Political Environment: Instructor: Dr. IRFAN Butt

International Marketing
Political
Environment
Instructor: Dr. IRFAN
What is a Political System?
thesetofformallegalinstitutions
thatconstituteagovernmentor
astate.
What are different forms of

Government?
Political System
Three Major forms of

Government
Democracy
Communism
Monarchy
Political System
Form of Government
Democracy
a form of government in which people

choose leaders by voting
Examples
USA
Canada
New Zealand
Turkey
Belgium
Political System
Form of Government
Communism
a way of organizing a society in which

the government owns factors of
production and there is no privately
owned property
Examples
North Korea
Cuba
Laos
Vietnam
China
Political System
Form of Government
Monarchy
the supreme power is lodged in the

hands of a monarch, usually for life
and by hereditary right;
the monarch may be either a sole

absolute ruler - such as a king,
queen, or prince - with
constitutionally limited authority.
Political System
Form of Government
Variations in Monarchy
Parliamentary
Constitutional
Emirate
Sultanate
What is form of government in following
countries?
Denmark, UK, Japan, Luxembourg, Norway
Constitutional Monarchy
Political System
Form of Government
Pakistan
Federal Republic
aformofgovernmentmadeupofafederalstat
ewithaconstitutionand selfgoverningsubunits
Political System
Political Parties
A group of people who share the

same ideas about the way the country
should be governed.
Political parties try to control what

happens in Parliament by securing a
majority of seats.
Does it matter to a Foreign Firm

which political party is in power?
Political System
Political Parties in Pakistan

1.
2.
3.
4.
5.
Pakistan Muslim League

(N)
Pakistan Peoples Party
Pakistan Tehreek-e-Insaf
Muttahida Qaumi
Movement
Jamiat Ulema-e-Islam (F)
6.
7.
8.
9.
10.
11.
Pakistan Muslim League (F)

Jamaat-e-Islami
Pakhtun-khwa Milli Awami
Party
Pakistan Muslim League (Q)
National Peoples Party
Awami National Party
Does it matter to a Foreign Firm

which political party is in power?
Major Political Parties in USA
DEMOCRAT
REPUBLICAN
Are there differences
between the two?
Political System
Interest Groups
An organization whose members

share common concerns, and
try to influence government

policies that impact those
concerns.
Also called
lobbyist
pressure groups
Political System
Labour Unions
An organization of wage earners

formed for the purpose of
serving the members interests with

respect to wages and working conditions
What is the impact of Labour Unions

on Foreign Firms?
Political System
Labour Unions in Pakistan

1.
2.
3.
4.
All Pakistan Wapda Hydro

Electric Worker's Union
Federal Revenue Alliance
Employees Union (C.B.A)
K.E.S.C Labour Union
K.P.T Labour Union
5.
6.
7.
8.
9.
Pakistan Airline Pilot's

Association
Pakistan Postal Worker's Union
People's Unity of PIA
Employees
P.T.C.L Worker's Union
Railway Worker's Union
What is the impact of Labour Unions

on Foreign Firms?
What do Labour Unions do?
Negotiate salary, working hours, and working
conditions
Are there Labour Unions in

USA and Canada?
Trends in Political Systems
Democracy is relatively more viable

system
Engines of democracy:
Failure of totalitarian systems in communist

countries to deliver economic progress
Improved communication technology
Belief that democracy leads to improved
standards of living
Home & Host Country
Host Country Government Action
International Trade Policy

Investment Policy
Trade Sanctions
Export/Import Assistance
Financial and other Assistance
Export/Import Assistance
Financial and other Assistance
Rebate
Trade Barriers
Tariffs
Non-tariff barriers (quotas)
Arbitrary product classification
Trade Barriers
Tariffs
Import license requirements
Discriminatory government procurement

contracts
Trade Barriers
Tariffs

contracts
Port of entry requirement
Trade Barriers
Tariffs

contracts
Port of entry requirement
Local content requirements
Investment Policy
Foreign Direct Investments

(FDI)
Doing business in Oman
Investment Policy - OMAN
provision of industrial plots in industrial zones

for nominal charges
preference in the allocation of government land
interest-free or subsidized loans with long terms

for repayment
reduced charges for water, electricity and fuel
financial assistance for the development of

economic and technical feasibility studies
the expedited arrangement of immigration visas

and permits for foreign workers
Investment Policy
Foreign Direct Investments

(FDI)
Take-over
Trade Sanctions
Trade-related penalties levied by

one country against one or more
other countries
Political Risk
The risk that arises from
the potential actions of
governments and
other influential domestic forces,
which negatively affect the

profitability or sustainability of
an investment
Political Risks
Asset Based
Nationalization:
Confiscation (no compensation)
Expropriation (some compensation)
Forced Divestiture
Partial or full disposal of a business unit

through sale, exchange, closure
Forced Abandonment
Closure due to deteriorating security

situation
Political Risks
Asset Based
Arbitration Award Default
Import/Export License Cancellation
The government defaults on an obligation

arising from an arbitration award
the cancellation of previously obtained
import/export licenses due to embargo
War and Political Violence
Physical damage to the assets of a foreign

