political environmental assessment

8/14/2019 Political Environmental Assessment

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PoliticalPoliticalEnvironmentalEnvironmental

AssessmentAssessment

-Ajit Sane-Ajit Sane


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Political EnvironmentPolitical Environment

A knowledge of the different forms ofA knowledge of the different forms ofGovernment can be useful inGovernment can be useful inappraising the political climate of aappraising the political climate of a

country.country. A political system of a country can beA political system of a country can be

classified according to the degree toclassified according to the degree to

which a Government considers thewhich a Government considers thepublic opinion for decision making orpublic opinion for decision making oron the basis of the number ofon the basis of the number ofPolitical Parties or on the basis ofPolitical Parties or on the basis of

economic system.economic system.


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of public participation inof public participation in

decision making :decision making :

Parliamentary ( Open ) System : TheParliamentary ( Open ) System : The

government consults with the citizensgovernment consults with the citizens

from time to time for the purpose offrom time to time for the purpose of

learning about the opinions andlearning about the opinions andpreferences. Government policies thuspreferences. Government policies thus

intend to reflect the desire of a majorityintend to reflect the desire of a majority

segment of the society. Mostsegment of the society. Most

industrialized and democratic nations areindustrialized and democratic nations areParliamentary.Parliamentary.

Absolutist ( Closed ) Systems : The rulingAbsolutist ( Closed ) Systems : The ruling

regime dictates government policiesregime dictates government policieswithout considerin the citizens needswithout considering the citizens needs


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Classification on the basis ofClassification on the basis of

number ofnumber of

Political PartiesPolitical Parties

Two Parties : There are typically twoTwo Parties : There are typically two

strong parties that take turns instrong parties that take turns in

controlling the government, althoughcontrolling the government, althoughother parties are allowed. Both theother parties are allowed. Both the

parties have different ideologies. Eg :parties have different ideologies. Eg :

USA has the Republican PartyUSA has the Republican Party

( Concerned for the interests( Concerned for the interests

Business Houses ) & the DemocraticBusiness Houses ) & the Democratic

Party ( Concerned for the interestsParty ( Concerned for the interests

Laborers & poor )Laborers & poor )


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Classification on the basis ofClassification on the basis of

number ofnumber of

Political PartiesPolitical Parties

Multi Party System : There areMulti Party System : There are

several political parties. No partyseveral political parties. No party

continuously rules. In case if a partycontinuously rules. In case if a party

falls of absolute majority, it can formfalls of absolute majority, it can form

a government by the support ofa government by the support of

other parties. Each party then tries toother parties. Each party then tries to

fit in its own policies. If the coalitionfit in its own policies. If the coalitiondoes not work, the supporting partiesdoes not work, the supporting parties

withdraw support. Re elections arewithdraw support. Re elections are

held. Eg. India.held. Eg. India.


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Classification on the Basis ofClassification on the Basis of

Economic SystemEconomic System

The economic system provides anotherThe economic system provides anotherbasis for the classification of Governmentsbasis for the classification of Governments

Communist : The basis principle is that theCommunist : The basis principle is that the

resources should be owned and shared byresources should be owned and shared byall people for the benefits of the societyall people for the benefits of the society(Not by the Profit seeking enterprise ).(Not by the Profit seeking enterprise ).

Socialist : The ideology is less communist.Socialist : The ideology is less communist.

Though the major resources andThough the major resources andbusinesses are controlled by thebusinesses are controlled by theGovernment, some small businesses areGovernment, some small businesses areleft over for private participation.left over for private participation.


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Classification on the Basis ofClassification on the Basis of

Economic SystemEconomic System

Capitalist : Provides for a free marketCapitalist : Provides for a free market

system and allows for business &system and allows for business &

competition, and freedom of choicecompetition, and freedom of choice

to both consumers and companies.to both consumers and companies.

Mixed Economy : Some key businessMixed Economy : Some key business

are protected and owned by theare protected and owned by the

Government. All other business areGovernment. All other business areallowed free participation.allowed free participation.


