Global marketing management-Impact of Environment on International Marketing Decisions-Notes-Business Administration, Study notes of Business Administration

Download Global marketing management-Impact of Environment on International Marketing Decisions-Notes-Business Administration and more Study notes Business Administration in PDF only on Docsity! Impact of Environment on International Marketing Decisions 4.1. Political Environment of International Marketing The role of the political system on marketing comes from laws, regulations, and other government actions that restrict or direct the way in which business may be conducted. Companies planning international marketing must have an in depth knowledge of the political environment in the countries where they like to do business. There are many types of political risk associated with actions of the governing bodies. There are wide variations in the political environments of countries and if the political environment is characterized by instability and uncertainty, entry for marketing will be prevented. In brief a thorough review of the political environment must pave the way to a new market in a foreign country. Furthermore, the political environments of countries do not remain static. Political changes and upheavals may occur after an international marketer has made a promise and has and established business. Political environment connotes diverse happenings. It may be a national difficulty like the conflict between the Communist government in Poland and solidarity or acts of terrorism against business (for example, kidnappings, arson) or conflicts between countries in a particular region like the war between India and China or an unending problem like the enmity between Israel and its Arab neighbours. Political risk is associated with the actions of local and regional governing bodies affecting the international company with the overall economic and political stability within a particular country. Political stability of a country is one of the fundamental factors that companies consider when going overseas. There are various types political risks in international marketing. Political risks will emerge to due to unstable political environment such as violence, expropriation, restriction of operations, and restrictions on repatriation of capital and remittances of profits. If the risk is high in a particular politically unstable country, it is necessary to know how to monitor that country‘s ongoing political situation. The political conflicts and difficulties in foreign countries and their effects on overseas business are analysed here. Planned responses to political change accessible to multinational marketers are also examined. 4.1.a. Politics and marketing Marketing decisions in the international context are deeply affected by the political perspectives of both home and host countries. For example, government decisions have significantly affected the U.S automotive industry. Stringent requirements such as the fuel efficiency standards have burdened the industry in several ways. Government around the world helps their domestic industries to strengthen their competitiveness through various fiscal and monetary measures. Such political support can play a key role in an industry‘s search for markets abroad. Without such assistance, an industry may face a difficult situation. The competition facing U.S manufacturers, therefore, both at home and in international markets, is potent and resourceful. Moreover a number of these overseas competitors are wholly or partly state-owned and respond to the direction of their governments, which depend heavily on their integration of resources, physical, human, and financial. Dilution of ownership will lead to erosion of the power of the parent company to control the management process in the affiliates. In short, the dissimilarity of business between the affiliates and the parent, along with reduced ownership by parent, will make the latter primarily an investor. If this pattern continues, parent companies will soon find that they are no longer in a position to integrate their resources worldwide. 4.1.b. Sources of Political Problems Figure 2.3 illustrates sources of political problems for firms doing business in foreign countries. Political impact on business comes mainly from political sovereignty and political conflict. Figure 2.3 Politics and International Marketing Political sovereignty Political sovereignty refers to a country‘s aspiration to declare its power over foreign business through diverse sanctions. Such sanctions are normal and evolutionary predictable. An example is increases in taxes over foreign operations. Many of the less-developed countries impose restrictions on foreign business to protect their independence. These nations are envious of their political freedom and want to protect it at all costs, even if it means going at a slow economic pace and without the help of multinational corporations. The industrialized nations require a more open policy for the economic realities of today‘s world. Today, governments are likely to curtail unemployment, reduce inflation, redistribute income, provide health services, and not misuse the environment. These objectives make developed countries seek foreign technology, use foreign capital and foreign raw materials, and sell their products in foreign markets. In brief, among the developed countries multinationalism of business is politically tolerable and economically attractive. Political Conflict Several countries of the world experience political conflict of diverse sorts. Political conflicts may be categorized as turmoil, internal war and conspiracy. Turmoil refers to instant upheaval on a massive scale against an established. Internal war means large- scale, organized violence against a government such as guerrilla warfare. Conspiracy represents an immediate, deliberate act of violence against those in power (for example, the assassination of Egyptian President Anwar sadat). Political conflict may have an impact on business. Political change may also lead to a more favourable business climate. After the assassination of Prime Minister Indira Gandhi in 1984, India‘s policy became highly good for international business. Gillette Company, for example, obtained the Indian government‘s permission to set up a razor blade plant after some eight years of asking. It is important to make a distinction between political risk and political conflict. Political conflict in a country may lead to unstable conditions, but those conditions may or may not result from political unrest. Business must analyze each occurrence of political conflict and assess the likelihood of its impact on business. The effect of political conflict on business may be direct or indirect. Direct effects would be violence against the firm such as the kidnapping of