International Marketing

14th Edition
P h i l i p R. C a t e o r a
M a r y C. G i l l y
John L. Graham

The Political
Environment:
a Critical Concern
Dr. John V. Padua

McGraw-Hill/Irwin
International Marketing 14/e Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
 What Should You Learn?
• What the sovereignty of nations means and how it can
affect the stability of government policies
• How different governmental type, 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 and why governments encourage foreign investment

4-2
 Global Perspective
• A crucial reality of international business
– Both host and home governments are integral partners
• A government controls and restricts a
company’s activities
– By encouraging and offering support
– By discouraging and banning or restricting its activities
• International law recognizes the sovereign right
of a nation
– To grant or withhold permission to do business within its
political boundaries
– To control where its citizens conduct business
4-3
 The Sovereignty of Nations
• A sovereign state
– Independent
– Free from all external control
• Sovereignty
– Powers exercised by a state in relation to other countries
– Supreme powers exercised over its own members

4-4
Stability of Government Policies

• Five main political causes of international market

instability
– 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 themselves

4-5
 Forms of Government
• Circa 500 B.C – Ancient Greeks criticized three
fundamental forms of government
– Rule by one (monarchy)
– Rule by few (aristocracy)
– Rule by many (democracy)
• Circa 1990 – Collapse of communism
– Free-enterprise democracy considered the best solution
• 200+ sovereign states on the planet
– Almost all have at least nominally representative governments with
universal suffrage for those 18 years and older
– In about 10% of the states voting is required, in the rest it is voluntary

4-6
A Sampling of Government Types
Exhibit 6.1

4-7
 Political Parties
• In countries where two strong political parties
typically succeed one another, it is important to
know the direction each party is likely to take
• Unpredictable and drastic shifts in government
policies deter investments, whatever the cause
of the shift
• A current assessment of a country’s political
philosophy and attitudes is important in gauging
their stability and attractiveness in terms of market
potential

4-8
 Nationalism
• An intense feeling of national pride and unity
– An awakening of a nation’s people to pride in their country
• National interest and security are more important
than international relations
• Countries use nationalism to protect themselves
against intrusions
– Threats from outside forces
– Declines in the domestic economy

• Nationalism comes and goes

– As conditions and attitudes change
– Foreign companies welcomed today may be harassed tomorrow
and vice versa
4-9
Targeted Fear and/or Animosity
• Marketers should not confuse nationalism with
a widespread fear or animosity directed at a
particular country
– Toyota in the U.S. (1980s)
– Animosity toward the United States in France
– The unhappiness of citizens and politicians in many other countries
concerning the war in Iraq
• 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
• Trade disputes

4-10
Political Risks of Global Business
• Confiscation – the seizing of a company’s assets
without payment
• Expropriation – where the government seizes an
investment but makes some reimbursement for the
assets
• Domestication – when host countries gradually
cause the transfer of foreign investments to national
control and ownership through a series of
government decrees
– Mandating local ownership
– Greater national involvement in a company’s management

6-11
 Economic Risks
• Exchange controls
– Stem from shortages of foreign exchange held by a country
• Local-content laws
– Countries often require a portion of any product sold within the
country to have local content
• Import restrictions
– Selective restrictions on the import of raw materials to force
foreign industry to purchase more supplies within the host
country and thereby create markets for local industry

4-12
 Economic Risks
• Tax controls
– A political risk when used as a means of controlling foreign
investments
• Price controls
– Essential products that command considerable public interest
► Pharmaceuticals
► Food
► Gasoline

• Labor problems
– Labor unions have strong government support that they use
effectively in obtaining special concessions from business

4-13
 Political Sanctions
• One or a group of nations may boycott
another nation
– Stopping all trade between the countries
– Issuing sanctions against trade of specific products
• History indicates that sanctions are often
unsuccessful in reaching desired goals
– Particularly when ignored by other major nations’
traders

4-14
 Violence and Terrorism
• Goals of terrorism against multinationals

– To embarrass a government and its relationship with

firms
– To generate funds by kidnapping executives

– To use as pawns in political or social disputes

– To inflict terror within a country as did September 11

4-15
Cyberterrorism and Cybercrime
• The internet is a vehicle for terrorist and criminal
attacks to inflict damage on a company with little
chance of being caught
– By foreign and domestic antagonists
• It is hard to determine if a cyber attack has been
launched
– By a rogue state
– A terrorist
– A hacker as a prank

4-16
Cyberterrorism and Cybercrime

• Each wave of viruses

– Gets more damaging
– Spreads so rapidly that considerable harm is done before it can
be stopped
• Tools for cyberterrorism
– Can be developed to do considerable damage
► To a company,
► An entire industry
► A country’s infrastructure

6-17
 Government Encouragement

• Most important reason to encourage foreign

investment
– To accelerate the development of an economy

6-18
 Summary

• The foreign firm

– Must strive to make its activities politically acceptable or it may be
subjected to a variety of politically condoned harassment
• The foreign marketer frequently faces the problem
of uncertainty of continuity in government policy
• Marketing firms accepted under one administration
might find its activities undesirable under another
– As governments change political philosophies

6-19