International Marketing: The Political Environment

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International Marketing: Exam 2 Notes
Chapter 6: The Political Environment
* Sovereignty of Nations
* Sovereign state is independent & free from external control * Enjoys a full legal equality with other states
* Governs own territory
* Selects its own political, economic, and social systems * Has power to enter into agreements with other nations * Sovereignty refers to powers exercised by a state in relation to other countries and the supreme powers exercised over its own members * State sets requirements for citizenship, defines geographical boundaries, and controls trade and the movement of people & goods across its borders * Citizen is subject to states laws even when beyond national borders * It is with the extension of natural laws beyond country’s borders that much of the conflict in international business arises * The EU, NAFTA, NATO, and WTO represent examples of nations voluntarily agreeing to give up some sovereign rights in order to participate with members nations for a common, mutually beneficial goal * US’s involvement in international political affiliations is surprisingly low (it is largely sovereign) * WTO is considered the biggest threat so far to national sovereignty (member nations abide by international covenants and arbitration procedures that can override national laws and have far reaching ramifications for citizens) * Foreign investment is also perceived as a threat to sovereignty * National sovereignty is a critical issue in assessing the environment in which a firm operates * Nationalism: intense feeling of national pride & unity, an awakening of a nation’s people to pride in their country * Economic nationalism has one of its central aims in the preservation of national economic autonomy in that residents identify their interests with the preservation of the sovereignty of that nation in which they reside; Meaning: National interests & security are more important that international relations * Feelings of nationalism are manifested in a variety of ways: * A call to “buy your own country’s products only” BUY AMERICAN * Restrictions on imports

* Restrictive tariffs & other barriers to trade * May also lead to control over foreign investment
* The more a country feels threated by some outside force or as the domestic economy declines, the more nationalistic it becomes in protecting itself against intrusions * Manifestations of militant nationalism were rampant after WWII when new countries re founded and others were seeking economic independence—lead to expropriation of foreign companies, restrictive investment policies, and nationalization of industries * Types of Political Interferences

* Confiscation: seizing of a company’s assets without payment * MOST severe political risk
* Most prevalent in the 50s & 60s when many underdeveloped countries saw confiscation as a means of economic growth * Expropriation: government seizes an investment, but makes some reimbursement for the assets * Often expropriated investments become a government-run entity * Government rarely pays fair market value—they give you what they feel its worth * Government has right to take property as long as it is for the “good of the people” and they pay you for it * Domestication: occurs when host countries gradually cause the transfer of foreign investments to national control & ownership though a series of government decrees that mandate local ownership and greater national involvement in a company’s management * Slow moving expropriation

* Ultimate goal is to force foreign investors to share more of the ownership, management, and profits with nationals than was the case prior to domestication * Firm agrees to set up a business...
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