The Political Environment of International Business

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The Political Environment of International
Business
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CULTURE IN CONTEXT
Transformation Process
Culture
Input
Output
Environment Cultural Political Legal Economic Fin
ancial Historical Competitive
Organizational Group Individual
Task
Formal Organizational Arrangements
Individual
Feedback
From Nadler Tushman, A General Diagnostic
Model for Organizational Behavior
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SOURCES OF POWER INFLUENCE

• Field Power
• Institutional
• Political
• Legal
• Demographic
• Educational
• Business
• Structure
• Interfirm alliances
• Financial
• Cultural
• National Local
• Historical
• Linguistic

• Arena Power
• Venture Structure
• Subsidiary, IJV, etc.
• Organizational structure
• Formal
• Informal
• In-group cultural ties
• Home office ties
• Interpersonal
• Centrality, Criticality
• Expert
• Language

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Political environment

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

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To do business, you must understand the rules

• They differ radically from one country to the
  next
• Sometimes there are no agreed rules to say
  whether what you want to do is OK

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The Political Environment

• Every nation has a political system that
  integrates the parts of society into a viable,
  functioning unit (more or less)
• It provides rules of the game that allow the
  people of the nation to
• govern themselves
• work together

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Political systems create policies by
aggregating many points of view
Many people articulate their interests
Policy alternatives formulated
Adjudication (decision-making)
New Policies(rules)
Interest aggregation
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Manage your relationship with people in power

• Work with political decision-makers, if possible
• Lobbying is often inevitable
• directly
• through multi-firm organizations (e.g., the
  U.S.-China Business Council)
• Show decision-makers it is in their interests to
  work with you
• IMPORTANT Avoid appearance of improper influence

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Leaders want ideologies to hold their countries
together

• Political ideologies the body of complex
  ideas, theories, and aims that constitute a
  sociopolitical program
• Most societies are pluralistic different
  ideologies coexist
• Cultural dimensions (ethnic background, religion,
  etc.) strongly influence ideologies

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Democracy is a key element of ideology in much of
the world

• All wealthy countries and some poorer countries
  are democracies the wealthier countries, at
  least, have
• Freedom of opinion
• Elections that give winners real power
• Limited terms for elected officials
• An independent court system, which seeks to
  follow established rules
• Nonpolitical bureaucracy and military
• Accessible decision-making processes
• The worst form of government except for all
  those others that have been tried.
  - Sir Winston Churchill

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An ideological opposite of democracy is
totalitarianism

• Totalitarianism an individual or group
  monopolizes power, prohibits opposition, and
  seeks central control over daily life
• Secular totalitarianism Iraq under Saddam
  Soviet or Chinese communism
• Theocratic totalitarianism Saudi Arabia

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Two ideological paradigms

• Individualistic U.S.
• Most international trade rules are based on this
  view
• Communitarian Japan, China, Saudi Arabia
• Government officials have prestige, set general
  direction for economy

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Important point not in the textCorruption

• All ideologies require honest officials
• Officials often dont do what ideology calls for
  
• Big problem in poor countries
• Corruption makes international business difficult
• It makes improving lives for ordinary people even
  more difficult

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Political risk the danger that political changes
will hurt a firm

• Government takeovers of property
• Zimbabwe nationalizing farms
• New laws that prohibit business actions
• Europe banning genetically modified seed
• Political unrest that hurts company property or
  people
• Recent protests in Argentina
• Local behavior that prompts protests at home
• Firms working in Myanmar face pickets in U.S.

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Two kinds of political risk

• Macro risks Dangers that could affect many
  international firms
• New economic policies in Argentina
• Protest in Islamic world after U.S. invaded Iraq
• Micro risks Dangers that affect specific
  companies or industries
• Protest against Monsanto genetically modified
  seeds
• Officials demand bribes from a mining firm

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How do risks under democracy and totalitarianism
differ?

• Totalitarian nations (and other dictatorships)
  may seem safer.
• The dictator seems able to squash others
• But democracies have written constitutions
• that may make them more stable
• Special dangers young, fragile democracies

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Assignment Political risk

• Homework Assignment 1

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Sources and Effects

• expropriation -
• confiscation -
• campaign against foreign goods -
• kidnapping, terrorist threat -
• civil wars -
• inflation -

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Managing Political Risk

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

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Before forming political strategies

• Know how decisions are made
• Know what the rules are for influencing political
  decisions

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Paradigms on the role of government

• A paradigm basic pattern of thought
• Individualistic U.S.
• Minimize government intervention
• Give individuals maximum rights
• Most international trade rules are based on this
  view
• Communitarian Japan, China, Saudi Arabia
• Government officials have prestige, set general
  direction for economy

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Political Strategies for International Businesses

• Identify the exact issue
• Trade barrier?
• Environmental standards?
• Need for government services?
• Define/determine the political aspect of the
  issue
• What do we want government to do?
• Assess the potential political action of other
  firms and interest groups
• Who else cares about this?
• Can we work with some of them?
• What strategies will our opponents adopt?

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• Identify important institutions and individuals
• Who will make the decision?
• Who will they talk to before making it?
• Formulate possible strategies
• Key objectives
• Alternatives
• Evaluate probable effectiveness of each
  possibility
• Consider possible public relations effects
• Select the appropriate strategy and implement it

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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