Global Marketing Management Global Political Environment

1. Global Marketing ManagementGlobal PoliticalEnvironment MKTG 3231 Fall 2014 Mrs. Tamara L. Cohen Class #5

2. KEY TERMS • Sovereign rights of nation • Political risks • confiscation • expropriation • domestication • NGOs • Government agencies that help companies in global marketplace

3. KEY CONCEPTS • Sovereign state • independent & free from all external control • equal to other sovereign states • Political risk • Benefits of foreign investment

4. Global Perspective of Political Environment Both host & home governments are integral partners • important reality of international business Government controls & restricts company’s activities • encourages & offers support • discourages & bans or restricts company’s activities International law recognizes sovereign right of nation • to grant or withhold permission to do business within its political boundaries • to control where its citizens conduct business

5. The Sovereignty of Nations Nations can & do give up specific aspects of their sovereign rights in order to coexist with other nations, e.g. strategic alliances for trade NAFTA – North America Free Trade Agreement NATO – North Atlantic Treaty Organization WTO – World Trade Organization EU – European Union AU – African Union

6. Stability of Government Policies Issues that can affect stability of a government • radical shifts in government philosophy when opposing political party comes to power • pressure from special interest groups • weakened economic conditions • bias against foreign investment • conflicts between governments / war Main political causes of international market instability: • some forms of government are inherently unstable • changes in political parties during elections can affect trade conditions • nationalism • animosity targeted toward specific countries • trade disputes themselves

7. Unstable Governments Vicious cycle of government instability e.g. endless civil wars, ethnic wars in Central Africa, coup d'état, military regimes • Nations need investment to prosper, but investors shy away from unstable regions. • World Bank: 47 nations in sub-Saharan Africa attract < $2 billion per year (about 1/10 of what Mexico attracts)

8. Political Risks of Global Business • Confiscation – company’s assets seized without payment • Expropriation – investment seized by government but there is some reimbursement for assets • Domestication – host countries gradually cause transfer of foreign investments to national control & ownership through series of gov’t decrees

9. Venezuela -recentexpropriations • Venezuelan government’s “broad nationalizations & asset seizures have gone far beyond the oil industry to include coffee roasters, cattle ranches and tomato-processing plants”. • dozen oil rigs, > 30 oil terminals, > 300 boats, aluminum, cement, gold, iron, steel, farming, transportation, electricity, food production, banking, paper, media, golf courses, basketball team • Margarita Hilton Hotel

10. Political Parties • In countries where 2 strong political parties typically succeed one another, important to know direction each party is likely to take • United Kingdom: Labour Party vs. Conservative Party • Unpredictable & drastic shifts in government policies deter investments, whatever the cause Current assessment of country’s political philosophy & attitudes important in gauging stability & attractiveness in terms of market potential

11. Violence and Terrorism • US State Department reported >10,000 terrorist incidents in 70 countries in 2011 • Goals of terrorism against multinationals • embarrass government & its relationship with firms • generate funds by kidnapping executives • use as pawns in political or social disputes • inflict terror within a country as did 9/11 • 80% terrorist attacks against US have been aimed at American businesses in past 30 years

12. Forecasting Political Risk • Political risk assessment • Government failure is greatest risk to international marketers • Risk assessment of investments “According to a communiqué by the Soro Government, effective Monday, 24 January, 2011, all cocoa and coffee exports from Côte d'Ivoire will be suspended.”

13. Nationalism = intense feeling of national pride & unity • National interest & security > international relations • Countries use nationalism to protect themselves against intrusions • threats from outside forces • declines in domestic economy • Nationalism comes & goes • Marketers should not confuse nationalism with widespread fear or animosity directed at particular country • Toyota in US (1980s) • animosity toward US in France • unhappiness in many other countries re war in Iraq

14. Economic Risks • Exchange controls • stem from shortages of foreign currency held by a country • Local-content laws • Import restrictions • force foreign industry to purchase more supplies within host country, so creating markets for local industry • Tax controls • Price controls • essential products with high public interest e.g. pharmaceuticals / food / gasoline • Labor problems • labor unions have strong government support

15. Politics in Sport World Cup 2014 attracted protest & propaganda • FIFA corruption • Excessive government spending on stadiums • Social inequity in host nation, Brazil • Global chatter facilitated by technology • Domestic political agendas

16. Political Sanctions • Boycott of nation by one nation or by group of nations • stop all trade between countries • issuing sanctions against trade of specific products e.g. U.S. boycotts of trade with Cuba / Iran • History indicates that sanctions often unsuccessful

17. Political & Social Activists • Not usually government sanctioned • Can interrupt normal flow of trade • Range from those who seek peaceful change to those who resort to violence & terrorism to effect change e.g. worldwide boycott of Nestlé products • Internet an effective tool of activists

18. NGOs • NGOs increasingly affect policy decisions made by governments • protests • lobbying • collaboration with governmental organizations • Many NGOs involved in relieving human misery plaguing parts of the world

19. Ukraine Lebanon Mexico Sierra Leone Algeria Iraq Saudi Arabia Pakistan Nigeria Liberia Cameroon Libya Russia Israel, West Bank & Gaza Yemen Chad Honduras Kenya Republic of South Sudan Djibouti Venezuela Iran Korea (North) Philippines Central African Rep. Syria El Salvador Colombia Sudan Burundi   Niger Congo, Democratic Rep. Mali Mauritania Haiti Afghanistan Somalia Eritrea • Americas gAsia / gEurope g Middle East g Africa U.S. State Department Travel Warnings

20. U.S. State Department Travel Warnings

21. Reducing Political Vulnerability Strategies that MNCs use to minimize political vulnerability & risk • joint ventures • expanding the investment base • licensing • planned domestication • political bargaining • political payoffs

22. Next class: Global Legal Environment Preparation: Prepare for class discussion Homework assignment: Foreign Corrupt Practices Act