2. chapter nine Political Forces McGraw-Hill/Irwin
International Business, 11/e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

3. Learning Objectives
Identify the ideological forces that affect business
Discuss the fact that although most governments own businesses, they are privatizing them in growing numbers
Explain the changing sources and reasons for terrorism
Explain steps that traveling international business executives should take to protect themselves from terrorists
Evaluate the importance to business of government stability and policy continuity
Explain country risk assessment by international businesses

4. Ideological Forces Communism
The belief that the government should own all the major factors of production
Production in these countries is at state-owned factories and farms (some exceptions)
Labor unions are government-controlled

5. Communism Conceived by Karl Marx as “classless society”
Developed by his successors into control of society by the Communist Party and an attempted worldwide spread of communism
Expropriation and Confiscation
Government seizure of property within its borders owned by foreigners, followed by prompt, adequate, and effective compensation to the former owners
Generally expropriated becomes confiscation (no compensation)

6. Ideological Forces Ideal capitalism Capitalism
An economic system in which the means of production and distribution are for the most part privately owned and operated for private profit
Ideal capitalism
Government restricted to functions that the private sector cannot perform
National defense
Police, fire, and other public services
Government-to-government international relations

7. Ideological Forces Socialism
Public, collective ownership of the basic means of production and distribution, operating for use rather than profit
Socialist governments frequently perform in ways not consistent with the doctrine
Many European countries have practiced socialism: Great Britain, France, Spain, Greece, Germany

8. Socialism Socialism in Developing Countries
Government typically owns and controls most of the factors of production
Shortages of capital, technology, and skilled management and labor are characteristic
Many of the educated citizens connected with government

9. Conservative or Liberal
A person, group, or party that wishes to minimize government activities and maximize private ownership and business
Right wing is a more extreme conservative position

10. Conservative or Liberal
In the contemporary U.S., a person, group, or party that urges greater government involvement in business and other aspects of human activities
Left wing is a more extreme liberal
Careful! Terms may have entirely different meanings outside the U.S.

11. Government Ownership of Business
Why Firms are Nationalized
To extract more money from the firms
To increase the firm’s profitability
For ideological reasons
To preserve jobs
To follow previous government support (control follows money)
happenstance

12. Unfair Competition?
Private-owned companies complain that government owned companies
Can cut prices unfairly
Get cheaper financing
Get government contracts
Get export assistance
Can hold down wages with government assistance

13. Privatization
The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases, and the contraction out of activities previously conducted by the state
Britain’s Margaret Thatcher, leader of privatization movement
Airports, garbage, postal services frequent examples

14. Privatization in on the Move
Trend all over the world
China is allowing state-run enterprises to diversify ownership
Usually the buyers have financial success

15. Privatization Anywhere Any Way
Not always ownership transfer from government to private entities
Activities previously conducted by the state may be contracted out
Governments may lease state-owned plants to private entities
Governments may combine a joint venture with a management contract with a private group to run a previously government-operated business

16. Privatizations by Region

17. Government Protection
Terrorism
Unlawful acts of violence committed for a wide variety of reasons, including for ransom, to overthrow a government, to gain release of imprisoned colleagues, to exact revenge for real or imagined wrongs, and to punish nonbelievers of the terrorists' religion
Since the 1970s, the world has been plagued by terrorism

18. Government Protection
World Wide Terrorist Groups
Al Qaeda, IRA, Hamas, other Islamic fundamentalist groups, ETA, Japanese Red Army, German Red Army Faction
Government-Sponsored Terrorism: Act of War
Countries finance, sponsor, and train terrorists and/or provide sanctuaries for them
Iran, Iraq, Libya, Syria, Afghanistan, Cuba, Lebanon, North Korea, and Sudan

19. Government Protection
Kidnapping for Ransom
Victims held for large ransoms
Columbia and Peru dangerous places for American executives
U.S. executives practice “commando management” to avoid kidnap risk
Arrive secretly, meet for a few days and fly off before kidnappers learn of their presence

20. Countermeasures by Industry
KRE (kidnap, ransom, and extortion)
Insurance to cover ransom payments, antiterrorist schools
Cassidy and Davis
The world’s largest kidnapping and extortion underwriting firm is located in London
Antiterrorist Schools
Checklists for executives

21. Terrorism Developments
Ethnoterrorism
Tribe against tribe, race against race, religion against religion
Nuclear Terrorism
Failing security standards at former Soviet installations permit uranium to be stolen, then sold to terrorists
Chemical and Biological Terrorism
Recipes from self-taught terrorists that can be downloaded from the Internet

22. Government Stability Stable Government Unstable Government
Maintains itself in power and whose fiscal, monetary and political policies are predictable and not subject to sudden, radical changes
Unstable Government
Cannot maintain itself in power or makes sudden, unpredictable, or radical policy changes

23. Traditional Hostilities
Long-standing enmities between tribes, races, religions, ideologies, or countries
Arab Countries—Israel
Hutus and Tutsis in Burundi and Rwanda
Tamils and Sinhalese in Sri Lank

24. ICs and Political Forces
International Companies (ICs)
Make decisions about where to invest, where to conduct research and development, and where to manufacture products
The financial size of many ICs provides them with a strong negotiating position

25. Country Risk Assessment (CRA)
An evaluation that assesses the country’s economic situation and policies and its politics to determine how much risk exists of losing an asset or not being paid

26. Country Risk Assessment (CRA)
Types of Country Risks
Political
Wars, revolutions, coups
Economic
Financial
BOP deficits
Labor
Low productivity, militant unions
Legal
Laws may be changed
Terrorism

27. Information Content for CRA
Nature of Business
The needs of the company
Needs of a hotel company compared with those of heavy-equipment manufacturers
Length of Time Required
Utility of risk analyses of social, political, and economic factors decreases precipitously over longer time spans

28. Country Risk