Page 54 - DMGT547_INTERNATIONAL_MARKETING

Unit 3: Political Environment of International Marketing

and can change significantly in a short period of time, so it is vital that you commit a reasonable Notes
amount of time to ensuring that know what to expect from the market.
Ideally, you will be looking at entering a market that is politically secure and stable. However,
often emerging markets that present significant business opportunities feature governments
that are far from stable. You need to carefully weigh up the potential for problems that could
adversely affect your business with the opportunities that the market presents before
implementing any sort of marketing plan.

Political risk is the risk of loss that occurs as a direct result of the actions of a government or
changes in the political structure in a particular country. The level of political risk varies depending
on the past history and consistency of a country. In most cases, organisations should try to avoid
engaging in business in nations that are considered to have a high level of political risk.

Notes The biggest contributor to political risk is the potential for nationwide conflict, war
or violent change.
If conflict broke out in a country you were operating in, you would need to be prepared to deal
with violence directed at your property and employee’s. Conflict is also likely to have a significant
negative impact on your customer base and sales potential.

3.1 Scope

Majority of the MNCs have to face complex political environmental problems because they
must cope with the politics of more than one nation. That complexity forces MNCs to consider
three types of political environment: foreign, domestic and international.
The developing countries and the least developed countries (LDCs) often view foreign firms
and foreign capital investment with distrust and even resentment, owing primarily to a concern
over potential foreign exploitation of local natural resources. Dependency Theory explains why
Latin American countries are reluctant to welcome foreign-based MNCs. According to this
theory, the ongoing economic, political and social transformations have made it necessary for
Latin America to rely on the capitalistic system. Similarly, the parties which are inclined to the
leftist thinking and swadeshis (indigenous usage thinking) are also reluctant to encourage
MNCs to participate in the development of Indian industries in a big way fearing that they are
able to extract surplus value from their less developed environment, thus, leaving them
underdeveloped while perpetuating the existence of class conflicts and oppressive governments.
However, MNCs should be allowed to operate in the highly technological sectors in which the
countries have no know-how and Research & Development.

Did u know? Developed countries are also quite concerned about foreign direct investments.
Many Americans have expressed their concern that the increasing foreign ownership of American
assets poses a threat to their country’s national security both politically and economically. The
inflow of foreign capital adds to the domestic capital stock. This activity contributes to the
country’s standard of living and enhances the country’s ability to service its international
indebtedness. As a result, the benefits of foreign investment outweigh the costs.
In some cases, the opposition to imported goods and foreign investments is based on moral
principles.

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