operation due to strikes, riots, war or terrorism.
Political Risks
Trade Related
Currency Inconvertibility
The inability of the local currency to be

exchanged for another currency.
Currency Transfer Restrictions
The risk of the host central bank blocking or refusing

to transfer deposited funds in the host country to a
designated foreign location.
Political Risks
Trade Related
Contract Frustration
The nonfulfillment of a contract due to

political events.
Unfair Calling of Guarantee/Wrongful

Calling of Guarantee
The unfair drawing down of an on-demand,

standby letter of credit posed as a bid,
advance payment, warranty, or performance
guarantee by a government.
Can we measure
Political Risk?
Measuring Political Risk
Macro-Level Analysis
Forecasting the political environment

in countries of interest at a general
macro-level.
Micro-Level Analysis
Evaluating the political risk

implications of the general forecast
for the particular firm.
The Measurement Micro-Risk
Which parts or characteristics are

relevant to the product-market(s)
of the company.
Firms nationality
Host/Home country relationship
Industry
Firms past behaviour
The Measurement Macro-Risk

Worldwide Governance Indicators: 1996-2013
Six dimensions of governance:

1.
Voice and Accountability
2.
Political Stability and Absence of Violence
3.
Government Effectiveness
4.
Regulatory Quality
5.
Rule of Law
6.
Control of Corruption
212 countries
Worldwide Governance Indicators
Voice and accountability
The extent to which a countrys

citizens have
ability to participate in selecting their

government
freedom of expression
freedom of association
a free media
Political stability & absence of violence
Perceptions of the likelihood that

the government will be
destabilized or overthrown
by unconstitutional or violent means,

including domestic violence and
terrorism
Government effectiveness
The quality of public and civil

service and
the degree of its independence from

political pressures,
The quality of policy formulation

and implementation, and
the credibility of the governments

commitment to such policies
Regulatory quality
The ability of the government to
formulate and implement sound

policies and regulations
that permit and promote private sector

development
Rule of law
The extent to which people have
confidence in and abide by the rules

of society, and in particular the
quality of
contract enforcement,
the police, and
the courts, as well as
the likelihood of crime and violence
Control of corruption
The extent to which
public power is exercised for private

gain,
capture of the state by elites and

private interests
The Measurement Macro-Risk

Other Sources
The PRS International Country Risk

Guide
Business Environmental Risk

Intelligence
www.prsgroup.com
www.beri.com
Economist Intelligence Unit
www.eiu.com
Political Risk Reduction Strategies
Local Partners
Local Borrowing
Investment Minimization
Vertical Integration
Political Risk Insurance
Benefits of Political Risk Insurance

1)
Lower the Cost of Project

Financing
2)
Protect the Balance Sheet
3)
Leads to favorable lending terms
Protection against assets loss
Reduce Corporate Liability
Protects shareholders value
Corruption
Bribes, kickbacks, grease, speed

money
Corruption Perception Index (CPI)
CPI measures the perceived level

of public sector corruption
The CPI is a "survey of surveys",

based on 13 different expert and
business surveys.
Ranking
Corruption Perceptions Index (CPI)
(Lower the better)
India
Pakistan
Year
China
Saudi Arabia
2012
80
94
139
66
2011
75
95
134
57
2010
78
87
143
50
2009
79
84
139
63
2008
72
85
134
80
2007
72
72
138
79
2006
70
70
142
70
2005
78
88
144
70
2004
71
90
129
71
2003
66
83
92
46
2002
59
71
77
Corruption
Bribe Payers Index (BPI)
International Marketing
Thank You!
Instructor: Dr. IRFAN

Political Environment: Instructor: Dr. IRFAN Butt

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International Marketing

Instructor: Dr. IRFAN

What is a Political System?

What are different forms of

Three Major forms of

a form of government in which people

a way of organizing a society in which

the supreme power is lodged in the

the monarch may be either a sole

A group of people who share the

Political parties try to control what

Does it matter to a Foreign Firm

Political Parties in Pakistan

Pakistan Muslim League

Pakistan Muslim League (F)

Does it matter to a Foreign Firm

Major Political Parties in USA

An organization whose members

try to influence government

An organization of wage earners

serving the members interests with

What is the impact of Labour Unions

Labour Unions in Pakistan

All Pakistan Wapda Hydro

Pakistan Airline Pilot's

What is the impact of Labour Unions

Are there Labour Unions in

Trends in Political Systems

Democracy is relatively more viable

Failure of totalitarian systems in communist

Home & Host Country

Host Country Government Action

International Trade Policy

Host Country Government Action

International Trade Policy

Financial and other Assistance

Host Country Government Action

International Trade Policy

Host Country Government Action

International Trade Policy

Non-tariff barriers (quotas)

Arbitrary product classification

Host Country Government Action

International Trade Policy

Non-tariff barriers (quotas)

Arbitrary product classification

Import license requirements

Discriminatory government procurement

Host Country Government Action

International Trade Policy

Non-tariff barriers (quotas)

Arbitrary product classification

Import license requirements

Discriminatory government procurement

Port of entry requirement

Host Country Government Action

International Trade Policy

Non-tariff barriers (quotas)

Arbitrary product classification

Import license requirements

Discriminatory government procurement

Port of entry requirement

Local content requirements