POLITICAL ENVIRONMENT

Chapter 3

INTRODUCTIONPolitics play an important role in shaping business worldwide

The political LEARDERSHIP in each country CONTROLS whether how international business will occur in that country

Manager need to know how to interact between business and government and to know how to react to in interests conflict

So !!

WHY ?

THE ROLE & FUNCTION OF POLITICAL SYSTEM

• To integrate society• The way to conduct society• The way to choose or to have a

government to manage a country• For policy making• Its depends on the political ideologies

WHY POLITICAL ENVIRONMENT IS IMPORTANT TO MANAGERS?

• To be successful, managers must learn to deal with

public institutions and non public institutions in addition

to market forces

• Managers must learn to cope with varying degrees of

governmental intervention in economic decisions,

depending on the countries in which a company is doing

business

• The political impact on IB activities is relatively complex

because the domestic political process is subject to

various influences & managers must deal with different

political process in different countries

THE AFFECTS OF POLITICAL SYSTEM ON BUSINESS

• The political process affect IB through law that regulate business activity at both domestic and international level

• Government may deal with transaction on a unilateral basis or through treaties and conventions

• An MNC must be concerned with the laws in its home country that regulate cross-border transactions

• Understand legal requirement in each country in which its operate

STEPS TO ESTABLISH AN APPROPRIATE POLITICAL STRATEGIES

• IDENTIFY THE ISSUE : What is the specific issue facing a firm – protectionism, environmental standards, workers right, terrorism and etc.

• DEFINE THE NATURE: Define the nature of the politics issue

• ASSESS THE POTENTIAL POLITICAL ACTION of other companies and of special interest groups who are the parties that are affected and able to generate political pressure? What are their strategies to be?

STEPS TO ESTABLISH AN APPROPRIATE POLITICAL STRATEGIES

• IDENTIFY IMPORTANT INSTITUTIONS & KEY

INDIVIDUALS : Legislatures, regulatory agencies,

courts, important personalities

• FORMULATE STRATEGIES: What are the key objective,

the major alternatives, and likely effectiveness of

alternative strategy

• DETERMINE THE IMPACT OF IMPLEMENTATION:

What will the public relations fallout in the home & host

countries if the action taken is unpopular?

• SELECT: The most appropriate strategy & implement!

POLITICAL RISKS

Definition: Any change in the political environment that can adversely affect the value of the firm’s business

Examples of political risks include expropriation, confiscation, campaign against foreign goods, mandatory lanour benefits legislations, kidnapping, terrorist threats, other forms of violence, civil wars and etc.

POLITICAL RISKS

Divided into 3 categories:

1. Ownership risk, in which the property of a firm is threatened through confiscation or expropriation

2. Operating Risk, in which the ongoing operations of a firm and or the safety of its employees are threatened through changes in laws, environmental standards, tax codes, terrorism, armed insurrection and etc.

3. Transfer Risks, in which the government interferes with a firm’s ability to shift funds into and out of the country

AFFECTS OF POLITICAL RISKS1. MACROPOLITICAL RISKS

- will affects all firms in a country

- Ex: Civil wars that occurs between Serbia, Bosnia

and Corsova

2. MICROPOLITICAL RISKS

- will affects only on specific firms or firms within a

specific industry

- Disneyland Paris and Mc Donald’s have been the

target of numerous symbolic protests by French

farmers, who view them as a convenient target for

venting their unhappiness with the U.S. international

agriculture policies.

POLITICAL SYSTEM

• TOTALITARIANISM– Authoritarian– Fascism– Communism– Theocratic

• Religion• Secular

• DEMOCRACY– Conservative*– Liberal*

POLITICAL IDEOLOGIES

– ANARCHISM– FASCISM– PLURALISM

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Assignment

• Compare democratic & totalitarian political acquires and briefly discuss how they can influence management decisions.

• Date to submit: