Political Environment of Global Markets
Political Risks - Confiscation - Expropriation - Domestication - Protectionism Regulations: Export Controls Import Restrictions Exchange Controls Local-Content Laws Tax Controls Price Controls Labor Problems - Political and Social Activity Violence, War Spill over of Country Perception
Image of American Brands in Foreign Countries The Bush Factor? Handelsblatt 11 August 2004, p.9
Protectionism Governmental Restrictions on Trade to Protect its Interests Arguments for Protectionism: Infant Industry Jobs at Home Protection of Home Industry Conservation of natural Resources National Defense Retaliation Lasting Protectionism has always been detrimental to countries in the long run.
The Price of Protectionism Industry Total Costs to Number of Cost per Consumers Jobs Saved Job Saved (in $ millions) Textiles and apparel $27,000 640,000 $ 42,000 Carbon Steel 6,800 9,000 $ 750,000 Autos 5,800 55,000 $ 105,000 Dairy products 5,500 25,000 $ 220,000 Shipping 3,000 11,000 $ 270,000 Meat 1,800 11,000 $ 160,000 SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.
Source: 2002 Annual Report—Federal Reserve Bank of Dallas
Managing Political Risk 1. Identify Financial Exposure - Relative Importance of Market - Mode of Entry 2. Quantify Political Risk - Use of Internal and External Experts - Use of Risk Management Companies
Business Environment Risk Intelligence (BERI) Beri Provides a Rating of Countries According to Their Political Risks 1. Identification of Risk Factors 2. Correlation of Factors with Occurrence of Damage 3. Quantitative Weighing of Risk Factors Risk Factors: - Fractionalization of Political Spectrum - Fractionalization of different ethnic, religious, or language groups - Coercive Measures Required to Retain Power
Risk Factors (cont..): - Mentality, including Xenophobia, Nationalism, Corruption, Nepotism - Social Conditions, including Population Density, Wealth Distribution - Organization and Strength of Radical Forces - Dependence on Major Powers - Negative Influence of Regional Political Forces - Societal Conflict, involving Demonstrations, Strikes, Street Violence - Instability through Assassinations, non-Constitutional Changes, Guerrilla Wars
Strategies to Lessen Political Risk - Joint Ventures Good Citizen - Planned Domestication
Some web pages: http://www.state.gov/ The U.S. Department of state provides a wide variety of information on international topics including a rudimentary analysis of political and economic risk in foreign countries. http://www.census.gov/foreign-trade/www/index.html This governmental site provides information about foreign trade statistics http://www.beri.com This privately held for-fee site provides information about country risk. Upon request BERI analyses and evaluates industry specific political risk in foreign countries