Effects of Politics on

International business.....
Introduction
The political environment of countries is a critical
concern for the international marketer.
International law recognizes the sovereign right of a
nation to allow or deny foreign firms to conduct.
Political Factors Affecting IB
Political and Legal differences
Political and Legal forces
Trade and investment restriction
Restraining forces
Government Policies and regulation
Political Environment
Political and Legal differences
The political and legal environment of foreign
market is different from that of domestic market.
The complexity generally increases as the number of
countries in which a company does business
increases.
Political and Legal forces
The most important considerations for global
business firms are the political and legal forces
operative in the countries in which they plan to
conduct business. Some foreign governments are
unstable, that is, there maybe frequent, dramatic and
unpredictable regime changes. When this occurs
industries may be nationalized; private property may
be seized or destroyed; normal business operations
may be suspended, the workforce may go on strike.
Trade and investment restrictions
A government imposed restriction on
the free international exchange of goods or services.
Trade barriers are generally classified as:
Import policies reflected in tariffs and other import
charges, quotas, import licensing, customs practices.
Standards, testing, labeling, and various types of
certification.
lack of copyright protection.
Restrictions on franchising, licensing, technology
transfer.
restrictions on foreign direct investment, etc.
Restraining forces
The factors which hamper globalization.
External: It includes government policies, & controls
which restrain cross-boarder business, social and
political opposition against foreign business etc.
Internal: Organizations internal factors
Government Policies and regulation
Government policies & regulation may also motivate
internationalization.
Many governments offer number of incentives 7
other positive support to domestic companies to
export and to invest in foreign countries.
Several countries give a lot of importance to import
development & foreign investment.
Government Policies and regulation
Some companies also move to foreign countries
because of certain regulations like the environmental
laws in advanced countries.
Government policies which limit the scope of
business in the home country may also provoke
companies to move to other countries.
Political Environment
The political environment including the
characteristics & policies of the political parties, the
nature of the constitution and government system &
environment encompassing the economic & business
policies. The most important policies are:
Industrial policy
Policy towards foreign capital and technology
Fiscal policy
Foreign trade policy
A Government that is big enough to give
you all you want is big enough to take it
away from you.......
The Political Environment
The Political Environment
System
Includes structure, processes and activities by which
a nation governs itself.



Totalitarian State
Democratic State

System
Totalitarian State Democratic State
Imposed authority
Restricted Participation
Freedom
Rights
Companies might pay
briberies to government.
The business law is vague
Stable business environment
Freedom and no censorship
Policies
Taxation: Countries always have some sort of
system for tax collection purposes. Governments levy
taxes for various reasons. For instance, a tax can be
levied on imported products to make the products
more expensive than similar products manufactured
locally, this is referred to as an import tax. Taxes are
also a great source of revenue for governments to pay
their employees and to finance and maintain specific
projects.
Taxation
Political Stability
A subjective authority indicator aggregated from a
variety of sources and measuring perceptions of the
likelihood of decline.
A stable government is one that is able to maintain
itself in power , have predictable political policies
which are not subject to radical and sudden changes.

Political Stability
In totalitarian nations, government instability not
only threatens but also ruins international business
operations Instability in some of these authoritarian
governments can be caused by internal turmoil ,
military coups , or even war.
Democratic nations have stable governments even as
the heads of state keep on changing every few years,
both the economic and political policies will remain
and no impact no matter how adverse will interfere
with the international business operations.
Political Risks of Global Business
The risk to business interests resulting from political
instability or political change.
It exits in every country around the globe and varies
in magnitude and type from country to country.
Political Risks of Global Business
It may arise from policy changes by govt. to change
controls imposed on exchange rates and interest
rates.
Political risk may be caused by actions of legitimate
govt. such as control on prices, outputs, activities,
and currency.
Political Risks of Global Business
Political risks may also result from events outside of
government controls such as war, revolution,
terrorism, labor strikes.

Types of Political Risk
Confiscation: The more severe political risk, is the
seizing of companys assets without payment.
Expropriation: is where the govt. seizes an
investment, but some reimbursement for the assets
is made.
Domestication: occurs when the govt. mandates
local ownership and greater national involvement in
a foreign companys management.
Types of Political Risk
Economic Risks: International firms face a variety
of economic risks. Govt. can impose restraints on
business activity to:
protect national security
Protect an infant industry
Raise revenue
MNCs & Govt.
Relation between governments and MNCs are
generally positive if the investment:
Improves the balance of payments by increasing
exports or reducing imports.
Uses locally produced resources
Transfer capital, technology & skill
Creates jobs
Thanks....