Please enable JavaScript.
Coggle requires JavaScript to display documents.
The Political Environment - Coggle Diagram
The Political Environment
The Sovereignty of Nations
Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.
Nations can and do abridge specific aspects of their sovereign rights to coexist with other nations.
The EU, NAFTA, NATO, and WTO are examples of nations voluntarily agreeing to give up some of their sovereign rights
Foreign investment can also be perceived as a threat to sovereignty and thus become a rallying cry by opposing factions.
Stability of Government Policies
The ideal political climate for a multinational firm is a stable, friendly government.
Affect the stability of a government:
Radical shifts in government philosophy
Pressure from nationalist and self-interest groups
Weakened economic conditions
Bias against foreign investment
Conflicts among governments
Forms of government
Monarchy/Dictatorship
Aristocracy/Oligarchy
Democracy
Political parties
Nationalism: intense national pride and unity, an awakening of a nation’s people to pride in their country.
Targeted Fear/Animosity
Trade Disputes
Political Risks of Global Business
Confiscation: seizing of a company’s assets without payment.
The most severe political risk
Expropriation: government seizes an investment but makes some reimbursement for the assets.
Domestication: host countries transfer foreign investments to national ownership through government decrees.
Economic Risks
Exchange controls
Local-Content Laws
Import Restrictions
Tax Controls
Price Controls
Political Sanctions
Nongovernmental organizations (NGOs) increasingly affect policy decisions made by governments.
Often associated with political activism
Violence, Terrorism, and War
Cyberterrorism and Cybercrime
Assessing Political Vulnerability
Politically Sensitive Products and Issues
Affect the environment, exchange rates, national and economic security, and the welfare of people that are publicly visible.
Forecasting Political Risk
Risk assessment is used to estimate the level of risk a company is assuming when making an investment and to help determine the amount of risk it is prepared to accept.
Lessening Political Vulnerability
a specific business venture can take measures to lessen its degree of susceptibility to politically induced risks.
Joint Ventures
Expanding the Investment Base
Licensing
Planned Domestication
Political Bargaining
Political Payoffs
Government Encouragement
The most important reason to encourage foreign investment is to accelerate the develop- ment of an economy.
Multinationals may be expected to create local employment, transfer technology, generate export sales, stimulate growth and development of local industry, conserve foreign exchange
or meet a combination of these expectations as a requirement for market concessions.