POLITICAL ENVIRONMENT

Presented by,
Arun.k
S3 MBA
 Political environment

The political environment includes

laws regulations, government and reactionary
forces of opposite political parties. The role of
political parties have greater influence on the
marketing system of the country
 The international marketer must consider
the consistency of government policies and
absence of controls and relationship with
countries . The foreign government can
encourage international marketing by providing
bounties and subsidies.
1. Political party system
2. Stability of government
3. Nationalism
4. Political vulnerability
5. Political risk
6. Other risk
7. Policies of foreign investment for achieving
success in foreign business.
 1. Political Party System
The political party or government system
market the form of democracy, socialist,
communistic, dictatorship or monarchy.
• In countries where two strong political parties
typically succeed one another in control of the
government, it is important to know the direction
each party is likely to take.
- Great Britain
• The Labour Party Vs. The Conservative Party
2. Stability of government policies
The stability of government may form
stable policies of trade
Issues that can affect the stability of a government:
•- 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
•- Conflicts between governments
Five main political causes of instability in
international markets:
•- Some forms of government seem to be
inherently unstable
•- Changes in political parties during elections
can have major effects on trade conditions
•- Nationalism
•- Animosity targeted toward specific countries
•- Trade disputes themselves
3. Nationalism
Nationalism is love of one’s nation . The wave
of nationalism is spreading through out the world.
The foreign marketers should be aware of the
rigid regulation and expropriation policies of the
customer countries.
National interest and security are more
important than international relations.
4. Political vulnerability
The political systems are either favorable and
unfavorable . The favorable system can protect
industry reduce tax rates, exemption from
quotas and other type of concessions.
The unfavorable political climate or political
vulnerability can be changed with in few months
if the government is changed . The political
vulnerability is related to the attitude of govt.
The political vulnerability may take the form of
confiscation, expropriation and domestication.
Lessening Political Vulnerability
• Relations between governments and MNCs
are generally positive if the investment:
- Improves the balance of payments by
increasing exports or reducing imports through
import substitution
- Uses locally produced resources
- Transfers capital, technology, and/or skills
- Create jobs
- Make tax contributions
5. Political Risk
Political risk are generally related to personal
attitude and the law and other problems of the
country. The changes in the government may
lead to uncertain business environment.
Political Risks of Global Business
• Confiscation – the seizing of a company’s assets
without payment.
• Expropriation – where the government seizes
an investment but some reimbursement for the
assets is made.
• Domestication – when host countries gradually
cause the transfer of foreign investments to
national control and ownership through a series of
government decrees by mandating local ownership
and greater national involvement in a company’s
management.
6. Other Risk
1. Exchange controls
- Types of controls that governments put in
place to ban or restrict the amount of foreign
currency or local currency that is allowed to be
traded or purchased.
2. Import restriction
-Methods employed in controlling the
volume or value of goods coming into a country,
usually to maintain the exchange rate of the
country's currency.
3. Tax controls
- A political risk when used as a means of
controlling foreign investments.
4. price control
- Essential products that command
considerable public interest.
• Pharmaceuticals
• Food
• Gasoline
Politically Sensitive Products and Issues

• Products that have or are perceived to have

an effect on the environment, exchange rates,
national and economic security, and the welfare of
people and that are publicly visible or subject to
public debate, are more likely to be politically
sensitive.
• Health is often the subject of public debate, and
products that affect or are affected by health issues
can be sensitive to political concern.
• The European Union has banned hormone
treated beef for more than a decade.
7. Policy of foreign investment
The international financial institutions are
supporting foreign investment. The export and
import bank of India take special interest of
foreign countries