Page 76 - DMGT545_INTERNATIONAL_BUSINESS

Unit 5: Political and Economic Environment

introduction notes

The critical concern Political environment has a very important impact on every business
operation no matter what its size, its area of operation. Whether the company is domestic,
national, international, large or small political factors of the country it is located in will have an
impact on it. And the most crucial and unavoidable realities of international business are that
both host and home governments are integral partners. Reflected in its policies and attitudes
toward business are a governments idea of how best to promote the national interest, considering
its own resources and political philosophy.

5.1 Political environment

A government control’s and restricts a company’s activities by encouraging and offering support
or by discouraging and banning or restricting its activities depending on the government. Here
steps in international law. International law recognizes the right of nations to grant or withhold
permission to do business within its political boundaries and control its citizens when it comes
to conducting business. Thus, political environment of countries is a critical concern for the
international marketer and he should examine the salient features of political features of global
markets they plan to enter.

5.1.1 sovereignty of nations

From the international laws point of view a sovereign state is independent and free from external
control; enjoys full legal equality; governs its own territory; selects its own political, social,
economic systems; and has the power to enter into agreements with other nations. It is extension
of national laws beyond a country’s borders that much of the conflict in international business
arises. Nations can and do abridge specific aspects of their sovereign rights in order to coexist
with other countries. Like the European Union, North American Free Trade Agreement (NAFTA)
are examples of nations voluntarily agreeing to give up some of their sovereign rights in order to
participate with member nations for common, mutually beneficial goals.

The ideal political climate for a multinational firm is stable, friendly environment. Unfortunately,
that is never really the case, it’s not always friendly and stable. Since foreign businesses are judged
by standards as variable as there are nations, the friendliness and stability of the government in
each country must be assessed as an ongoing business practice.

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. Political parties may change or get
reelected but the main concern for MNCs is the continuity of the set rules or code of behavior
regardless of the party in power. A change in the government does not always mean change in
the level of political risks. In Italy the political parties have changed 50 times since the end of
World War II but the business continues to go on as usual in spite of the political turmoil. In
comparison is India, where the government has changed 51 times since 1945 but however much
of the government policies remain hostile to foreign investments. Conversely, radical changes
in policies toward foreign business can occur in the most stable of the governments. Some of
the African countries are among the unstable with seemingly unending civil wars, boundary
disputes and oppressive military regimes. Like one of the region with the greatest number of
questions concerning long-term stability is Hong Kong as since China has gained control, the
official message is that nothing will change and thus everything is seemingly going smoothly
but the political analysts say that it is too early to say how will the business climate change, if it
will. If there is potential for profit and if given permission to operate within a country, MNCs

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