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8/10/2019 Effects of Politics on Internationalbusiness
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Effects of Politics on
International business.....
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Introduction
The political environment of countries is a criticalconcern for the international marketer.
International law recognizes the sovereign right of a
nation to allow or deny foreign firms to conduct.
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Political Factors Affecting IB
Political and Legal differences
Political and Legal forces
Trade and investment restriction
Restraining forces Government Policies and regulation
Political Environment
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Political and Legal differences
The political and legal environment of foreignmarket is different from that of domestic market.
The complexity generally increases as the number of
countries in which a company does businessincreases.
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Political and Legal forces
The most important considerations for globalbusiness firms are the political and legal forcesoperative in the countries in which they plan toconduct business. Some foreign governments areunstable, that is, there maybe frequent, dramatic andunpredictable regime changes. When this occursindustries may be nationalized; private property may
be seized or destroyed; normal business operationsmay be suspended, the workforce may go on strike.
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Trade and investment restrictions
A government imposed restriction onthe free international exchange of goods or services.
Trade barriers are generally classified as:
Import policies reflected in tariffs and other import
charges, quotas, import licensing, customs practices. Standards, testing, labeling, and various types of
certification.
lack of copyright protection.
Restrictions on franchising, licensing, technologytransfer.
restrictions on foreign direct investment, etc.
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Restraining forces
The factors which hamper globalization.
External: It includes government policies, & controlswhich restrain cross-boarder business, social and
political opposition against foreign business etc. Internal: Organizations internal factors
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Government Policies and regulation
Government policies & regulation may also motivateinternationalization.
Many governments offer number of incentives 7
other positive support to domestic companies toexport and to invest in foreign countries.
Several countries give a lot of importance to importdevelopment & foreign investment.
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Government Policies and regulation
Some companies also move to foreign countriesbecause of certain regulations like the environmentallaws in advanced countries.
Government policies which limit the scope ofbusiness in the home country may also provokecompanies to move to other countries.
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Political Environment
The political environment including thecharacteristics & policies of the political parties, thenature of the constitution and government system &environment encompassing the economic & businesspolicies. The most important policies are:
Industrial policy
Policy towards foreign capital and technology
Fiscal policy
Foreign trade policy
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A Government that is big enough to giveyou all you want is big enough to take it
away from you.......
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The Political Environment
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The Political Environment
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System
Includes structure, processes and activities by whicha nation governs itself.
Totalitarian State
Democratic State
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System
Totalitarian State Democratic State
Imposed authorityRestricted Participation
FreedomRights
Companies might paybriberies to government. The business law is vague
Stable business environmentFreedom and no censorship
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Policies
Taxation:Countries always have some sort ofsystem for tax collection purposes. Governments levytaxes for various reasons. For instance, a tax can belevied on imported products to make the products
more expensive than similar products manufacturedlocally, this is referred to as an import tax. Taxes arealso a great source of revenue for governments to paytheir employees and to finance and maintain specific
projects.
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Taxation
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Political Stability
A subjective authority indicator aggregated from avariety of sources and measuring perceptions of thelikelihood of decline.
A stable government is one that is able to maintainitself in power , have predictable political policieswhich are not subject to radical and sudden changes.
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Political Stability
In totalitarian nations, government instability notonly threatens but also ruins international businessoperations Instability in some of these authoritariangovernments can be caused by internal turmoil ,military coups , or even war.
Democratic nations have stable governments even asthe heads of state keep on changing every few years,
both the economic and political policies will remainand no impact no matter how adverse will interfere
with the international business operations.
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Political Risks of Global Business
The risk to business interests resulting from politicalinstability or political change.
It exits in every country around the globe and varies
in magnitude and type from country to country.
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Political Risks of Global Business
It may arise from policy changes by govt. to changecontrols imposed on exchange rates and interestrates.
Political risk may be caused by actions of legitimategovt. such as control on prices, outputs, activities,and currency.
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Political Risks of Global Business
Political risks may also result from events outside ofgovernment controls such as war, revolution,terrorism, labor strikes.
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Types of Political Risk
Confiscation: The more severe political risk, is theseizing of companys assets without payment.
Expropriation: is where the govt. seizes an
investment, but some reimbursement for the assetsis made.
Domestication: occurs when the govt. mandates
local ownership and greater national involvement ina foreign companys management.
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Types of Political Risk
Economic Risks: International firms face a varietyof economic risks. Govt. can impose restraints on
business activity to:
protect national securityProtect an infant industry
Raise revenue
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MNCs & Govt.
Relation between governments and MNCs aregenerally positive if the investment:
Improves the balance of payments by increasingexports or reducing imports.
Uses locally produced resourcesTransfer capital, technology & skill
Creates jobs
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Thanks....