Post on 05-Jan-2016
Political Forces
McGraw-Hill/IrwinInternational Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
chapter nine
9-3
Learning Objectives
Identify the ideological forces that affect business
Discuss the fact that although most governments own businesses, they are privatizing them in growing numbers
Explain the changing sources and reasons for terrorism
Explain steps that traveling international business executives should take to protect themselves from terrorists
Evaluate the importance to business of government stability and policy continuity
Explain country risk assessment by international businesses
9-4
Ideological Forces
CommunismThe belief that the government should own all
the major factors of production
Production in these countries is at state-owned factories and farms (some exceptions)
Labor unions are government-controlled
9-5
Communism
• Conceived by Karl Marx as “classless society”– Developed by his successors into control of society
by the Communist Party and an attempted worldwide spread of communism
• Expropriation and Confiscation– Government seizure of property within its
borders owned by foreigners, followed by prompt, adequate, and effective compensation to the former owners
– Generally expropriated becomes confiscation (no compensation)
9-6
Ideological Forces
• Capitalism– An economic system in which the means of production
and distribution are for the most part privately owned and operated for private profit
• Ideal capitalism• Government restricted to functions that the private
sector cannot perform– National defense– Police, fire, and other public services– Government-to-government international
relations
9-7
Ideological Forces
• Socialism
Public, collective ownership of the basic means of production and distribution, operating for use rather than profit
Socialist governments frequently perform in ways not consistent with the doctrine
Many European countries have practiced socialism: Great Britain, France, Spain, Greece, Germany
9-8
Socialism
• Socialism in Developing Countries
Government typically owns and controls most of the factors of production
Shortages of capital, technology, and skilled management and labor are characteristic
Many of the educated citizens connected with government
9-9
Conservative or Liberal
ConservativeA person, group, or party that wishes to
minimize government activities and maximize private ownership and business
Right wing is a more extreme conservative position
9-10
Conservative or Liberal
Liberal In the contemporary U.S., a person, group,
or party that urges greater government involvement in business and other aspects of human activities
Left wing is a more extreme liberal
Careful! Terms may have entirely different meanings outside the U.S.
9-11
Government Ownership of Business
Why Firms are Nationalized– To extract more money from the firms
– To increase the firm’s profitability
– For ideological reasons
– To preserve jobs
– To follow previous government support (control follows money)
– happenstance
9-12
Unfair Competition?
Private-owned companies complain that government owned companies – Can cut prices unfairly
– Get cheaper financing
– Get government contracts
– Get export assistance
– Can hold down wages with government assistance
9-13
Privatization
• The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases, and the contraction out of activities previously conducted by the state
• Britain’s Margaret Thatcher, leader of privatization movement
• Airports, garbage, postal services frequent examples
9-14
Privatization in on the Move
• Trend all over the world
• China is allowing state-run enterprises to diversify ownership
• Usually the buyers have financial success
9-15
Privatization Anywhere Any Way
Not always ownership transfer from government to private entitiesActivities previously conducted by the
state may be contracted outGovernments may lease state-owned
plants to private entitiesGovernments may combine a joint venture
with a management contract with a private group to run a previously government-operated business
9-16
Privatizations by Region
9-17
Government Protection
Terrorism Unlawful acts of violence committed for a wide
variety of reasons, including for ransom, to overthrow a government, to gain release of imprisoned colleagues, to exact revenge for real or imagined wrongs, and to punish nonbelievers of the terrorists' religion
Since the 1970s, the world has been plagued by terrorism
9-18
Government Protection
World Wide Terrorist Groups Al Qaeda, IRA, Hamas, other Islamic
fundamentalist groups, ETA, Japanese Red Army, German Red Army Faction
Government-Sponsored Terrorism: Act of War• Countries finance, sponsor, and train terrorists
and/or provide sanctuaries for them– Iran, Iraq, Libya, Syria, Afghanistan, Cuba,
Lebanon, North Korea, and Sudan
9-19
Traditional Hostilities
Long-standing enmities between tribes, races, religions, ideologies, or countries
Arab Countries—Israel
Hutus and Tutsis in Burundi and Rwanda
Tamils and Sinhalese in Sri Lank
9-20
Government Stability
Stable GovernmentMaintains itself in power and whose fiscal,
monetary and political policies are predictable and not subject to sudden, radical changes
Unstable GovernmentCannot maintain itself in power or makes
sudden, unpredictable, or radical policy changes
9-21
ICs and Political Forces
• International Companies (ICs)– Make decisions about where to invest,
where to conduct research and development, and where to manufacture products
– The financial size of many ICs provides them with a strong negotiating position
9-22
Country Risk Assessment (CRA)
• An evaluation that assesses the country’s economic situation and policies and its politics to determine how much risk exists of losing an asset or not being paid
9-23
Country Risk Assessment (CRA)
• Types of Country Risks– Political
• Wars, revolutions, coups
– Economic– Financial
• BOP deficits
– Labor• Low productivity, militant unions
– Legal• Laws may be changed
– Terrorism
9-24
Country Risk