Page 81 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes social pressures. When situations worsened in South Africa and political pressures mounted at
home, Pepsi sold its South African bottling operations to local people and Coca-Cola signaled
that it would give control to a local company.
General instability risk is related to the uncertainty about the future viability of a host country’s
political system. The Iranian revolution that overthrew Shah of Iran is an example of this kind of
risk. In contrast, ownership/controlled risk is related to the possibility that the host government
might take action (expropriation) to restrict an investor’s ownership and control of a subsidiary
in that host country.
Operation risk proceeds from the uncertainty that a host government might constrain the
investor’s business operations in all areas including production, marketing and finance. Finally,
transfer risk applies to any future acts by a host government that might constrain the ability of
a subsidiary to transfer payments, capital, or profits out of the host country back to the parent
firm.
The 70s were the peak period for expropriation activities. The number of expropriation acts
peaked at 83 involving 28 countries in 1975 representing 14.4% of all such acts (574) which took
place between 1960 and 1992. Based on 1980 and 1992 data, expropriation is unlikely in future.

indicators of Political instability
In order to assess a potential marketing environment, a company should identify and evaluate
the relevant indicators of political difficulty. The sources of political instability include social
unrest, the attitude of nationals and the policies of the host government.
Social unrest is a social disorder that is caused by such underlying conditions as economic
hardship, internal dissension and insurgency and ideological, religious, racial and cultural
differences. Lebanon has experienced conflict among Christians, Muslims and other religious
groups. The Hindu-Christian conflict in India is another example of social unrest. Though a
company may not be directly involved in the local disputes, yet its business can still be severally
disrupted by such conflicts.
Human nature involves monostary (the urge to stand alone) as well as systems (the urge to stand
together) and the two concepts provide alternative ways of utilising resources to meet a society’s
needs. Monostary encourages competition but systems emphasize cooperation. As explained by
Alderson, “A co-operative society tends to be a closed society. Closure is essential if the group is in some
sense to act as one”. China, although wanting to modernise its economy, does not fully embrace
an open economy, which is likely to encourage dissension among various groups. For the sake of
its own survival, a cooperative society may have to obstruct the dissemination of new ideas and
neutralise an external group that poses a threat. China apparently has learnt a lesson from the
Soviet Union’s experience.
A liberated political climate can easily lead to a call of the long suppressed national minority
group for cultural and territorial independence. The group’s conflicts, unsettled but subdued
during the communist period, are likely to escalate. Three kinds of conflicts may occur. First, a
domestic dispute may escalate into violence that is confined within the boundaries of the country
in question. The civil war that started in 1991 between Serbs and Croats in Yugoslavia is a classic
example of this.

Another example is the centuries old ethnic animosity between Christian Armenia and Muslims
neighbouring Azerbaijan, which led some 600 Armenian nationalists to clash with Soviet
soldiers during earth quake rescue operations in Armenia. Second, an internal dispute may draw
interested parties outside the country in question into the conflict.

Example: Problems in Yugoslavian Macedonia may force Bulgaria and Greece to
intervene. Finally, the third form of conflict resulting either from first two kinds of conflicts or

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