Globalisation 17.1

Today….

• Influences on Global Business 2: Political Influences

• Political risk• Tension between free trade & protectionism• International organisations & treaties

o Trade agreementso Multilateralo Bilateral

• War & civil unrest

Political Risk

• There are political risks whenever a business sells to an overseas market.

Political Risk Definition:

• Any political event that results in a drastic change to the country’s business environment, and that ultimately has a negative impact on business operations and profit.

Political Risk cont.

• Political risks tend to be greater in countries experiencing social and economic unrest (particularly terrorism), war or other violent conflict.

Political Risk cont.

• Potential examples of risk:– Government corruption– Nationalisation of property– Armed conflict– Foreign invasion– Unpredictable changes in policy– Terrorism– Rampant crime

Question:

• What reasons can you think of to expand into a politically risky country?

Video:

• Big Issues in Business: Political Risk

• https://www.youtube.com/watch?v=uoJvvTZ2YXc

Free Trade vs. Protectionism

• Democracy vs. Communism/Socialism?

• Research indicates a correlation between participating in free trade and a country being democratic or having greater civil and political liberties.

Free Trade vs. Protectionism cont.

• Protectionism – laws and regulations used by Governments to artificially shield industries and companies from overseas competition

Free Trade vs. Protectionism cont.

• Arguments for Protectionism:– Protect infant industries– Protect domestic employment– Stop dumping of cheap overseas products– Become economically self-sufficient– Become defence self-sufficient

Free Trade vs. Protectionism cont.

International Organisations & Treaties

• Since the end of World War II, countries have joined to form a number of international organisations. Any international business manager who plans global expansion must be aware of the existence and functions of these organisations.

International Organisations & Treaties cont.

• Trade agreements: – Multilateral - between more than 2 countries eg.

WTO, Asian Pacific Economic Cooperation (APEC) Australia & ASEAN (The Association of Southeast Asian Nations)

International Organisations & Treaties cont.

• Trade agreements: – Bilateral – between 2 countries • Australia has bilateral agreements with USA,

Singapore, Thailand, New Zealand, Chile and is negotiating numerous others

International Organisations & Treaties cont.

• The main international organisations are:• World Bank (WB) – finances projects• International Monetary Fund (IMF) – Manages

foreign exchange arrangements• Bank for International Settlement (BIS) – Monitors

the global financial system and strives to maintain stability

• And of course the World Trade Organisation (WTO)

International Organisations & Treaties cont.

• World Trade Organisation:– Attempts to provide rule based trading

framework for member nations – Aims are• Promote freer trade• Forum for trade negotiations• Settle Trade disputes between countries

International Organisations & Treaties cont.

• Advantages for “economic integration”– Greater availability of goods & services for

participating countries– Resources used more effectively and efficiently

War and Civil Unrest

• Devaluation of currency• Loss of inputs (labour, raw materials)• Racism• Destruction of supply chains or total business

Questions

Quiz Question time!Write yourself five questions on today’s topic.

Today we covered….

• Influences on Global Business 2: Political Influences

• Political risk• Tension between free trade & protectionism• International organisations & treaties

o Trade agreementso Multilateralo Bilateral

• War & civil unrest