International Business Analysis Lecture 6 Slides PDF

Official (Closed) and Sensitive- Normal International Business Analysis Lecture – Country Analysis using PESTEL Model: Polit...

Official (Closed) and Sensitive- Normal International Business Analysis Lecture – Country Analysis using PESTEL Model: Political & Legal Factors Official (Closed) and Sensitive- Normal At the end of this lecture, learners will be able to: 01 Explain the reasons for assessing the political factor of a country in terms of its impact on the operations and viability of international firms. 02 Identify and describe the different categories of political risks facing firms operating in foreign markets. 03 Evaluate the political factor in the foreign market and analyse the impact by assessing various sub- factors. 2 Official (Closed) and Sensitive- Normal 01. Explain the reasons for assessing the political factor of a country in terms of its impact on the operations and viability of international firms Official (Closed) and Sensitive- Normal Why assess Political Factors?  Technically speaking, one should first consider the political environment before proceeding with other factors.  Several reasons may include:  Political considerations encompass the foundation of the foreign/host country  Political aspects dictate economic policies, social policies, technological and environmental policies etc.  Political strength/influence is a key determinant of operations and viability  Political factor is the “first” alphabet in PESTEL  However, it may not always be the case. Sometimes, it depends on the company, the product/service offered and a whole series of other variables. 4 Official (Closed) and Sensitive- Normal Reasons for assessing Political Factors Control (because companies believe that greater ownership gives them greater control)  Does local government intervene and require company to hire local managers?  Does local government require all goods produced to be exported to reduce competition?  Is there labour laws requiring company to provide benefits, in addition to hourly wages? Additionally  Is there a certain impression (perception) to be based in a certain country due to customers’ knowledge of quality/luxury products?  Following your key clients as they expand overseas to maintain the relationship?  Following your key rivals to avoid losing out on potentially lucrative overseas markets? 5 Official (Closed) and Sensitive- Normal 02. Identify and describe the different categories of political risks facing firms operating in foreign markets Official (Closed) and Sensitive- Normal What is Political Risk? Refers to the possibility (as it is a risk, not a certainty) of unwanted consequences arising from political activities and events, which may lead to impact on profit and other goals of the business enterprise. Transfer Risk: Operating Risk: Interference with Interference with Ownership Risk: attempts to the ongoing Property & Life transfer funds operations of a back to home company country 7 Official (Closed) and Sensitive- Normal Ownership Risk Risk of Ownership Risk: damage/loss of Property & business’ assets Life & lives of employees /investors in the event of strikes, violent protests, civil war, war, terrorist attacks, sudden 8 Official (Closed) and Sensitive- Normal Operating Risk Operating Risk: Interference with the ongoing operations of a company Terminal High Altitude Hong Kong Protest 2019 Area Defence (THAAD) Operating Risk: crowds obstructed traffic Ownership Risk: damage to properties 9 Official (Closed) and Sensitive- Normal Transfer Risk Transfer Risk: Interference with attempts to transfer funds back to home country Risk of not being able to remit funds/profits from host country to home country. Also risk of not being able to receive payment from foreign buyer. Risk of not being able to https://www.seb.lv/eng/business/daily-banking/transactions/cross-bord er-payments/countries-which-there-are-certain transfer resources into and out of host country 10 Official (Closed) and Sensitive- Normal 03. Evaluate the state of political factor in the foreign market and analyse the impact by assessing the various sub-factors Official (Closed) and Sensitive- Normal What do we consider when we discuss the political environment? Stability of 1. Stability of host government Host 2. Social stability Government 3. Relationship between governments 4. Legal environment Social Assessing Legal Stability Political Risk in Environment Host Country Relationship between Governments 12 Official (Closed) and Sensitive- Normal Stability of Host Government a) Ability to government to stay in power  Frequent changes in government  (likely) frequent changes in policies  unpredictable / uncertain business environment  frowned by businesses  e.g. Singapore vs Malaysia and Thailand and Myanmar Indicators  Political Instability Ranking (Institute for Economics and Peace) economicsandpeace.org/wp-content/uploads/2023/09/GPI-2023-Web.pdf  Political Stability & Absence of Violence (Worldwide Governance Indicator, World Bank) https://data.worldbank.org/ 13 Official (Closed) and Sensitive- Normal Stability of Host Government 14 Official (Closed) and Sensitive- Normal Social Stability Demonstrations and other social expressions (e.g. protests, strikes) that might affect business activities  Political-induced riots e.g. Capitol Hill in 2021  Labour issues resulting in strikes e.g. South Korea labour strike in 2021  Domestic and international terrorism e.g. Bali bombing in 2002 15 Official (Closed) and Sensitive- Normal Social Stability Indicator Report Organization Websites to find recent years data Cooperation in Cooperation in labor labor-employer Prosperity Data 360 World Bank -employer relations - TCdata360 (worldbank.org) relations (Likelihood of) Institute for Global Peace Index Map » The Most & Least Peac Violent Global Peace Index Economics and eful Countries (visionofhumanity.org) demonstrations Peace Business costs of World Bank Business costs of crime and violence - TCdata360 ( crime and Prosperity Data 360 worldbank.org) violence Business cost of World Bank Business costs of terrorism - TCdata360 (worldban terrorism Prosperity Data 360 k.org) 16 Official (Closed) and Sensitive- Normal Relationship Between Governments  Consider 3 levels:  Between HOST & HOME country’s governments  Between HOST & NEIGHBOURING countries’ governments  Between HOST & MAJOR Trading Partners’ countries’ governments  Especially between the host country and the home country  Possibility of foreign invasion or military conflict? E.g. Russia & Ukraine; China & Taiwan?  Tension / instability in the neighbouring countries – influx of illegal immigrants / workers or refugees? E.g. U.S. & Mexico; Thailand & its neighbours 17 Official (Closed) and Sensitive- Normal Relationship Between Governments Between Host and Home country’s governments e.g. Singapore-China; Singapore-Indonesia; Singapore-Thailand Good relations  friendlier policies easing investment & trade  Government co-operations (e.g. infrastructure projects)  business opportunities to companies in both countries  Signing of Free Trade Agreements 18 Official (Closed) and Sensitive- Normal Relationship Between Governments 4 Middle Eastern countries cutting ties with Qatar (2017) In Jun 2017, ban all travels, trade, FDI, closure of airspace, harbour etc. In Jan 2021, Saudi Arabia agreed to reopen its land and sea borders and airspace to Qatar. 19 Official (Closed) and Sensitive- Normal Legal Environment Refers to the legal environment within which businesses operate. This environment is conditioned by: 1. Government intervention in availability of content Public information / data / news (Press Freedom Index, Reporters without borders) 2. Legal system Strength of the courts (Judiciary Independence, World Bank) Protection of property rights and intellectual property (Patents, Copyrights, Trademarks) – International Property Rights Index) Stability, Transparency and Consistency of rules and regulations (Corruption Perception Index by Transparency International) 20 Official (Closed) and Sensitive- Normal Indicator Report Organization Websites to find recent years data Press Freedom Press Freedom Reporters https://rsf.org/en/ranking Index Index without borders Judicial independence (WEF) - TCdata360 (worl Judiciary dbank.org) Prosperity Data 360 World Bank Independence International Property Rights International Property Property Rights International Property Rights Index 2024 Rights Index Alliance Index 2023 Corruption Perceptions Index: Explore the Corruption Corruption Perception Transparency … - Transparency.org Perception Index Index International 21 Official (Closed) and Sensitive- Normal The End Lecture – Country Analysis using PESTEL Model: Political & Legal Factors