1.

Introduction
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 inflicts heavy financial penalties on a company or if unanticipated events in the political arena lead to the loss of income-generating assets. The political and legal 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 and legal system of the countries business is conducted. hanges in government often result in changes in policy and attitudes towards foreign business. !earing 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 "uotas, etc. #n e$porter that is continuously aware of shifts in government attitude will be able to adapt e$port marketing strategies accordingly. Nearly all governments today play active roles in their countries' economies. #lthough evident to a greater or lesser e$tent in most countries, government ownership of economic activities is still prevalent in the former centrally planned economies, as well as in certain developing countries which lack a sufficiently well developed private sector to support a free market system. The implications of government ownership to a company marketing abroad might be that certain sectors of the foreign market are the e$clusive preserve of government enterprise or that the company is obliged to sell directly to a state trading organi%ation. &n either case, the company's influence on the market is greatly reduced. 'f primary concern to an e$porter should be the stability of the target country's political environment. # 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. 'ne of the surest indicators of political instability is a fre"uent change in regime. #lthough a change

in government need not be accompanied by violence, it often heralds a change in policy towards business, particularly international business. )uch a development could impact harshly on a firm*s long-term international marketing program.

2. Factors of Political Environment The Sovereignty of Nations

+rom the international laws point of view a sovereign state is independent and free from e$ternal control, en-oys full legal e"uality, governs its own territory, selects its own political, social, economic systems, and has the power to enter into agreements with other nations. # state sets re"uirements for citi%enship, defines geographical boundaries, and controls trade and the movement of people and goods across its borders. &t is e$tension of national laws beyond a country's borders that much of the conflict in international business arises. )overeignty refers to both the powers e$ercised by a state in relation to other countries and the supreme powers e$ercised over its own members. Nations can and do abridge specific aspects of their sovereign rights in order to coe$ist with other nations. N#+T# .North #merica +ree Trade #greement N#T' .North #tlantic Treaty 'rgani%ation /T' ./orld Trade 'rgani%ation 01 .0uropean 1nion These represent e$amples of nations voluntarily agreeing to give up some of their sovereign rights in order to participate with member nations for a common, mutually beneficial goal.

Stability of Government Policies

The most important of the political conditions that concern an international business is the stability or instability of the prevailing government policies. The keys to international marketing as related to governments are predictability and stability. The international marketer should understand both the political parties that e$ist and the nationalistic tendencies of the people. 3olitical parties may change or get reelected but the main concern for 4N s is the continuity of the set rules or code of behavior regardless of the party in power. The keys to international marketing as related to governments are predictability and stability. &ssues that can affect stability of a government 5adical shifts in government philosophy when opposing political party comes to power pressure from special interest groups weakened economic conditions bias against foreign investment conflicts between governments +ive main political causes of instability in international markets6 )ome forms of government seem to be inherently unstable hanges in political parties during elections can have ma-or effects on trade conditions Nationalism #nimosity targeted toward specific countries Trade disputes themselves

Ideologies of Political Parties

# political party is a group of people who come together in politics that share many common economic and societal goals. #n international marketer needs to understand the philosophies of the ma-or political parties. &t is important for the marketer to try not to endorse any particular political party. onsideration needs to be given to what influential factors affect the country political parties. 0.g. 8obbyist groups. +or most countries around the world, it is particularly important for the marketer to know the philosophies of all ma-or political parties within a country, since any one of them might become dominant and alter prevailing attitudes and the overall business climate. &n countries where two strong political parties typically succeed one another in control of the government, it is important to know the direction each party is likely to take. &n 9reat !ritain, for e$ample, the 8abor 3arty traditionally has tended to be more restrictive regarding foreign trade than the onservative 3arty. The 8abor 3arty, when in control, has limited imports, whereas the foreign trade when it is in power. onservative 3arty has tended to liberali%e

Nationalism feelings of iti!ens

Nationalism has been defined by ategory as an intense feeling of national pride and unity, an awakening of a national*s people to pride in their country. Nationalistic tendency tend to focus on what is better for the state rather than the world. Nationalism can cause6 5estriction on imports Tariffs 5estrictive barriers # desire to only by commodities produced in the home country ountries use nationalism to protect themselves against intrusions

 threats from outside forces declines in domestic economy

". Political #is$s of international %usiness

onfiscation onfiscation is the sei%ing of a company*s assets without payment. The two most notable recent confiscations of 1.). property occurred when +idel astro became the leader in uba and later when the )hah of &ran was overthrown. onfiscation was most prevalent in the (;<=s and (;>=s when many underdeveloped countries saw confiscation, albeit ineffective, as a means of economic growth. E&'ro'riation /here the government sei%es an investment but some reimbursement for the assets is made. 'ften the e$propriated investment is nationali%ed, that is, it becomes a government-run entity. (omestication /hen host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company management. ?omestication can occur by the government mandating the following6 Transfer ownership to nationals 4anagers in the company must be nationals ?ecisions must be made by nationals &nputs for the product are produced locally