an executive, damage to company property, a labour strike, and the like. Overall, direct effects are usually temporary and do not result in huge losses. Indirect effects occur because of changes in government policy. In short, political conflict may change a government‘s economic perception. Such change may come from a new attitude on the part of an existing government or through a new government. Further, the changes may be motivated by a sincere desire to set right things to divert public attention from other domestic problems of the country. From the viewpoint of foreign businesses, it is important to understand the nature of political conflict and the motivation behind government action. If a change in government policy is for names sake, it represents less risk to foreign businesses. On the other hand, when a new policy is expressed through the imposition of certain constraints, requirements, and controls on foreign businesses, the government must spread and enforce the new policy. Otherwise, the new policy will be futile without any actual effects on foreign businesses. 4.1.c. Political Intervention Political intervention may be defined as a decision on the part of the host country government that may force a change in the operations, policies, and strategies of a foreign firm. The intervention may range from some sort of control to complete take over of the foreign enterprise. The magnitude of number of nationals to higher levels of management, greater decision-making powers to nationals, more products produced locally rather than imported, and specific export regulations to dictate participation in world markets. Other Forms of intervention The other forms of intervention include government involvement in foreign enterprise taking the form of legislative action enacted in the national interest. Moreover, intervention applies to both domestic and foreign business. However, in actual practice, certain aspects of the law are irrelevant for domestic business and are meant to control foreign business. For example, a clause in a decree restricting repatriation or profits to stockholders outside the country would be meaningless for native companies. Exchange control, import restrictions, market control, tax control, price control, and labour restrictions are the other important forms of intervention by the government. Exchange Control Those countries having difficulties with the balance of trade impose restrictions on the free use of foreign exchange. For example, import of luxuries from outside the country is restricted. In the same way, limitations are placed on the remittances from the country involving hard currency. The exchange control may also be an effort to encourage domestic industry. Exchange control measures affect foreign business in two ways. First, profits and capital cannot be returned to the parent company at will. Second, raw material, machinery, spare parts and the like cannot be liberally imported for operating purposes. Most developing countries utilize exchange control to regulate their hard currency balances. The need for such regulations is one important reason for restrictions on imports of consumer in most emerging countries. Sometimes even developed countries may resort to exchange control. Import Restrictions Import restrictions are primarily for the support of native industries. Consider a foreign pharmaceutical company traditionally importing certain compounds and chemicals from the parent company. If the host country places restrictions on imports, it may be forced to depend on local sources of supply for these new materials. This can create two types of problems for the foreign firm. First, the local product may be of inferior quality, which would affect the quality of the finished product. Second, locally the product may be in such short supply that the pharmaceutical manufacturer cannot acquire it in adequate quantity. Apparently governments legislate import restrictions to all industries and the difficulties to be faced by a foreign company do not figure in the discussion. Further, when a country wants to encourage domestic industry as a matter of industrial policy, import restrictions are adopted with the realization that the local product will be inferior, at least initially. Strictly from the point of view of the government, import restrictions seem reasonable, but they ordinarily jeopardize the functions of foreign business. Market Control The government of a country sometimes imposes controls to prevent foreign companies from competing in certain markets. For example, until recently Japan had prohibited foreign companies from selling sophisticated communication equipment to the Japanese government. As a result many popular companies could not do business with Japan. The Arab boycott of companies doing business with Israel is an interesting example of market control. Tax Control Government may also impose heavy taxes on foreign business. For example, a new form of excise tax for which there is no precedent may be placed on the output of a foreign firm. As a result, problems may arise due to taxes imposed at variance with the company‘s agreement with the government. For example, the host government may have agreed to give a tax holiday to a company, say for five years, to establish its operations in the country. Three years later, the government chooses to reverse its position for some reason, such as a new government‘s refusing to live with the agreement entered into by its predecessor. Price Control For the sake of the public interest, countries may resort price controls. Likewise, countries use price control devices in various ways to improve their economies. For example, a country may set an official price on essential products such as drugs, oil, sugar, and cereals. Further, if the product of a particular foreign company has been singled out for price control without any economic rationale, such a measure amounts to undesirable intervention in the working of a foreign firm. Labour Restrictions In many nations, labour unions are very strong and have great political influence. Using its strength, they may be able to talk the government into passing very restrictive laws that support them at heavy cost to business. For example, labour unions in Latin America were able to prevent layoffs, plant shutdowns, and the like, even when business could not afford to meet such demands. Foreign firms may find it difficult to accommodate labour demands transformed into laws. Even where there are no labour laws to comply with, there may be labour problems. Problems can reach such a level that the foreign enterprise is left with no other choice but to leave. 4.1.d. Political Perspectives An international marketer must make a thorough analysis of the political risks peculiar to a foreign country‘s political system as well as risks peculiar to the