No matter how attractive the economic prospects
of a particular country or region are, doing business there
might prove to be financially disastrous if the host government(s)
inflict(s) heavy financial penalties on a company or if
unanticipated events in the political arena lead to the
loss of income-generating assets.
The political environment in which the firm
operates (or plan to operate) will have a significant impact
on a company's international marketing activities. The
greater the level of involvement in a foreign markets,
the greater the need to monitor the political climate of
the countries business is conducted. Changes in government
often result in changes in policy and attitudes towards
foreign business. Bearing in mind that a foreign company
operates in a host country at the discretion of the government
concerned, the government can either encourage foreign
activities by offering attractive opportunities for investment
and trade, or discourage its activities by imposing restrictions
such as import quotas, etc. An exporter that is continuously
aware of shifts in government attitude, will be able to
adapt export marketing strategies accordingly.
Nearly all governments today play active
roles in their countries' economies. Although evident to
a greater or lesser extent in most countries, government
ownership of economic activities is still prevalent in
the former centrally planned economies, as well as in certain
developing countries which lack a sufficiently well developed
private sector to support a free market system.
The implications of government ownership
to a company marketing abroad might be that certain sectors
of the foreign market are the exclusive preserve of government
enterprise or that the company is obliged to sell directly
to a state trading organisation. In either case, the company's
influence on the market is greatly reduced. Similarly,
if an exporter is seeking to establish a subsidiary in
a country where there is a high degree of state influence
over the factors of production, the investor should bear
in mind that marketing activities in the country concerned
may be restricted and that the so-called controllable elements
of the marketing mix (see Chapter 4) will be less controllable.
Of primary concern to an exporter should
be the stability of the target country's political environment.
A loss of confidence in this respect could lead to a company
having to reduce its operations in the market or to withdraw
from the market altogether. One of the surest indicators
of political instability is a frequent change in regime.
Although a change in government need not be accompanied
by violence, it often heralds a change in policy towards
business, particularly international business. Such a development
could impact harshly on a firms long-term international
Reflected in a government's attitudes and
policies towards foreign business are its ideas about how
best to promote national interest in the light of the country's
economic and political resources and objectives. Foreign
products and investment seen to be vital to the growth
and development of the economy often receive favourable
treatment from the government in the form of reduced tax,
exemption from quotas, etc. On the other hand, products
considered by a government to be non-essential, undesirable,
or a threat to local industry are frequently subjected
to a variety of import restrictions such as quotas and
tariffs. It is also important to be aware of the nature
of the relationship between South Africa and the foreign
target market. This was a major consideration during South
Africa's political isolation. Fortunately, South Africa's
international relations have normalised and today South
Africa is viewed very favourably, from a political perspective,
by the rest of the world.
The political environment is connected to
the international business environment through the concept
of political risk.
Political risk can be defined as the impact
of political change on the export firm's operations and
Political risk is determined differently
for different companies, as not all of them will be equally
affected by political changes. For example, industries
requiring heavy capital investment are generally considered
to be more vulnerable to political risk than those requiring
less capital investment. Vulnerability stems from the extent
of capital invested in the export market, e.g. capital-intensive
extracting or energy-related businesses operating in the
foreign market are more vulnerable than manufacturing companies
exporting from a South African base.
Political risk is of a macro nature when
politically inspired environmental changes affect all foreign
investment. It is of a micro nature when the environmental
changes are intended to affect only selected fields of
business activity or foreign firms with specific characteristics,
(possibly by expropriation).
When business is conducted in developing
countries, the risks of greatest concern are civil disorder,
war and expropriation. When business is conducted in industrialised
countries, labour disruptions and price controls are generally
seen to pose the greatest threats to a company's profitability.
Expropriation is the take-over of a foreign
firm located in a host country, by the host country's government.
All organisations doing business abroad should
be aware of the fact that what they do could be the object
of some political action. Hence, they need to recognise
that their success or failure could depend on how well
they cope with political decisions, and how well they anticipate
changes in political attitudes and policies.