The Political Environment of International Business

1
The Political Environment of International
Business
2
CULTURE IN CONTEXT
Transformation Process
Culture
Input
Output
Environment Cultural Political Legal Economic Fina
ncial
Organizational Group Individual
Task
Formal Organizational Arrangements
Individual
Feedback
From Nadler Tushman, A General Diagnostic
Model for Organizational Behavior
3
Political environment

• Why important?
• How is it related to the legal environment?

4
Political Spectrum

• Democracy
• Participation by citizens in the decision-making
  process
• In representative democracy, majority rule is
  achieved through periodic elections
• Factors for evaluating freedom are
• Political rights
• Fair and competitive elections
• Power for elected representatives
• Ability to organize
• Safeguards on rights of minorities
• Civil liberties
• Totalitarianism
• Decision making is restricted to a few
  individuals
• Theocratic totalitarianism -- prevalent in Muslim
  countries.
• Communism is a form of secular totalitarianism
  that relates political and economic
  systems--control often militaristic

5
Political Ideologies

• Pluralistic Societies
• different ideologies coexist within the society
  because there is no official ideology accepted by
  everyone.
• Implications?

6
The Impact of the Political System on Management
Decisions

• Government vs. consumer control of political
  system and economy
• Managers must understand the critical functions
  government performs
• The political process affects international
  business through regulation of cross- border
  transactions, so mgrs. must know both home and
  local aspects
• Multiple U. S. government agencies deal with
  international issues, so often conflicting
  policies

7
Political Risk

• Any changes in the political environment that may
  adversely affect the value of the firms business
  activities.

8
Country Evaluation Political Risk

• Country Identification Performance, Strategy,
  Context
• Country evaluation
• Factor and Demand Conditions
• Political Social Instability and Risk
• Corporate versus Personal Risk/Safety Relevance
  of events Probability of occurrence Impacts
  and Responses Assessing the un-knowable

9
Types of Political Risk

• Micro PR
• affects selected sectors of the economy or
  specific foreign businesses
• Macro PR
• affects all foreign enterprises in the same
  general way

10
Sources and Effects

• Expropriation
• Confiscation
• Campaign against foreign goods
• Kidnapping, terrorist threat
• Civil wars
• Inflation

11
Managing Political Risk

• Equity sharing
• Participative management
• Political risk insurance
• Local debt financing