Introduction
International business activities take place in multiple and complex environments, a setting of a larger system which constitutes the environment. Environment generally refers to the surroundings, circumsta
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Introduction
International business activities take place in multiple and complex environments, a setting of a larger system which constitutes the environment. Environment generally refers to the surroundings, circumstances and influences on individuals or organizations. These include forces that affect a firm’s immediate operating environment such as customer, suppliers, competitors, labor markets among others and the broader environment that consists of political, economic, social cultural, technological and legal considerations. The effects of the environment can either be positive (i.e. beneficial) or negative (i.e. cost/constraints)
POLITICAL ENVIRONMENT
The international marketer’s political environment is complex and difficult due to the interaction among domestic, foreign, and international politics.
It is also hardly uncommon for governments as well as companies to ignore politics for the purpose of economic interests.
TYPES OF GOVERNMENT: POLITICAL SYSTEMS
One way to classify governments is to consider them as either parliamentary (open) or absolutist (closed).
Parliamentary governments consult with citizens from time to time for the purpose of learning about opinions and preferences. Government policies are thus intended to reflect the desire of the majority segment of a society. Most industrialized nations and all democratic nations may be classified as parliamentary.
In an absolutist system, the ruling regime dictates government policy without considering citizens’ needs or opinions. Another way to classify governments is by the number of political parties. This classification results in four types of governments: two-party, multiparty, single-party, and dominated one-party.
POLITICAL RISKS
There are a number of political risks with which marketers must contend. Hazards based on a host government’s actions include; confiscation, expropriation, nationalization, domestication, and creeping expropriation.
Confiscation is the process of a government’s taking ownership of a property without compensation.
Expropriation differs somewhat from confiscation in that there is some compensation, though not necessarily just compensation. More often than not, a company whose property is being expropriated agrees to sell its operations – not by choice but rather due to some explicit or implied coercion.
Nationalization involves government ownership, and it is the government that operates the business being taken over. Generally, this action affects a whole industry rather than only a single company.
In domestication, foreign companies relinquish control and ownership, either completely or partially, to the nationals. The result is that private entities are allowed to operate the confiscated or expropriated property.
Based on this classification, four sets of political risks may be identified: general instability risk, ownership/control risk, operation risk, and transfer risk.
General instability risk is related to the uncertainty about the future viability of a host country’s political system.
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