 Political Systems Chapter 4

  Political stability is an important factor in determining whether a country will be a good investment or not. Jeff Williams Senior Vice President International Development Lodging Division of Cendant Corp. Political Systems

  A country’s economic and legal systems are to a great extent shaped by its political ideology. Its political system has a great influence over international business operations. INTRODUCTION

  Democracy is political ideology that originated in ancient Greece. The word “democracy” originates from two Greek words: demo (the people) and kratos (power or authority). Democracy therefore means government by the people.  For a certain time in ancient Greece, democracy was practiced in Athens and some other city-states. Citizens came together to debate issues, pass the law, and the rulers were selected by lot. Democratic Political System

  Currently, democracy as a political ideology states that individual citizens should have the right to participate in public policy making, and enjoy wider political and social freedom in society.  In democratic countries, citizens have greater freedom of expression, such as freedom of speech and the press. Democratic Political System (Cont’d)

  An authoritarian government or regime usually has the following five characteristics: (1) the presence of one leader or a small group that exercises power (2) the power of the leaders or rulers is not clearly defined (3) absent or low citizen participation in policymaking (4) suppression of opposition (5) limited pluralism Authoritarian Political System

  The differences in political systems present great complexity and difficulty to international hospitality corporations.  In democratic countries, the political system is stable and public policies are predictable. International Business Implications

  Doing business in authoritarian countries is comparatively difficult.  Some authoritarian governments have very strict policies on foreign investment, and the policies regulating international business are subject to constant change.  As a result, the policies on international business change constantly. International Business Implications (Cont’d)

  Democracy as a form of government has become widespread in the world in the past two decades. A trend toward democratization is evident in most world regions.  New democracies have emerged in Russia and the Eastern European countries. Transition to Democracy

  Since different countries follow different political ideologies and systems, these differences, democratic or authoritarian, influence the relations among national governments.  Countries that share similar political principles tend to have closer relations. INTERNATIONAL RELATIONS AMONG NATIONAL GOVERNMENTS

  Many national governments, democratic or authoritarian, are actively involved in regulating and facilitating tourism and hospitality development.  It is recognized that tourism and hospitality development has a major impact on international relations and foreign policy. Tourism can be used as a political tool for improving political relations between countries. NATIONAL TOURISM POLICY

  For example, the Japanese government launched the “ten million campaign” in the 1980s to encourage more Japanese to visit the United States and Western European countries.  The purpose of this travel campaign was to reduce the huge trade surplus Japan had in merchandise trade with those countries, in an attempt to defuse the harsh criticism from governments in the West. NATIONAL TOURISM POLICY (Cont’d)

 National Tourism Development Plan:  Many countries have formulated long-term tourism development plans, which are integrated into the country’s overall national economic development plan.  It is essential for any international hospitality corporation to review such development plans before they start expansion plans. NATIONAL TOURISM POLICY (Cont’d)

 Government Entrepreneurial Ventures:  Some national governments are even engaged in entrepreneurial ventures by owning and operating hospitality business. This is most common in the authoritarian countries, and is determined by the economic system of the country. NATIONAL TOURISM POLICY (Cont’d)

  Tourism Promotion  Infrastructure Development  Environmental Concerns NATIONAL TOURISM POLICY (Cont’d)

  The different political ideologies followed by different countries give rise to various and complex ethical issues facing international hospitality operations.  Important ethical issues concern corruption and bribery. POLITICS AND BUSINESS ETHICS

  Nationalism is an important aspect of the political dimension of international business operations. Nationalism is the loyalty of citizens to their country. NATIONALISM

  Government protection of domestic business resulting from nationalism can create extremely difficult competition for international companies.  Government protection policy can be found in both democratic and authoritarian countries. Japan and France are known for their strong government protection of domestic business. NATIONALISM (Cont’d)

  Political systems are both complex and dynamic. Political changes are difficult to anticipate. The uncertainty in a country’s political system entails a risk for international hospitality operations.  International companies must conduct some form of political risk assessment to manage their exposure to political risk. Assessing Political Risk

  One method is to conduct qualitative expert opinion analysis. Expert opinion analysis refers to the analysis of a country’s political stability by people who are very knowledgeable about that country.  The second method of political risk assessment is to use the quantitative country ranking systems developed by consulting and publishing firms. Assessing Political Risk (Cont’d)

  The Overseas Private Investment Corporation (OPIC) in the United States provides political risk insurance for new investment in friendly developing countries.  Insurance covers a portion of the losses as a result of specific risks, such as expropriation by a foreign government. It also covers damages caused by war and terrorist attack. Political Risk Insurance

  Another U.S. organization, the Foreign Credit Insurance Association (FCIA), also provides coverage for international companies to minimize losses caused by war and revolution. Political Risk Insurance (Cont’d)