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The Political Environment: A Critical Concern

The Political Environment: A Critical Concern Chapter 6

Chapter Objectives: 1. To understand how governmental instability affect marketing 2. To determine the main political causes of instability in international market 3. To know the political risks of global business

Stability of Government Policies The ideal political climate for a multinational firm is a stable, friendly government. Unfortunately, governments are not always stable and friendly, nor do stable, friendly governments remain so. Radical shifts in government philosophy when an opposing political party ascends to power, pressure from nationalist and self interest groups, weakened economic conditions, bias against foreign investment, or conflicts among governments are all issues that affect the stability of a government. Because foreign businesses are judged by standards as variables as there are nations, the stability and friendliness of the government in each country must be assessed as an ongoing business practice. At the top of the list of political issues concerning foreign businesses is the stability or instability of the prevailing government policies. Government might change or new political parties might be elected, but the concern of the multinational corporation is the continuity of the set of rules or codes of behavior and the continuation of the rule of law- regardless of which government is in power. There are five main political causes of instability in international markets: 1. Some forms of government seem to be inherently unstable 2. Changes in political parties during elections can have major effects on trade conditions 3. Nationalism 4. Animosity targeted toward specific countries 5. Trade disputes

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Forms of government The ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by the few, and rule by the many. The common terms for these forms in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy. y Monarchy- is a form of government in which one person has the hereditary right to rule as head of state during his or her lifetime; the term is also applied to the state so governed. The power of the monarch varies from absolute to very limited; the latter is exemplified in modern-day constitutional monarchies. Monarchs include such rulers as kings and queens, emperors and empresses, tsars, and Kaisers. Aristocracy- is a form of government in which the sovereign power is vested in a small number of citizens who are theoretically the best qualified to rule, as opposed to monarchy, in which the supreme authority is vested in one person, and to democracy, in which the ultimate authority is exercised by the entire body of citizens or their representatives. Democracy- political system in which the people of a country rule through any form of government they choose to establish. In modern democracies, supreme authority is exercised for the most part by representatives elected by popular suffrage. The representatives may be supplanted by the electorate according to the legal procedures of recall and referendum, and they are, at least in principle, responsible to the electorate.

Exhibit 6.1- A sampling of government types of a country Country Afghanistan Burma (Myanmar) Canada China Cuba Iran Libya North Korea Philippines Saudi Arabia United Kingdom United States Vietnam
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Government Type Islamic Republic Military Junta Confederation with parliamentary democracy Communist state Communist state Theocratic republic Jamahiriya (a state of the masses) Communist state, one man dictatorship Democratic state Monarchy Constitutional monarchy Constitutional federal republic Communist state
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Political Parties These are organizations that mobilize voters on behalf of a common set of interests, concerns, and goals. In many nations, parties play a crucial role in the democratic process. They formulate political and policy agendas, select candidates, conduct election campaigns, and monitor the work of their elected representatives. For most countries around the world, it is particularly important for the marketers to know the philosophies of all major political parties within a country, because anyone of them might become dominant and alter prevailing attitudes and the overall business climate. Nationalism Economic and cultural nationalism, which exist to some degree within all countries, is another factor important in assessing business climate. Nationalism can best be described as an intense feeling of national pride and unity, an awakening of nations people to pride in their country. This pride can take an anti-foreign business bias, where minor harassment and controls of foreign investment are supported if not applauded. Economic nationalism has as one of its central aims the preservation of national economic autonomy, in that residents identify their interest with the preservation of the sovereignty of the state in which they reside. In other words national interest and security are more important than international relations. Feelings of nationalism are manifested in a variety of ways, including a call to by our countrys products only , restrictions on imports, restrictive tariff and other barriers to trade. They may also lead to control over foreign investment, often regarded with suspicion, which then becomes the object of intensive scrutiny and contro. Generally speaking, 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. Targeted fear and/ or animosity It is important for marketer not to confused nationalism, whose animosity is directed generally toward all foreign countries; with a widespread fear or animosity directed at a particular country. Example; sales of Japanese cars where declining in the states, and an advertising campaign was designed and delivered that assumed the problem was American nationalism. However, nationalism was clearly not the problem, because sales of German cars were not experiencing the same kinds of declined. The properly declined problem was Americans fear of Japan. Indeed, at the time, Americans considered the economic threat from Japan greater than the military threat from the Soviet Union.
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Trade Disputes Finally, narrow trade disputes themselves can roil broader international markets. Given the importance of foreign trade, one of the most important international agencies is the WTOs Dispute Settlement Board, which is empowered to settle trade disputes under WTO rules. Winners of such settlement decisions by the board are allowed to retaliate against countries found guilty of unfair trade practices.

