Chapter 6 - the political environment: a critical concern

the ideal political climate for a multinational firm is

a stable, friendly government

foreign investment can be perceived as

a threat to sovereignty

reasons to encourage foreign investment

accelerate development; create local employment; transfer technology; generate export sales; stimulate growth and development of local industry; conserve foreign exchange

nationalism targets

all foreign countries

sovereignty refers to

both the powers exercised by a state in relatin to other countries and the supreme powers exercised over its own members

manifestations of nationalism

call to "buy our country's products only"; restrictions on imports, restrictive tariffs, other barriers to trade

local content laws

countries often require a potion of any product sold within the country to have local content - to contain locally made parts

labor unions with strong government support may be used to

effectively obtain special concessions from businesses

terrorists target multinationals to

embarrass government and its relationships with firms; generate funds by kidnapping executives; inflict terror within a country

politically sensitive products are products that have or are perceives to have an effect on the

environment, exchange rates, national economic security, welfare of people

price controls

essential products that command considerable public interest are subjected to price controls

price controls can be used to

force foreign companies to sell equity to local interests

countries now view ____ as a means of economic growthq

foreign investment

the world seemed to have agreed that _____ ______ ______ was the best solution to all the criticisms of the government

free enterprise democracy

current assessment of political philsophy and attituse within a country is important in

gauging the stability and attractiveness of a government in terms of market potential

a recurrent problem for the foreign investory is

getting profits in and out of the host country without loss of value, which can occur when a currency is devalued

expropriation

government seizes an investment, but some reimbursement for he assests is made

five main political issues

governments that are inherently unstable; changes in political parties during elections; nationalism; animosity targeted toward specific countries; trade disputes themselves

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 companys management

issues of sovereignty, differing political philosophies, and nationalism are manifest in

host of government actions that enhance the risks of global business

expropriation and nationalization often lead to businesses that were

inefficient, technologically weak, and noncompetitive in world markets

nationalism

intense feeling of national pride and unity

national interest and security are more important than

international relations

a sovereign state

is independent and free from all external control; governs its own territory; selects its own political, economic, and social systems; has the powe to enter into agreements with other nations; enjoys full legal equity with other states

one of the problems with tracking cyberterrorism and criminals

it is hard to determine if the cyber attack has been launched by a rogue state, terrorist, or hacker as a prank

what often happens to an expropriated investment

it is nationalized to become a government run entity

a marketer has

no absolute guidelines to determine whether a company and its products will be subject to political attention

political sanctions

one or a group of nations may boycott another nation, thereby stopping all trade between countries, or may issue sanctions against the trade of specific products

PSA's can be a potent force in

rallying public opinion and are an important political force that should not be dismissed

aristocracy

rule by few

democracy

rule by few

oligarchy

rule by few

dictatorship

rule by one

monarchy

rule by one

import restrictions

selective restrictions on the import of consumer products, raw materials, machines, and spare parts are fairly common strategies to force industry to purchase more supplies within the host ocuntry and thereby create markets for local industry

multinational companies can function under any type of government as long as there is

some long-run predictability and stability

animosity targets

specific nations

import restrictions are an attempt to

support the development of domestic industry

tax controls

taxes must be classifies as a political risk when used as a means of controlling foreign investments

countries seeking investments in high priority industry may well excuse companies from

taxes; customs duties; quotas; exchange controls

price controls can be used to control

the cost of living

the greatest risk to international marketers is

the government actually failing

a change in government does not always mean a change in

the level of political risk

the more a country feels threatened by some outside force or the domestic economy declines,

the more nationalistic it becomes in protecting itself against intrusions

confiscation

the most sever political risk, seizing of a company's assets without payment

radical changes in policies can occur in

the most stable environments

at the top of the list of political issues concerning foreign businesses is

the stability or instability of prevailing government policies

history indicates that sanctions are almost always

unsuccessful in reaching desired goals, particularly when other major nations traders ignore them

political risk assessment

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

of all the political risks, the most costly are

those actions that result in a transfer of equity from the company to the government, with or without adequate compensation

political and social activists

those who seek to bring about peaceful change; those who resort to violence and terrorism to effect change

ultimate goal of domestication

to force foreign investors to share more of their ownership, management, and profits with nationals

a side effect of price controls on the local economy is

to slow or even stop capital investment

exchange controls

when a nation faces a shortage of foreign exchange and/or a substantial amount of capital is leaving the countries, controls may be levied over all movements of capital or selectively against the most politically vulnerable companies to conserve the supply of foreign exchange for the most essential users