the political environment a critical concern chapter 6

The Political EnvironmentA Critical ConcernChapter

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Stability of Government Policies

● Government Policies

● Political Parties

● Nationalism

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Political Risks of Global Business

● Confiscation● Expropriation● Domestication● Economic Risks

Exchange Controls Tax Controls Local-Content Laws Price Controls Import Restrictions Labor Problems

● Political Sanctions● Political and Social Activity● Violence and Terrorism● Cyberterorism

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815

16

422

602

93

122

73

0 200 400 600 800 1000

AfricaAsiaEurasiaLatin AmericanMiddle EastN. AmericaW. Europe

International Terrorist IncidentsBy Region 1992-1997

SOURCE: http://www.state.gov/www/global/tourism/1997report

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International IncidentsBy Type of facility, 1992-1997

SOURCE: http://www.state.gov/www/global/terrorism/1997report

623

38

94

204

1535

0 500 1000 1500 2000

BusinessDiplomatGovernmentMilitaryOther

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International Casualtiesby Terrorist Incidents, 1992-1997

815

16

422

602

93

122

73

0 200 400 600 800 1000

AfricaAsiaEurasiaLatin AmericanMiddle EastN. AmericaW. Europe

SOURCE: http://www.state.gov/www/global/terrorism/1997reportIrwin/McGraw-Hill

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Assessing Political Vulnerability

● Government Attention

● Politically Sensitive Products

● Politically Sensitive Issues

● Political Risk

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Forecasting Political Risk

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● Decide if risk insurance is necessary

● 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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Good Corporate Citizenship

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● It is a guest in the country and should act accordingly

● The profits of an enterprise are not solely the company’s; the local national employees and the economy of the country should also benefit

● It is not wise to try to win over new customers by completely Americanizing them

● Although English is an accepted language overseas, a fluency in the local language goes far in making sales and cementing good public relations

● The company should try to contribute to the country’s economy and culture with worthwhile public projects

● It should train its executives and their families to act appropriately in the foreign environment

● It is best not to conduct business from the United States but to staff foreign offices with competent nationals and supervise the operation from the United States

The MNCs Publics and Issues

ChurchLaborSuppliersCustomersCompetitorsPressure groupsStockholdersAcademiaGeneral publicMinority groupsPublic mediaGovernments and agenciesConservationistsFinancial community

NationalismIndustrial democracyEnvironment protectionEnergy and raw materialsTaxesIncentives and restrictionsInvestment approvals and permitsPersonal relationsAttracting personnelMergers and acquisitionsMoney and creditLegitimacyPrices and profitsImage (Company and product)ConsumerismWomen’s liberationUnion relationsEqual opportunities

Publics Issues*

SOURCE: Adapted from “How Embattled MNCs Can Devise Strategies for External Affairs,” Business International, December 12, 1975, p. 394.Irwin/McGraw-Hill

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Strategies to Lessen Political Risk

Joint Ventures

Investment Base Expansion

Marketing and Distribution

Licensing

Planned Domestication

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Encouragement of Global Business

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● Foreign Government

● U.S. Government