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Political RiskPolitical Risk

HAZARDS BASED ON GOVERNMENTHAZARDS BASED ON GOVERNMENT

ACTION. Marketers should consider aACTION. Marketers should consider a

number of political risks :number of political risks :

Confiscation : Is a process of aConfiscation : Is a process of aGovernment taking ownership of aGovernment taking ownership of a

property without paying anyproperty without paying any

compensation. Eg : Chinese confiscation ofcompensation. Eg : Chinese confiscation of

American Property after coming to powerAmerican Property after coming to powerin 1949.in 1949.

Expropriation : The Government takesExpropriation : The Government takes

ownership and offers some compensation.ownership and offers some compensation.


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Nationalization : Involves governmentNationalization : Involves government

ownership and it is the Government itselfownership and it is the Government itself

that operates the business being takenthat operates the business being taken

over.over. Domestication : Foreign companies offerDomestication : Foreign companies offer

voluntarily or are asked to offer control tovoluntarily or are asked to offer control to

a Nations Citizens. Eg : Pepsi, Coke, GMa Nations Citizens. Eg : Pepsi, Coke, GM

sold stake to locals.sold stake to locals.

General Instability Risk : In relate to theGeneral Instability Risk : In relate to the

uncertainty of the future viability of a hostuncertainty of the future viability of a host

countrys political system.countrys political system.


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Ownership / Control Risk : Possibility that aOwnership / Control Risk : Possibility that ahost countrys Government might takehost countrys Government might takeaction to restrict investors risk.action to restrict investors risk.

Operation risk : Possibility that a hostOperation risk : Possibility that a hostcountrys government might constraint ancountrys government might constraint aninvestors business operation in any one orinvestors business operation in any one orall areas like production, marketing,all areas like production, marketing,finance etc.finance etc.

Transfer risk : Any future act by aTransfer risk : Any future act by agovernment that might constraint thegovernment that might constraint theability of a subsidiary to transferability of a subsidiary to transfer

payments, capital, profits out of a hostpayments, capital, profits out of a hostcountry.country.


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Indicators of PoliticalIndicators of Political

InstabilityInstabilityTo assess a potential market environment,To assess a potential market environment,

a company should identify & evaluate thea company should identify & evaluate therelevant indicators of political difficulty :relevant indicators of political difficulty :

Social unrest : Social disorder due toSocial unrest : Social disorder due to

political unrest, economic hardship,political unrest, economic hardship,internal insurgency, ideologies, religion,internal insurgency, ideologies, religion,racial, cultural differences.racial, cultural differences.

Attitudes of Nationals : How do the citizensAttitudes of Nationals : How do the citizens

look at a foreign company / country. It canlook at a foreign company / country. It canbe a result of domestic thinking, feeling ofbe a result of domestic thinking, feeling ofinsecurity, fear of slavery, colonization etc.insecurity, fear of slavery, colonization etc.

Policies of Host Government : GovernmentPolicies of Host Government : Governmentattitudes towards a foreign company /attitudes towards a foreign company /

country.country.


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Measures to MinimizeMeasures to Minimize


Stimulate local economy : AStimulate local economy : Acompany can link its businesscompany can link its businessactivities with a host countrysactivities with a host countrys

National Economic Interest. Eg.National Economic Interest. Eg.Purchase domestic raw material,Purchase domestic raw material,products, subcontract to locals etc.products, subcontract to locals etc.

Employment for Nationals : CreateEmployment for Nationals : Createlocal employment.local employment.

Sharing Ownership : Form a JointSharing Ownership : Form a JointVenture, open certain segments forVenture, open certain segments for

local investors etc.local investors etc.


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Measures to MinimizeMeasures to Minimize


Being civil minded : Do social WelfareBeing civil minded : Do social Welfare

in a host country. Big companiesin a host country. Big companies

spend large amounts for educationalspend large amounts for educational

programmes, sewage waterprogrammes, sewage watertreatment plants, computertreatment plants, computer

donations, etc.donations, etc.

Political Neutrality : Be politicallyPolitical Neutrality : Be politicallyneutral. Do not support any specificneutral. Do not support any specific

political party.political party.

political environmental assessment

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