Page 63 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes will be placed. When this Bill was passed, the reaction was a massive capital flight of some $ 57
billion. One major investment company alone moved in $90.2 billion portfolio from Montreal
to Ottawa.
Although an external government policy is irrelevant to firms’ doing business only in one
country, such a policy can create complex problems for firms doing business in countries that
are in conflict with each other. A company in one country, for example, may be prohibited from
doing business with other countries that are viewed as hostile. A dispute over the boundary
between Chile and Argentina prompted Argentina to restrict traditional exports to Chile
including petro-chemicals, pharmaceuticals, vehicles and vehicle parts. The restriction disrupted
the marketing plans of General Motors, Peugeot and Renault all of which supplied Chile with
automobile parts from Argentina plants. Similarly, India and Pakistan have restricted their
export-import because of the long outstanding Kashmir boundary dispute between the two
countries.
The use of unfriendly rhetoric before an election may be nothing but a smoke screen and the
‘bark’ will not necessarily be followed by a ‘bite’. Companies need not take drastic action if they
are able to endure through the election. Ronald Reagan, an advocate of free trade, became much
more of a protectionist just before his election in 1984. After the election, a policy of free trade
was reinstituted.
The experience of Enron Corporation with the $ 2.8 billion Dhabol project in India is an example
of this nature. In 1992, Enron and Prime Minister Narsimha Rao’s reformist government quickly
signed memoranda of understanding to build the massive power complex in Maharashtra.
Having no domestic partner, the deal’s secrecy coupled with company’s efforts to keep the
details confidential, the lack of competitive bidding, government loans guarantee and a high
rate of return (23%) all contributed to a negative public perception. The company failed to
seriously consider the sentiment of an opposition coalition led by the Bhartiya Janta Party. The
party’s 1995 campaign for state election called for a re-evaluation of the 2015 MWDhabol Project.
Enron responded by quickly beginning the construction believing that it would become more
difficult for a new government to reverse the process. Enron’s request that the US Energy
Department intervene only invited even more backlash. In the end the project was suspended
before being negotiated.

Self Assessment

Fill in the blanks:
4. Government policy formulation can affect ..................... either internally or externally.

5. A liberated ..................... can easily lead to a call of the long suppressed national minority
group for cultural and territorial independence.
6. The experience of Enron Corporation with the $ ..................... billion Dhabol project in
India is an example of this nature.

3.4 Management and Measurement of Political Risk

To manage political risk, an MNC can pursue the strategy of either avoidance or insurance.
Avoidance means screening out politically uncertain countries. In this, measurement and analyses
of political risk can be useful. Insurance, in contrast, is a strategy to shift the risk to other parties.
There are other strategies that MNCs can use to safeguard their foreign investments. They may
want to come to an understanding with a foreign government, as to their rights and
responsibilities. They can increase and maintain their bargaining power when their technical,
operational and managerial complexity requirements are not within reach of the host country’s
abilities.

58 LOVELY PROFESSIONAL UNIVERSITY