Page 61 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes

Notes Expropriation differs from confiscation in that there is some compensation though
not necessarily just compensation. More often than not, a company whose property is
being expropriated agrees to sell its operations – not by choice but rather because of some
explicit or implied coercion.
Nationalisation involves government ownership and it is the government that operates the
business being taken over. Myanmar’s foreign trade, for example, is completely nationalised.
Generally this action affects the whole industry rather than just a single company. Mexico
attempted to control its debt problem. President Jose Lopez Portillo nationalised the country’s
banking system. In another case of nationalisation, Libya’s Col. Gaddafi’s vision of Islamic
socialism led him to nationalise all private business in 1981. India nationalised its banking,
transportation and insurance industries in 70s.
In domestication, foreign companies relinquish control and ownership either completely or
partially to the nationals. The result is that private entities are allowed to operate the confiscated
or expropriated properties. The French government, after finding out that the state was not
sufficiently proficient to run the banking business, developed a plan to sell 36 French banks.

Domestication may sometimes be a voluntary act that takes place in the absence of confiscation
or nationalisation. Usually, the causes of this action are either poor economic performance or
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 Muslim 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

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