Chapter6ThePoliticalEnvironment:ACriticalConcern?McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.

NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.LearningObjectives1of2

6-1 Whatthesovereigntyofnationsmeansandhowitcanaffectthestabilityofgovernmentpolicies6-2 Howdifferentgovernmentaltypes,politicalparties,nationalism,targetedfear/animosity,andtradedisputescanaffecttheenvironmentformarketinginforeigncountries6-3 ThepoliticalrisksofglobalbusinessandthefactorsthataffectstabilityLearningObjectives2of2

6-4 Theimportanceofthepoliticalsystemtointernationalmarketinganditseffectonforeigninvestments6-5 Theimpactofpoliticalandsocialactivists,violence,andterrorismoninternationalbusiness6-6 Howtoassessandreducetheeffectofpoliticalvulnerability6-7 HowandwhygovernmentsencourageforeigninvestmentTheSovereigntyofNationsSovereigntyPowersexercisedbystateinrelationtoothercountriesSupremepowersexercisedovercountry’sownmembersCharacteristicsofasovereignstateEnjoysfulllegalequalitywithotherstatesIndependentandfreefromallexternalcontrolGovernsitsownterritorySelectsownpolitical,economic,andsocialsystemsHaspowertoenterintoagreementswithothernationsStabilityofGovernmentPolitics1of5PoliticalClimateTheidealclimateformultinationalfirmisstableandfriendlygovernmentCausesofinstabilityInherentinstabilityPoliticalshiftsduringelectionsimpacttradeconditionsNationalismAnimositytowardspecificcountriesTradedisputesChaoticConditionsOnthefirstSundayafterthequake,at9:00a.m.,thestreetsofdowntownPort-au-Princewerefilledwithpeoplescavenging.Onlookersaddtothecrowd.Eightyearsafterthe2010earthquake,themiseryinHaiticontinues.?OlivierLaban-Mattei/AFP/GettyImagesStabilityofGovernmentPolitics2of5FormsofGovernmentMonarchy/dictatorship–rulebyoneAristocracy/oligarchy–rulebyfewDemocracy–rulebymanySovereignStatesMosthavenominallyrepresentativegovernmentswithuniversalsuffrageSomecountriesbackslidingfromdemocracytowardautocracyExhibit6.1ASamplingofGovernmentTypesCountryGovernmentTypeAfghanistanPresidentialIslamicRepublicBosniaandHerzegovinaEmergingfederaldemocraticrepublicCanadaConfederationwithparliamentarydemocracyCubaCommuniststateIranTheocraticrepublicLibyaTransitionalgovernmentSaudiArabiaAbsolutemonarchySudanPresidentialrepublicUnitedStatesConstitutionalfederalrepublicSource:/cia/publications/factbook/,2012.StabilityofGovernmentPolitics3of5PoliticalPartiesImportantforinternationalmarketerto:KnowphilosophiesofallmajorpoliticalpartieswithinacountryDominantpartywillalterattitudesandoverallbusinessclimateKnowdirectioneachpartyislikelytotakeaftershiftinpowerUnderstandallaspectsofthepoliticallandscapeBeabletorespondtodrasticpolicyshiftsIranParliamentaryElectionAnIranianwomanpassesinfrontofanelectionbillboarddisplayingIranianSupremeLeaderAyatollahAliKhameneicastinghisownvoteinthecityofKarajintheAlborzProvinceincentralIran.Votingisoftendoneinmosquesorschools.Asmandatedbylaw,womenandmenwaitinseparatelinestocasttheirballots.Thecurrentgovernmentalsospecifiesthepublicdressofthewomanpictured.?AbedinTaherkenareh/EPA/REX/ShutterstockStabilityofGovernmentPolitics4of5NationalismIntensefeelingofnationalprideandunityNationalinterestandsecuritymoreimportantthaninternationalrelationsMinorharassmentandcontrolsofforeigninvestmentaresupportedRestrictionsonimports,tariffs,otherbarrierstotradeEncouragementofcitizenstobuydomesticproductsonlyStabilityofGovernmentPolitics5of5TargetedFearand/orAnimosityImportantdistinctionNationalism:directedgenerallytoallforeigncountriesTargetedanimosity:directedtowardaparticularcountryNationalwell-beingmostimportantTradeDisputes WTOdisputeresolutionprocessPoliticalRisksofGlobalBusiness1of6ConfiscationSeizingofacompany’sassetswithoutpaymentExpropriationGovernmentseizesinvestmentbutmakessomereimbursementfortheassetsInvestmentsometimesbecomesgovernment-runentityDomesticationHostcountrygraduallygainscontrolofinvestmentSeriesofgovernmentdecreesthatmandatelocalownershipandnationalinvolvementincompany’smanagementPoliticalRisksofGlobalBusiness2of6EconomicRisksExchangecontrolsLocal-contentlawsImportrestrictionsTaxcontrolsPricecontrolsLaborproblemsPoliticalRisksofGlobalBusiness3of6PoliticalSanctionsNationscanboycottothers,stoppingalltradePossibletoboycottorissuesanctionsagainsttradeofspecificproductsSanctionsarealmostalwaysunsuccessfulatreachinggoalsTheConsequencesoftheU.S.EmbargoofCubaArelativelynewChineseCheryQ(redprovisionalplate),andoneofthenewestAmericancarsyoucanfindontheisland,a1957Chevy(yellowcitizen’splate),certainlywitharefurbishedengine.AvarietyofotherEuropeanandAsianbrandsplythestreetsofHavana,almostallrecentmodels.NonewAmericanmodelsareinsight.?JohnGraham?JohnGrahamPoliticalRisksofGlobalBusiness4of6PoliticalandSocialActivists(PSAs)andNongovernmentalOrganizations(NGOs)PSAsparticipateinpeacefulorviolentactstoeffectchangeSeektochangebehaviorofgovernmentsandcorporationsManyfocusonbroadissueofglobalizationDemonstrationsagainsttheWorldBankandtheIMFinSeattleTheInternetandcellphoneshavebecometoolsofPSAsNGOsareinvolvedinprotests,lobbying,andcollaborationswithgovernmentsPoliticalRisksofGlobalBusiness5of6Violence,Terrorism,andWarPeacefulprotestsoftenturnviolentThousandsofterroristattackseachyeararoundworldMultinationalsareoftentargetedEmbarrassesgovernmentanditsrelationshipwithfirmsGeneratesfundsbykidnappingexecutivesInflictsterrorwithincountryMostU.S.attackshavebeenagainstbusinessesNeedtoconsiderproximityoftheviolenceandadviceoflocalandforeignstakeholdersPoliticalDisasterStrikesKenyaIntheNairobislumofKibera,supportersofoppositionleaderRailaOdingatearupakeyrailwaythatranfromthecoasttoUganda.Asmanyas12peoplewerekilledintheassociatedclashes.Ofcourse,thisdestructionwilldogreatdamagetocommerceandprogresstoallthecountriesinEasternAfrica.?EPA/REX/ShutterstockPoliticalRisksofGlobalBusiness6of6CyberterrorismandCybercrimeGrowingpotentialwithriseoftheInternetCaninflictrealharmVirusescanspreadanddodamagequicklybeforebeingstoppedHardtodeterminethesourceofattackReasonsmaybeespionage,robbery,politicalpunishment,andpotentialnationalsecurityattacksAssessingPoliticalVulnerability1of3SomecompaniesmorevulnerablethanothersVulnerablecompaniesSubjecttopoliticalattentionMayfaceunpredictablegovernmentrestrictionsLessvulnerablecompaniesOftenareinhigh-priorityindustryforhostcountryExcusedfromtaxes,duties,quotas,controlsAssessingPoliticalVulnerability2of3Politically

