Political Environment for Intermational Marketing
The political environment of international marketing includes any national or international political factor that can affect the organisation's operations or its decision making. Politics has come to be recognised as the major factor in many international business decisions, especially in terms of whether to invest and how to develop markets.
Politics are intrinsically linked to a government's attitude to business and the freedom within which it allows firms to operate. Unstable political regimes expose foreign businesses to a variety of risks that they would generally not face in the home market. This often means that the political arena is the most volatile area of international marketing. The tendencies of governments to change regulations can seriously affect an international strategy providing both opportunities and threats. One only has to consider the volatility of the politics in the former Yugoslavia, Russia and in China over the past few years to appreciate the need for firms to monitor the political risk factors.
The opening up of Central Europe, the disintegration of the Soviet Union and Yugoslavia and the formation of the European Union have all had enormous implications for companies operating in the European markets.
Parts of Europe are now perceived as areas of relatively high political risk and yet potentially of huge market opportunity. An unstable political climate can expose firms to many commercial, economic and legal risks that they would not face in their domestic markets. New risks also emerge, of course, as companies from the emerging markets start to compete internationally.
Political risk is defined as being: A risk due to a sudden or gradual change in a local political environment that is disadvantageous or counter productive to foreign firms and markets'.
The type of actions that governments may take which constitute potential political risks to firms fall into three main areas:
1 Operational restrictions. These could be exchange controls, employment policies, nsistence on locally shared ownership and particular product requirements.
2 Discriminatory restrictions. These tend to be imposed on purely foreign firms and, sometimes, only firms from a particular country. They tend to be such things as special taxes and tariffs, compulsory sub-contracting, loss of financial freedom.
3 Physical actions. These actions are direct government interventions such as confiscation without any payment of indemnity" a forced takeover by the government, expropriation, nationalisation or even damage to property or personnel through riots and war.
Lesser developed countries and emerging markets pose particularly high political risks. This manifests itself by threats of civil disorder, creeping expropriation, mercurial government policies. Rising opposition to incumbent governments, e.g. as in Indonesia and the Chinese economic area, all deter potential investors.
Civil unrest is often accompanied by high illiteracy, poor health and a large proportion of the population living in poverty; 73 per cent of the population in Brazil live in poverty compared to 7 per cent in Spain.
Investment restrictions are a common way governments interfere politically in international markets by restricting levels of investment, location of facilities, choice of local partners and ownership percentage.
When Microsoft opened its Beijing office in 1992, it planned to use its Taiwan operations to supply a Mandarin language version of Windows. The government not only wanted such an operating system to be designed in China but also insisted on defining the coding standards for Chinese characters' fonts, something Microsoft had done independently everywhere else in the world. In a flurry of meetings with officials, Bill Gates argued that the marketplace not the governments should set standards. But the Chinese electronics industry threatened to ban Windows and president Jiang Zemin personally admonished Gates to spend more time in China and 'learn something from 5000 years of Chinese history'. Gates sacked the original management team and promised to cooperate with Beijing.
However, the recent trends of trade agreements, privatisation and market reforms are all working to remove trade impediments.
Globally, trade agreements have been making consistent progress over the last forty years. The World Trade Organisation (formerly known as GATT) has led to a series of worldwide agreements which have expanded quotas, reduced tariffs and introduced a number of innovative measures to encourage trade amongst countries. Together with the formation of regional trading agreements in the European Union, North and South America and Asia. These reforms constitute a move to a more politically stable international trading environment.
The political and economic environments are greatly intertwined and, sometimes, difficult to categorise. It is important, however, that a firm operating in international markets assesses the countries in which it operates to not only assess the economic and political risk but also to ensure they understand the peculiarities and characteristics of the country's market they wish to develop. Figure provides a summary of the key political and economic factors firms need to evaluate in a foreign country market in order to assess the associated levels of risk.
Figure Country associated risks
Economic factors
Population and income
. Size and sectoral distribution
. Economic growth and per capita income
. Population growth and control
. Income distribution
Workforce and employment
. Size and composition
. Sectoral and geographic distribution
. Productivity
. Migration and urban unemployment
Sectoral analysis
. Agriculture arid self-sufficiency
. Industrial growth and distribution
. Size and growth of the public sector
. National priorities and strategic sectors Economic geography
. Natural resources
. Economic diversification
. Topography and infrastructure
Government and social services
. Sources and structure of government revenues
. Sectoral and geographic pattern of expenditures
. Size and growth of the budget deficit
. Rigidities iri spendin~ programmes
. Regional dependency on central revenue sources General indicators
. Price indices
. Wage rates
. Interest rates, m'oney supply, etc.
Foreign trade and invisibles
. Current account balance and composition
. Income and price elasticity of exports and imports
. Price stability of major imports and exports
. Evolution of the terms of trade
. Geographic composition of trade
External debt and servicing
. Outstanding foreign debt, absolute and relative levels
. Terms and maturity profile
. Debt servicing to income and exports Foreign investment
. Size and relative importance
. Sectoral distribution
. Geographic (by origin) and regional distribution
. Court proceedings in disputes
Overall balance of payments
. Trends in the capital account
. Reserve position
. Capital flight and 'errors and omissions' General indicators
. Exchange rates (official and unofficial)
Meet Amarendra Bhushan, A leading Strategic Human Resource Consultent, MBA from American university of athens, greece, also editing The European journal of NRI finance magazine TRIBUNE). As one of the leading article writer, and corporate hotel professional. Advisor to various organizations and hotels. He is an elected member of south Indian hotel and restaurant federation. Now staying at city of Athens Greece. Amarendra bhushan Dhiraj Athens, Greece PH-0030-6947667507 abdhiraj@mail.gr
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