Page 65 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes 3.4.1 Privatisation, Insurance: Political, Private and Government

Privatisation
Privatisation plays an important role both with multinational and local firms because it has a
number of competitive implications. It is a well known fact all over the world that government
owned firms or public sector enterprises are often characterised by overstaffing, poor financial
performance, dependence on subsidies, centralised and politicised organisations and lack of
competition. The objectives of privatisation are: promotion of competition and efficiency,
reduction of debt and subsidies, return of flight capital and broadening of domestic equity
ownership.
Countries, which are likely to pursue privatisation, tend to have the following characteristics:
high budget deficit, high foreign debt and high dependence on international agencies such as
the World Bank and the International Monetary Fund. In Latin America and Asia, the countries
that are pursuing privatisation are those which have overused state enterprises and those in
which the private sector is growing faster than average, making them more ready to assume
tasks once assigned to the state enterprises. In Africa, however, privatisation may have been
imposed by external agencies even though these countries are not necessarily ready for this
task.
Governments all over the world have learnt a number of lessons from privatisation. Chile’s
massive privatisation has a positive effect on well-being, efficiency, capital market development
and its divestitures of state owned enterprises do not necessarily have negative distributive and
employment effects. In the case of Poland’s Swarzedz Furniture Co., it was found that change of
ownership was the necessary but not sufficient condition for effective performance.

Policy makers must understand that privatisation is a political process. A successful programme
requires economic reforms and it is helpful to sell some shares to managers and workers. The
experiences of Nigeria, Senegal and Togo have shown that (i) a country should tailor its
privatisation strategy to its circumstances (ii) there must be a support from the highest political
level (iii) the fears of lack of potential investors in Africa are exaggerated and (iv) there should
be transparency in the privatisation process.
In case of India, centrally planned economy has adopted the bing-bang approach or gradualism
in reforming its economy. It has been observed since 1991 that the bing-bang approach did not
work whereas with gradual liberalisation for opening up of its economy to the world market
and also for foreign direct investments, the results have been fruitful. Therefore, the choice of
strategy is dependant on the economy’s political circumstances and economic structure. After
the Congress government, there has not been a stable government to take advantage of
liberalisation. However, no working model exists today for a functioning market economy
with massive state enterprise sector.

Insurance: Political, Private and Government

Political Insurance: This can be achieved through risk avoidance and risk reduction. In order to
achieve these, MNCs can employ the strategy of risk shifting. Chubb and Lloyd’s of London are
among a small group of insurers which have long offered policies to cover ransom demands
from kidnappers. The coverage has been expanded to include legal and psychiatric fees and
compensation for loss of trade secret and product tampering. Some policies may cover costs
incurred when evacuating a politically unstable country. Executives may receive training on
how to avoid being kidnapped. Political insurance coverage can be obtained from a number of
sources. The best source is the confidence of the public in its government.

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