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). Economic #is$s associated *ith International %usiness

&nternational companies are often faced with many economic risks most of which arise without any prior warning. 0conomic risks are an important and a recurring part of political environment that a few companies can avoid. E&change controls )tem from shortages of foreign e$change held by a country. /hen this happens, controls may be placed upon all movements of capital or selectively against most politically vulnerable companies. 0$change controls are e$tended to cover products by applying a system of multiple e$change rates to regulate trade. +ocal,content la*s &n addition to restricting imports of essential supplies to force local purchase, countries often re"uire a portion of any product sold within the country to have local content, that is, to contain locally made parts. Im'ort restrictions )elective restrictions on import of certain raw materials, machines and spare parts are common strategies used to force foreign companies to purchase more materials within host country creating markets for local products. Ta& controls # political risk when used as a means of controlling foreign investments. &n such cases, they are raised without warning and in violation of formal agreements. Price ontrols

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0ssential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars, are often sub-ected to price controls. 3harmaceuticals +ood 9asoline )uch controls applied during inflationary periods can be used to control the cost of living. They also may be used to force foreign companies to sell e"uity to local interests. # side effect on the local economy can be to slow or even stop capital investment. +abor Problems &n many countries, labor unions have strong government support that they use effectively in obtaining special concessions from business. 8ayoffs may be forbidden, profits may have to be shared, and an e$traordinary number of services may have to be provided.

-. Some .ther /inds of Political #is$

Political Sanctions 'ne or a group of nations may boycott another nation, with political sanctions thereby stopping all trade between the countries, or may issue sanctions against the trade of specific products. The 1nited )tates has come under some criticism for its demand for continued sanctions against uba and its threats of future sanctions against countries that violate human rights issues. @istory indicates that sanctions are almost always unsuccessful in reaching desired goals, particularly when other ma-or nation*s traders ignore them. urrent sanction6 Aimbabwe, &ran Political and Social 0ctivists #lthough not usually officially sanctioned by the government, the impact of political and social activists (3)#s) can also interrupt the normal flow of trade. 3)#s can range from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect change. /hen well organi%ed, the actions of 3)#s can succeed. 'ne B

of the most effective and best-known 3)# actions was against Nestle and the sale of baby formula in Third /orld markets. The worldwide boycott of Nestle products resulted in substantial changes in the company*s marketing.

1iolence and Terrorism Terrorism has many different goals. 4ultinationals are targeted to embarrass a government and its relationship with firms, to generate funds by kidnapping e$ecutives to finance terrorist goals, to use as pawns in political or social disputes not specifically directed at them, and to inflict terror within a country as did )eptember ((. yberterrorism yberterrorism is new on the hori%on. #lthough in its infancy, the &nternet is a vehicle for terrorist attacks by foreign and domestic antagonists wishing to inflict damage to a company with little chance of being caught. 'ne problem is tracing a cyberterrorist is that it is hard to determine if a cyberattack launched by a terrorist, or by a hacker as prank. The .& love you* worm which caused estimated 2<billion dollars in damage, was probably -ust an out of control prank.

2. %ases of +egal Systems

# legal system is the mechanism for creating, interpreting, and enforcing the laws in a specified -urisdiction. &t is the means and methods a country uses to regulate business practices, define how companies conduct business transactions, specify the rights and obligations of those engaged in business transactions, and spell out the methods of legal redress for those who believe they have been wronged. 9enerally, legal systems fall into one of the following categories6 ommon la* ommon law originated in the 1nited Cingdom and is based upon tradition, -udge-made precedent, custom, and usage, therefore, courts play an important role in interpreting the

law.

ommon-law nations include #ustralia, !ritain,

anada, New Aealand, and the

1nited )tates.

ode +a* ode law is based on an all-inclusive system of written rules of law. 1nder code law the legal system is generally divided into three separate codes6 ommercial law ivil 8aw riminal 8aw

Theocratic la* Theocratic law is based upon religious precepts, ultimate legal authority is conferred upon religious leaders who govern society. The best e$ample is &slamic law, or )hari*a, which is based on the Coran, the )unnah, the writings of &slamic scholars, and the consensus of 4uslim countries* legal communities. (The key for business success is to adhere to the constraints of &slamic laws while maintaining sufficient fle$ibility to operate in a modern global economy.) 3i&ed +egal System # mi$ed legal system emerges when two or more legal systems are used within a single country. #lthough the ma-ority of such countries are found in #frica and #sia, the 1nited )tates* legal system combines both common and civil law.