SensitiveProductsandIssuesGenerallyperceivedtohaveaneffectonhostcountryEnvironmentExchangeratesNationalandeconomicsecurityWelfareofpeople—particularlychildrenPubliclyvisibleSubjecttopublicdebateAssociatedwiththeircountryoforiginPublichealthisoftensubjectofpublicdebateEUbanofhormone-treatedbeefforhealthsafetycontinuesTheWTOclaimsnoscientificbasisforbanAssessingPoliticalVulnerability3of3ForecastingPoliticalRiskFirmsattempttopredictpoliticalinstabilityinforeigncountryEvaluateinfluenceofpoliticsoninternationalbusinessdecisionsEstimatelevelofriskcompanyisassuminginmakinginvestmentGovernmentfailuregreatestsourceofriskCauseschaosinstreetsandmarketsForeignPolicymagazine’s“FailedStatesIndex”Exhibit6.520MostFragileStates

(rankedinorderofclosesttofailure)SouthSudanSomaliaCentralAfricanRepublicYemenSudanSyriaDemocraticRepublicofCongoChadAfghanistanIraqHaitiGuineaNigeriaZimbabweEthiopiaGuinea-BissauBurundiPakistanEritreaNigerSource:ForeignPolicy,“FragileStatesIndex,”2016,online.LesseningPoliticalVulnerability1of2Manybelieveforeigninvestorsareself-servingExploitcountry’swealthatexpenseofpopulationRelationsbetweengovernmentsandMNCsaregenerallypositiveiftheinvestment:Improvescountry’sbalanceofpaymentsUseslocallyproducedresourcesTransferscapital,technology,andskillsCreatesjobsMakestaxcontributionsCorporatephilanthropyLesseningPoliticalVulnerability2of2StrategiestoreducepoliticalvulnerabilityandriskJointventuresExpandingtheinvestmentbaseLicensingandfranchisingPlanneddomesticationPoliticalbargainingPoliticalpayoffs(bribery)PoliticalandEconomicAidinAction,WhereEverybodyWinsTheJapanesegovernmenthaspaidfortheconstructionofanewhighwaythatconnectskeysafari