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Political and Social Activists and Nongovernmental Organizations One of the most effective and best known PSA actions was against Nestle and the sale of baby formula in Third World markets. The worldwide boycott of Nestle products in substantial changes in the companys marketing. Furthermore, activists on several US college campuses boycotted Pepsi Cola drinks and PepsiCo owned Pizza Hut and Taco bell stores, saying the company contributes to abysmal human rights in Myanmar. The results of the boycott were serious enough that PepsiCo sold its stake in its joint venture in Myanmar and withdrew from that market. The concern was that potential losses in the United States outweighed potential profits in Myanmar. PSA groups such as Greenpeace and Consumers international have been successful in raising doubts about the safety of genetically modified (GM) food. In some areas in Uganda an airborne fungus is decimating 80 percent of the banana plants. Bananas are a food staple there. Although a genetically modified Plant has been developed that is immune to the leaf fungus, because of the fear of GM food, Ugandas legislature has not enacted laws that will permit bioengineered banana plants into the country. The Internet has become an effective tool of PSAs to spread the word on whatever cause they sponsor. Often associated with political activism, nongovernmental organizations (NGOs) are increasingly affecting policy decisions made by governments. Many are involved in peaceful protests, lobbying and even collaborations with governmental organizations. Many also are involved to mitigating much of the human misery plaguing parts of the planet. Violence, Terrorism and War Violence is another related risk for multinational companies to consider in assessing the political vulnerability of their activities. Furthermore, terrorism has many different goals. Multinationals are targeted to embarrass a government and its relationship with firms, to use as pawn in political and social disputes not specifically directed at them and to inflict terror within a country. Following the tragedy of September 11, historys most deadly terrorist attacks, the U.S. declared War on Terror. As a result, terrorism has become a source of pervasive fear and loathing across America.
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The term terrorism means premeditated, politically motivated violence perpetrated against non-combatant targets by subnational groups or clandestine agents, usually intended to influence an audience. The term international terrorism means terrorism involving citizens or the territory of more than one country. The term "terrorist group" means any group practicing, or that has significant subgroups that practice, international terrorism. Terrorism doesnt just happen. Terrorism is an advanced stage of a failed political process that begins with inequities and injustice, and moves from frustrated attempts at reform that breed fear and anger, to political confrontation that erupts in violence, which can be exploited to rationalize the use of any form of violence against any target. It seems that solutions to terrorism could be found at any stage of the evolving, or deteriorating political process. This suggests that we must start by understanding the historical context for todays conflicts.

Cyber Terrorism and Cybercrime Cyber terrorism is the use of Internet based attacks in terrorist activities, including acts of deliberate, large-scale disruption of computer networks, especially of personal computers attached to the Internet, by the means of tools such as computer viruses. Cyber terrorism is a controversial term. Some authors choose a very narrow definition, relating to deployments, by known terrorist organizations, of disruption attacks against information systems for the primary purpose of creating alarm and panic. By this narrow definition, it is difficult to identify any instances of cyber terrorism. There is much concern from government and media sources about potential damages that could be caused by cyber terrorism, and this has prompted official responses from government agencies. Computer crime or cybercrime refers to any crime that involves a computer and a network. The computer may have been used in the commission of a crime, or it may be the target. Net crime refers to criminal exploitation of the Internet.] Such crimes may threaten a nations security and financial health. Issues surrounding this type of crime have become high-profile, particularly those surrounding cracking, copyright

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infringement, child pornography, and child grooming. There are also problems of privacy when confidential information is lost or intercepted, lawfully or otherwise. Internationally, both governmental and non-state actors engage in cybercrimes, including espionage, financial theft, and other cross-border crimes.

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