4. 0ssessing Political 1ulnerability

Politically sensitive Products and Issues There are some generali%ations that help to identify the tendency for products to be politically sensitive. 3roducts that have an effect upon the environment e$change rates, national and economic security, and the welfare of the people are more apt to be ;

politically sensitive. +or products -udged non essential the risk would be greater, but for those thought to be making an important contribution, encouragement and special considerations could be available. @ealth is often the sub-ect of public debate, and products that affect or are affected by health issues can be sensitive to political concern. The 0uropean 1nion has banned hormone treated beef for more than a decade. Forecasting Political #is$ 3olitical risk assessment is an attempt to forecast political instability to help management identify and evaluate political events and their potential influence on current and future international business decisions. The greater the risk to international marketers is the threat of the government actually failing, causing chaos in the streets and markets. 5isk assessment is used to estimate the level of a risk a company is assuming when making an investment and to help determine the amount of risk it is prepared to accept.

5. #educing Political 1ulnerability

5elations between governments and 4N s are generally positive if the investment6 &mproves the balance of payments by increasing e$ports or reducing imports through import substitution 1ses locally produced resources Transfers capital, technology, andEor skills reate -obs

4ake ta$ contributions 3olitical parties seeking publicity or scapegoats for their failure often serve their own interests by focusing public opinion on the negative aspects of 4N s whether true or false. G..( .#P.#0TE ITI6ENS7IP # company can reduce its political vulnerability by being a corporate citi%en and remembering6 (. &t is a guest in the country and should act accordingly

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2. The profits are not it's solely, the local employees and the economy of the nation should also benefit. 7. &t is not wise to try and win over new customers by totally #mericani%ing them. :. # fluency in the local language helps making sales and cementing good public relationships. <. &t should train its e$ecutives to act appropriately in the foreign environment.

8. Strategies to +essen Political #is$

&n addition to corporate activities focused on the social and economic goals of the host country and good corporate citi%enship, 4N s can use other strategies to minimi%e political vulnerability and risk. 9oint 1entures Typically less susceptible to political harassment, -oint ventures can be with locals or other third-country multinational companies, in both cases, a company*s financial e$posure is limited. # -oint venture with locals helps minimi%e anti-4N feelings, and a -oint venture with another 4N adds the additional bargaining power of a third country. E&'anding the investment base &ncluding several investors and banks in financing an investment in the host country is another strategy. This has the advantage of engaging the power of the banks whenever any kind of government takeover or harassment is threatened. +icensing # strategy that can be effective in situations where the technology is uni"ue and the risk is high. 'f course, there is some risk assumed because the licensee can refuse to pay the re"uired fees while continuing to use the technology Planned domestication

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&s the most effective long-range solution in cases in which the host country is demanding local participation. /hile this is not the preferred business practice, the alternative of government-initiated domestication can be as disastrous as confiscation. Political bargaining !y multinational companies through lobbying may be used to avoid potential political risks.

Political 'ayoffs 3olitical payoffs are one approach to dealing with political vulnerability. This is not an approach we recommend in any way. @owever, your competitors may use such a tactic, so beware. 3olitical payoffs, or bribery, have been used to lessen the negative effects of a variety of problems.

1:. Government Encouragement

9overnments also encourage foreign investment. The most important reason to encourage investment is to accelerate the development of an economy. #n increasing number of countries are encouraging investments with specific guidelines toward economic goals. 4N s may be e$pected to create local employment, transfer technology, generate e$port sales, and stimulate growth and development of the local industry.

11. onclusion
The marketers aim to do business in foreign market should study the political and 8egal environment of the country in which they operated and in which they targeted to operate. &f they don*t study it well there is a high chance for failure. There are many e$amples of such cases where many big multinational companies failed in some country without having proper knowledge of the political environment. )o, to be successful marketer every marketer should have proper knowledge about it.

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#eferences
(. ateora 5.3, 9illy .4, and 9raham.8.F (2==;)6 &nternational 4arketing (: th ompanies, 3.'. !o$ (D2>=:,

0dition, 3ublished by The 4c9raw-@ill olumbus, '@ :72B2.

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