LO1 LO2 LO3 LO4 LO5 LO6 LO7 What the sovereignty of nations means and how it can affect the stability of government policies How different governmental types, 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
Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members
6-4
Stability of Government Policies
6-14
Exhibit 6.2 U.S. State Department Travel Warnings
(in order of date of posting, most recent first)
Source: /travel/cis_pa_tw/tw/tw_1764.html.
6-9
Trade Disputes: Examples
Undervalued Chinese currency (ongoing problem) Ban on beef imports into Japan Chinese subsidies in apparent violation of WTO rules Farm subsidies in developed countries AIRBUS–Boeing battlnge Controls Local Content Laws Import Restrictions Tax Controls Price Controls Labor Problems
6-12
Political Sanctions: Examples from the U.S.
6-7
Political Parties
Be knowledgeable about the philosophies of all major political parties and their attitudes towards trade
6-8
Nationalism
Nationalism refers to feelings of national pride and unity
Cyber terrorism is in its infancy The Internet provides a vehicle for terrorist and criminal attacks Internet Virus attacks can disrupt businesses
6-3
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.
6-10
Political Risks of Global Business
Confiscation
• the most severe political risk, is the seizing of a company’s assets without payment
Expropriation
• Feelings of nationalism are manifested by:
• Disaster (e.g. 9/11) • War • Recession
• Call to “buy our country’s products only,” e.g., “Buy American” • Restrictions on imports, restrictive tariffs, and other barriers to trade
6-5
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 Nationalism Animosity targeted toward specific countries Trade disputes
The Political Environment:
A Critical Concern
Chapter 6
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
6-15
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
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 The rest is history and politics, see more here: “Banana Wars”
6-6
Forms of Government
Democracy or market directed government ideology Communist governments Theocratic Republic
• Islamic Law countries where political parties can exist but have little power • The religious leader controls government and all governmental decisions
• 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
Cuban crisis of the 1960s The Iranian revolution in the 1980s The Persian Gulf War in the 1990s
6-13
Political and Social Activists
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.