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Political parties influence government attitude towards business as well as determines the
role of global businesses in the economy. Party philosophy affect government policy hence
stability/instability of policies important to business. Radical changes (in government or policy)
create uncertainty and hence risk. Governments may use foreign businesses as a scapegoat
9target for social discontent and frustration) by stating that they are exploiters. Firms must
therefore assess the political climate and political vulnerability in the foreign market by viewing:
Form of government
Investment climate
Nationalism
One corner stone of political is the notion of sovereignty or the right to self-determination
among nation states. Sovereignty suggests freedom or independence in that that each state
or political entity respects the rights of other states to decide things as they wish. This freedom
to make decisions within ones borders brings with it a certain degree of political risk.
For the firm, political risk results for the potential adverse effects that a change in
government, or a change in government policy may have on the business operations of the firm.
Which political risk can present business opportunities, firms generally want political risk to be
relatively low, an indication that the country is political stable and that policies do not change
radically from one government to another or from one period to another.
Among some of the policy changes that can adversely affect business operations are:
Taxes
Global Marketing
Spring 2001
Political Vulnerability
Some products are more vulnerable than others in that the product receives more political
attention and therefore create more risk for the firm. For example, in times of rising prices oil
becomes a politically sensitive product. This can lead to social and labor agitation, import
quotas, expropriation, nationalization and so on. Indeed, the attitudes to political vulnerable and
sensitive products are subject to change at very short notice.
Since political risk increases if the product is politically sensitive marketers must find out
or detect the degree of vulnerability by addressing the following:
Is the product in an industry that employs most of the people in the country?
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Forecasting Political Risk
Firms can use quantitative or qualitative methods to assess political risk. Political risk
assessment helps in deciding about risk insurance, data gathering and intelligence networking,
development of contingency planning, establishment of early warning system.
Types of Political Risk
Restriction
Price Controls
Labor Policy
Economic Risk
In the political setting, economic risk comes under the banner of:
National security
Tax/Revenue controls
Price controls
Political sanctions
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Political Reprisals
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of law. Generally, the International Court is used to help address issues between nation states
with full recognition that either party may decide not to abide by the judicial decision.
International law is based upon treaties between or among nation states covering such issues as
trade, and war. In this respect, the decision of the court is used to help create international and/or
political pressure in the United Nations or similar bodies.
Issues
Jurisdiction: In the case of a trade disagreement, which set of laws should the disputing
parties use to settle the dispute? This is not an automatic decision. The parties to the agreement
should therefore stipulate conditions and applicable laws for settling disputes. In attempting to
decide on jurisdiction pay attention to rules of competition. For example a firm from country A
signs an agreement with a firm from country B but the agreement was signed in country C
and the laws across all three countries differ. Which set of laws should be used to settle disputes,
is it As or Bs or is it Cs laws? It is impossible to answer this question unless the parties to the
agreement so specify in the agreement. It is important that the parties to the agreement include a
jurisdiction (settlement of dispute) clause in their contract/agreement.
Intellectual Property: Patents and trademarks do not receive universal protection simply
because they are registered in one country (note that to some extent this is changing as the WTO
seeks to expand global trade. However, enforcement continues to be problematic). The
worldwide demand for some goods have given rise to counterfeiting or unauthorized production
and sale of products to include use of restricted technology, patents, and brand name.
Bribery and Corruption
Bribery is often used to buy influence and lessen political and other kinds of risk.
However, in the long run, bribery may result to negative exposure in the home and foreign
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market and can affect the firms programs and standing and result in high fines and or criminal
penalty. Under the Foreign Corrupt Practices Act (FCPA, 1977) it is illegal for American
companies to pay bribes to foreign officials or political parties to retain or gain business. While
many other countries have similar rules enforcement is often a major problem. Criticism of the
law includes claims of moral imperialism (the US telling others what is good and right for them)
and claims that the law puts American companies at a disadvantage since firms from other
countries often pay bribes to foreign officials. For example, it is illegal for German firms to pay
a bribe inside Germany but it is perfectly legal for them to do so in a foreign country and claim it
as an international business expense. Corporate codes of conduct and ethical/moral sensitivity
and training can be used to help employees recognize and avoid ethical dilemmas such as those
brought about by requests for bribes.
Conflict Resolution Options
Conflicts between trading partners does not always have to end up in court. The
parties to an agreement can stipulate how and where conflicts will be handled. Given the
relatively high cost of litigation and the negative publicity that goes with it, many firms
are opting for arbitration and other forms of non-court based solutions to disputes. With
arbitration the parties agree to have a third party hear and decide the case with the
decision being binding (the parties agree before hand to legally accept the decision). If
one party refused to accept the decision, the other party can go to court to enforce the
decision that was reached. Thus, while the courts can still be used, its purpose is to
enforce the decision not to decide on the merits/demerits of the dispute.
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Regulating Global Trade
Much of the worlds trade is regulated by regional and or international
organizations. Much of the world is divided into huge trading blocks (Europe, Central
Europe, the Americas, Asian pacific Rim, Africa, Middle East) with subdivisions within
these major blocks. Chief among the trade blocks or organizations are:
EU (European Union)
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Spring 2001