Which Components of the Political Environment Can Affect Marketing?

• Political Corruption• Degree of Political Stability

– “Continuity of the set of rules or code of behavior and the continuation of the rule of law”

• Philosophy of Political Party in Power– Conservative Party in G.B.,

Republicans in U.S. perceived to be more pro business

• Level of Nationalism– “Intense feeling of national pride

and unity”

Which Components of the Political Environment Can Affect Marketing?

• Government Attitudes towards privatization

• Impact of Political and Social activists

• Political Repression

Example of Way to Measure Political Environment Competitiveness Based on

World Competitiveness Yearbook

• FACTORS– National Debt

• E.g. Central government domestic debt

– Government Expenditures

• E.g. Government employment

– Fiscal Policies

• E.g. Collected Total Tax Revenues

– State Efficiency

• Government Economic Policies

• Political System

– State Involvement• Government Subsidies

• Price Controls

– Justice and Security• Serious Crime

• Security

• World Competitiveness Yearbook - World Economic Forum– Ranking of 59 countries on 250

criteria on their ability to attract foreign investment and to sustain the competitiveness of its firms, i.e. Is it a good country to do business?

– Rankings based • 2/3rd statistical data• 1/3rd on Survey of 3000 Business

Executives Worldwide

Assignment 1 Political (3)Go to World Bank Governance Indicators

provides ranking of 209 countries and territories on six dimensions of governance. The analysis is conducted bi-annually. The paper is based on the years from 1996 to 2004. http://globaledge.msu.edu/ibrd/offsite.asp?URL=http%3A%2F%2Fwww%2Eworldbank%2Eorg%2Fwbi%2Fgovernance%2Fpubs%2Fgovmatters4%2Ehtml&ResourceCategoryID=44&CategoryTitleText=Research%3A+Rankings&ResourceLinkText=World+Bank%3A+Governance+Indicators&GRPage=GR%5FRankings%2Easp&ResourceCategoryDataID=3076

Click on Governance Indicators Data set Click on Interactive Governance Indicators

Or Go to Deloitte Country Guides http://www.deloittecountryguides.com/index.asp

Or Go to http://globaledge.msu.edu/ibrd/CountryList.asp

Click on CountryClick on Country commercial GuideClick on Political and Economic Environment

What is meant by Governance?

• Governance can be broadly defined as the set of traditions and institutions by which authority in a country is exercised. This includes (1) the process by which governments are selected, monitored and replaced, (2) the capacity of the government to effectively formulate and implement sound policies, and (3) the respect of citizens and the state for the institutions that govern economic and social interactions among them.

What are the 6 dimensions of the Governance Indicators?

• Voice and Accountability includes in it a number of indicators measuring various aspects of the political process, civil liberties, political and human rights, measuring the extent to which citizens of a country are able to participate in the selection of governments.

• Political Stability and Absence of Violence combines several indicators which measure perceptions of the likelihood that the government in power will be destabilized or overthrown by possibly unconstitutional and/or violent means, including domestic violence and terrorism.

• Government Effectiveness combines responses on the quality of public service provision, the quality of the bureaucracy, the competence of civil servants, the independence of the civil service from political pressures, and the credibility of the government's commitment to policies.

• Regulatory Quality instead focuses more on the policies themselves, including measures of the incidence of market-unfriendly policies such as price controls or inadequate bank supervision, as well as perceptions of the burdens imposed by excessive regulation in areas such as foreign trade and business development.

• Rule of Law includes several indicators which measure the extent to which agents have confidence in and abide by the rules of society. These include perceptions of the incidence of crime, the effectiveness and predictability of the judiciary, and the enforceability of contracts.

• Finally, Control of Corruption is a measure of the extent of corruption, conventionally defined as the exercise of public power for private gain. It is based on scores of variables from polls of experts and surveys.

For Example

Click on Governance Indicators Data set

Click on Interactive Governance Indicators

Information on Current Political Climate from Country Commercial Guide

• Country Watch Data Base (Cal Poly Library)– Click on Country– Click on Political Conditions– Click on Investment Climate

• Expropriation & Compensation• Dispute Settlement• Protection of Property Rights• Political Violence• International Investment

Agreements• Corruption and Crime

Sample Politics and Graft Information

• Politics and Graft Transparency International rates Uruguay as having a 4.4 Corruption Perceptions Index  (CPI), which means that it ranks 42nd out of the 99 countries surveyed, which is about the same level of corruption as Italy, the Czech Republic, and Mongolia.

