesTransfer capital, technology & skillCreates jobs