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35 Cards in this Set
- Front
- Back
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Sovereign State |
Independent and free from all external control -governs its own territory -selects its own political, economic, & social systems -has the power to enter into agreements with other nations -enjoys full legal equality with other states |
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Sovereignty |
refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members |
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A sovereignty state |
-Sets requirements for citizenship -defines geographical boundaries -controls trade and the movement of people and goods across its borders |
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Stability of Government Policies |
The ideal political climate for a multinational firm is a stable, friendly government. Unfortunately, governments are not always stable and friendly, nor do stable, friendly governments always remain so. |
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Issues concerning foreign businesses |
-Stability or instability of prevailing government policies Other issues include: -An opposing political party ascends to power -Pressure from nationalist and self-interest groups -Weakened economic conditions -Bias against foreign investment -conflicts between governments |
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Five main Political Issues |
1)Some forms of governments seem to be inherently unstable 2)Changes in political parties during elections 3)Nationalism 4)Animosity targeted toward specific countries 5)Trade disputes |
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Monarchy or Dictatorship |
Rule by one |
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Aristocracy (Oligarchy) |
rule by few |
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Democracy |
rule by many |
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Throcratic Republic |
-Islamic Law countries where political parties can exist but have little power -the religious leader controls government and all governmental decisions |
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Political Parties |
Current assessment of political philosophy and attitudes within a country is important in gauging the stability and attractiveness of a government in terms of market potential |
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In terms of political parties we must know: |
-the philosphies of all major political parties within a country, because any one of them might become dominant and alter prevailing attitudes and the overall business climate -the direction each party is likely to take, in case there are two, or more, strong political parties since they typically succeed one another in control of the government -understand all aspects of the political landscape to be properly informed about the political environment |
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Natitonalism |
refers to an intense feeling of national pride and unity -feeling are manifested by: ~disaster ~war ~recession -call to "buy our country's product only" -Restrictions on imports, restrictive tariffs, and other barriers to trade |
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Targeted Fear and/or Animostiy |
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 well-being |
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Trade Disputes: |
-solar panels -internet trade -steel -trade sanctions against Russia -farm subsidies in developed countries -AIRBUS-boeing battle over subsidies |
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Political Risks of Global Business |
-Confiscation -Expropriation -Domestication |
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Confiscation |
the most severe political risk, is the seizing of a company's assets without payment |
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Expropriation |
Government seizes and investment, but some reimbursement for the assets is made; often the expropriated investment is nationalized to become a government run entity |
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Domestication |
Host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees that mandate local ownership and greater national involvement in a company's management |
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Governments can impose restraints on business activity to : |
-Protect national security -Protect and infant industry -To conserve scarce foreign exchange -Raise revenue -Retaliate against unfair trade practices |
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Exchange Controls |
when a nation faces shortages of foreign exchange and/or a substantial amount of capital is leaving the country, controls may be levied over all movements of capital to conserve the supply of foreign exchange for the most essential uses |
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Local Content Laws |
countries often require a portion of any product sold within the country to have local content, that is, to contain locally made parts |
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Import Restrictions |
selective restrictions on the import of products are fairly common strategies to force foreign industry to purchase more supplies within the host country and thereby create markets for local industry |
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Tax Controls |
can be used as a means of controlling foreign investments |
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Price Controls |
essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars, are often subjected to price controls |
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Labor Problems |
in many countries, labor unions have strong government support that they use effectively in obtaining special concessions from business |
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Political Sanctions |
One or a group of nations may boycott another nation thereby stopping all trade between the countries, or may issue sanctions against the trade of specific products |
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Political and Social Activists (PSAs) & Nongovernmental Organizations |
-the impact of political and social activists (PSAs) can also interrupt the normal flow of trade -PSAs can range from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect change |
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Violence, Terrorism & War |
Terrorist Attacks victimized thousands of people around the world -These attacks affect business -Multinationals are targeted to ~embarrass government ~generate funds by kidnapping executives ~inflict terror within a country War-torn regions are areas of concern for foreign businesses to operate in |
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Cyberterrorism & Cybercrime |
-The internet provides a vehicle for terrorist and criminal attacks -Internet Virus attacks can disrupt businesses -One of the problems of tracking cyberterrorism and criminals is that it is hard to determine if they cyber attack has been launched by ~a rogue state ~a terrorist ~a hacker as a prank |
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Assessing Political Vulnerablility |
A Marketer has no absolute guidelines to determine whether a company and its products will be subject to political attention -Countries seeking investments in high-priority industries may well excuse companies from taxes, customs duties, quotas, exchange controls, and other impediments to investments -Firms either marketing products not considered high priority or that fall from favor for some other reason often face unpredictable government restrictions |
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Politically sensitive products include those that have an effect on: |
-the enironment -exchange rates -nationals and economic security -welfare of people |
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Political Risk Assessment |
an attempt to forecast political instability to help management identify and evaluate political events and their potential influence on current and future international business decisions -Used to estimate the level of risk a company is assuming when making an investment and to help determine the amount of risk it is prepared to accept |
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Forecasting Political Risk |
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 |
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Reasons to encourage foreign investment |
-accelerate development -create local employment -transfer technology -generate export sales -stimulate growth & development of local industry -conserve foreign exchange |
