Political

Environmental
Assessment

-Ajit Sane
 Political Environment
• A knowledge of the different forms of
Government can be useful in
appraising the political climate of a
country.
• A political system of a country can be
classified according to the degree to
which a Government considers the
public opinion for decision making or
on the basis of the number of
Political Parties or on the basis of
economic system.
 Classification on the basis
of public participation in
decision making :
• Parliamentary ( Open ) System : The
government consults with the citizens
from time to time for the purpose of
learning about the opinions and
preferences. Government policies thus
intend to reflect the desire of a majority
segment of the society. Most
industrialized and democratic nations are
Parliamentary.
• Absolutist ( Closed ) Systems : The ruling
regime dictates government policies
without considering the citizens’ needs
 Classification on the basis of
number of
Political Parties
• Two Parties : There are typically two
strong parties that take turns in
controlling the government, although
other parties are allowed. Both the
parties have different ideologies. Eg :
USA has the Republican Party
( Concerned for the interests
Business Houses ) & the Democratic
Party ( Concerned for the interests
Laborers & poor )
 Classification on the basis of
number of
Political Parties
• Multi Party System : There are
several political parties. No party
continuously rules. In case if a party
falls of absolute majority, it can form
a government by the support of
other parties. Each party then tries to
fit in its own policies. If the coalition
does not work, the supporting parties
withdraw support. Re – elections are
held. Eg. India.
 Classification on the basis of
number of
Political Parties
• Single Party : Though there a a few
parties, one single party rules
consistently for a longer period of
time. This situation occurs when a
nation shifts from a Closed system to
an Open system.
• Dominant One Party : The Dominant
party does not allow any other party
to come to rule. This form can easily
be transformed to Dictatorship.
 Classification on the Basis of
Economic System
• The economic system provides another
basis for the classification of Governments
• Communist : The basis principle is that the
resources should be owned and shared by
all people for the benefits of the society
(Not by the Profit seeking enterprise ).
• Socialist : The ideology is less communist.
Though the major resources and
businesses are controlled by the
Government, some small businesses are
left over for private participation.
 Classification on the Basis of
Economic System
• Capitalist : Provides for a free market
system and allows for business &
competition, and freedom of choice
to both consumers and companies.
• Mixed Economy : Some key business
are protected and owned by the
Government. All other business are
allowed free participation.
 Political Risk
• HAZARDS BASED ON GOVERNMENT
ACTION. Marketers should consider a
number of political risks :
• Confiscation : Is a process of a
Government taking ownership of a
property without paying any
compensation. Eg : Chinese confiscation of
American Property after coming to power
in 1949.
• Expropriation : The Government takes
ownership and offers some compensation.
 Political Risk
• Nationalization : Involves government
ownership and it is the Government itself
that operates the business being taken
over.
• Domestication : Foreign companies offer
voluntarily or are asked to offer control to
a Nations’ Citizens’. Eg : Pepsi, Coke, GM
sold stake to locals.
• General Instability Risk : In relate to the
uncertainty of the future viability of a host
country’s political system.
 Political Risk
• Ownership / Control Risk : Possibility that a
host country’s Government might take
action to restrict investor’s risk.
• Operation risk : Possibility that a host
country’s government might constraint an
investor’s business operation in any one or
all areas like production, marketing,
finance etc.
• Transfer risk : Any future act by a
government that might constraint the
ability of a subsidiary to transfer
payments, capital, profits out of a host
country.
 Indicators of Political
Instability
• To assess a potential market environment,
a company should identify & evaluate the
relevant indicators of political difficulty :
• Social unrest : Social disorder due to
political unrest, economic hardship,
internal insurgency, ideologies, religion,
racial, cultural differences.
• Attitudes of Nationals : How do the citizens
look at a foreign company / country. It can
be a result of domestic thinking, feeling of
insecurity, fear of slavery, colonization etc.
• Policies of Host Government : Government
attitudes towards a foreign company /
country.
 Measures to Minimize
Political Risk
• Stimulate local economy : A
company can link its business
activities with a host country’s
National Economic Interest. Eg.
Purchase domestic raw material,
products, subcontract to locals etc.
• Employment for Nationals : Create
local employment.
• Sharing Ownership : Form a Joint
Venture, open certain segments for
local investors etc.
 Measures to Minimize
Political Risk
• Being civil minded : Do social Welfare
in a host country. Big companies
spend large amounts for educational
programmes, sewage water
treatment plants, computer
donations, etc.
• Political Neutrality : Be politically
neutral. Do not support any specific
political party.