The current Uruguayan government came into power on a platform promising the eradication of corruption in government. As the international watchdog group. Transparency International notes, that task is not an easy one. As they note in a recent report: 

"Typically, the main activities in need of reform are those that involve discretion, including the issuance of licenses, permits, quantitative import restrictions (quotas), passports, customs and border-crossing documentation, and banking licenses; the implementation of price controls; the blocking of entry to new firms and investors and the provision of monopoly power; the awarding of public procurement contracts; the granting of subsidies, soft credits, tax exemptions, and inflated pensions and the allowing of tax evasion; the imposition of foreign-exchange controls resulting in multiple exchange rates, the overinvoicing of imports, and the flight of capital; the allocation of real estate, grain storage facilities, telecommunications, and power infrastructure; the discretionary application of socially desirable regulations such as those that apply to public health and the environment; and the maintenance of obscure or secret budgetary accounts as well as other "leakages" from the budget to private accounts."

Which Elements of the International Legal Environment Can Affect

Marketing?

• International Laws – Rules that countries agree to abide by regarding– Trade– Protection of property, e.g. copyrights,

patents

• Host-country Laws – Laws of the different countries where the company operates

• Home-country laws – Laws of the home country that follow the company all over the world , e.g. corruption laws, antitrust laws

Host-country Commercial Laws

• Marketing– Regulations on distribution channel

relationships, e.g. mergers, exclusive dealings

– Pricing, e.g. price fixing, price discrimination– Promotion, e.g.

• Deceptive• Advertising to Children• Comparison Advertising• Bait Advertising• Endorsements

– Product• Labeling• Product Safety• Packaging and Labeling• Warranties • Trademarks

Information on Host Country Commercial Law

• Stat-USA Data Base (Cal Poly Library)– Click on Commercial Guide for country

• “Trade Regulations & Standard”• “Investment Climate”• “Marketing U.S. Products and Services”

• Google Country Type of Law– “Beer laws United States” or “beer advertising

regulations”– http://en.wikipedia.org/wiki/

Alcohol_laws_of_the_United_States_by_state– http://www.beeresponsible.com/advertising/

AdAndMarketingCode.html

                        

 

Types of Political Risks in Doing Business Globally

1. Political Uncertainty– Risk of major changes in

political regimes resulting from war, revolution, social unrest, death of political leaders

2. Policy Uncertainty– Changes in laws and

government policies which directly affect the way foreign companies conduct business.• Communist government, job for

life; unprofitable businesses propped up

What are the Political Risks of Doing Global Business?

• Confiscation – Foreign government seizure of company and/or investor assets without compensation

• Expropriation – The foreign government seizure of company assets with partial reimbursement but not at market value

• Domestication - Process of foreign government leading to the gradual transfer of ownership and management to locals

• Local Content Laws • Import restriction on raw material, machines,

spare parts• Tax increases• Price Controls• Labor problems• Terrorism

“Don’t Cry for Me Argentina”

Unilever, Argentina

What are Strategies to Reduce the Political Risks of Doing Global

Business?

• Avoidance – “Don’t Go!.”

• Control – Lobby foreign governments or international trade agencies to change laws, regulations or trade barriers

• Cooperation – Use of joint ventures and collaborative contracts with local businesses to limit the risk associated with foreign ownership

What are Strategies to Reduce the Political Risks of Doing Global

Business?

• Joint ventures

• Including local investors

• License technology – limit investment

• Control marketing and distribution, i.e. access to other world markets

Texaco, Uruguay Strategy

• What political risks did Coke face when entering Russia?

• Do the same risks exist today?• What strategy did Coca Cola use?

What factors led Coke to pursue business in Russia?

• Access to Large, Growing Market (150 million people)– Presently 80% of Coke sales from 16 largest

markets– Remaining 20% from 179 countries

• Purchasing Power– Purchasing power in developing Countries

e.g. Chinese spend 5%of household income on food, shelter, & transportation while Americans spend 50%

• Per Capita consumption of Coke rises with purchasing power– In Eastern Europe in early 90s consumption

increase from 20 to 31 Cokes in two years. In U.S. per capita consumption is nearly 376 per year.