CHAPTER I1.1 INTRODUCTIONWorld economic order is increasingly changing. Emergence of new economic power, democratization, falling of barriers between countries, are all accelerating free trade. Domestic firms have been engaged into worldwide business, increasing their profits, but at the same time, competing with other firms. Marketing tools formerly tailored for domestic purpose are going profound changes with adjustment to new environments.This international marketing must take into account the laws of the home country, as well as that of the host countries in which the firms operate. This is not obstacles free. According to Ricky Griffinet all, beside supply factor and demand factor, political factor is the third factor influencing foreign direct investments. International relations are influencing international marketing and vice versa. Thus, political risks may emerge as serious barriers to Multinational companies (MNCs). However, those effects are not out control of a well-trained international marketer.Marketingis the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizations objectives whereas International marketingis the extension of marketing activities across national boundaries. It involves firms trading in two or more countries. We may oppose domestic marketing and international one. For many years, marketing managers just had to be concerned with learning the intricacies of marketing in a domestic environment. They had to determine if a customer in Texas bought and consumed products differently than a consumer in Maine. Today, the marketplace has expanded in a global nature. For companies to continue to grow successfully, marketing teams must eventually learn to tackle theglobal marketplace. Global marketingoccurs when marketing managers use a global plan to effectively market their goods and services on an international basis.There are many reasons why global marketing is very important to U.S. companies. Most companies realize that their target market is limited if they just concentrate on a U.S. market. When a company thinks globally, it looks for overseas opportunities to increase its market share andcustomer base. Lots of companies have caught on to this; in the past 20 years, global trade has gone from a few hundred billion dollars a year to 18 trillion dollars.But the global marketplace is very competitive, and the shrinking of the world through technology has made it easier for companies to reach global markets. U.S. companies now have to deal with not just domestic, but also international, firms for control of a global market share. In this lesson, we will examine how a diaper company called Diaper Sponge Pants has learned how to identify international opportunity via the global marketing world.1.2 OBJECTIVES OF THE STUDY To study importance of political stability in International Marketing. To study impact of political stability on business.1.3 SCOPE OF THE STUDY The study helps in a better and clear understanding of importance of political environment and its stability in International marketing.1.4 RESEARCH METHODOLOGY Secondary sources:The methodology of the collection of data with reference to the secondary data was taken from different published books, journals and government websites.Analysis of data:The data collected from secondary sources has been edited by preparing tables, charts and statistical tools have been applied which have been explained in various parts of the study. 1.5 REVIEW OF LITERATURERobert Gilpin in his book named Global Political Economy:Understanding the International Economic Order states During the last decades of the twentieth century, there was a significant shift in the distribution of world industry away from the older industrial economies--the United States, Western Europe, and Japan--toward Pacific Asia, Latin America, and other rapidly industrializing economies. Although the United States and the other industrialized economies still possess a preponderant share of global wealth and industry, they have declined in relative (not absolute) terms, while the industrializing economies, especially China, have gained economic importance. Before the 1997 financial crisis, which began in Thailand and eventually plunged East Asia into political and economic turmoil, Pacific Asia's economic success had been extremely impressive; many of these economies achieved average annual growth rates of 6 to 8 percent. And despite the financial crisis, such economic "fundamentals" as high savings rates and excellent workforces support the belief that these emerging markets will continue to be important actors in the global economy. The idea that globalization is responsible for most of the world's economic, political, and other problems is either patently false or greatly exaggerated. In fact, other factors such as technological developments and imprudent national policies are much more important than globalization as causes of many, if not most, of the problems for which globalization is held responsible. Unfortunately, misunderstandings regarding globalization and its effects have contributed to growing disillusionment with borders open to trade and investment and have led to the belief that globalization has had a very negative impact on workers, the environment, and less developed countries. According to an American poll taken in April 1999, 52 percent of the respondents had negative views regarding globalization.5Yet, even though globalization is an important feature of the international economy that has changed many aspects of the subject of international political economy, the fact is that globalization is not as pervasive, extensive, or significant as many would have us believe. Most national economies are still mainly self-contained rather than globalized; globalization is also restricted to a limited, albeit rapidly increasing, number of economic sectors. Moreover, globalization is largely restricted to the triad of industrialized countries--the United States, Western Europe, and, to a much lesser extent, Japan--and to the emerging markets of East Asia. Most importantly, many of the attacks on globalization by its critics are misplaced; many, if not most, of its "evils" are really due to changes that have little or nothing to do with globalization.1.6 LIMITATIONS It is based on secondary data. It focuses only on political factor in its stability in International marketing.

CHAPTER 02IMPORTANCE OF GLOBAL MARKETINGOnly 10% of all manufacturing companies in the United States take part in actually exporting their products. There is a huge opportunity for any U.S. company looking to participate in global marketing. Diaper Sponge Pants has realized that the U.S. market has a shrinking need for diapers as U.S. couples are having kids in smaller amounts or delaying kids altogether.Through extensive marketing research, the diaper company has realized that there is a growing middle class in China and India. This market has the money for disposable diapers, and they are also still having children at a growing rate. This opportunity will create a huge profit for the company.Benefits of Global Marketing - Traditional economists support the idea of global business and marketing. The theory is that globalization creates even more competition, which in turn will produce higher quality products at an affordable price for consumers. Global marketing of products also improves the living standards of international countries. For example, Diaper Sponge Pants now provides disposable, high-quality diapers to countries like India and China, which before did not have such a product even available to them.

DIFFERENCES BETWEEN INTERNATIONAL AND DOMESTIC MARKETINGMarketing is the efficient and effectivemanagementand utilization of a companys resources to meet the consumers demands and the companys objectives. It involves selling the companys products to satisfy the needs of consumers.It includes planning, conception and execution of ideas, pricing, promotion, and distribution of a companys products with the purpose of obtaining the companys objectives and satisfying the consumers.Marketing can be done within a local or domestic market or across national borders or in the international market. Domestic marketing and International marketing are same when it comes to the fundamental principle of marketing. Marketing is an integral part of any business that refers to plans and policies adopted by any individual or organization to reach out to its potential customers. A web definition defines marketing as a process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals. With the world shrinking at a fast pace, the boundaries between nations are melting and companies are now progressing from catering to local markets to reach out to customers in different parts of the world. Marketing is a ploy that is used to attract, satisfy and retain customers. Whether done at a local level or at the global level, the fundamental concepts of marketing remain the same. Herearesome of the different features of Domestic Marketing and International Marketing:Domestic MarketingDomestic marketing is the selling of a companys products within a local financial market. It deals with only one set of competition and economic issues which make it more convenient to do.There are no language barriers in domestic marketing and obtaining and interpretingdataon local marketing trends andconsumerdemands is easier and faster to do. It helps the company make decisions and develop marketing strategies that are more effective and efficient. The risks are also lesser with domestic marketing and it needs lesser financial resources.Local markets are not as broad as the international market though and most companies are aiming at doing business globally. The marketing strategies that are employed to attract and influence customers within the political boundaries of a country are known as Domestic marketing. When a company caters only to local markets, even though it may be competing against foreign companies operating within the country, it is said to be involved in domestic marketing. The focus of companies is on the local customer and market only and no thought is given to overseas markets. All the product and services are produced keeping in mind local customers only.International MarketingInternational marketing is the promotion and sale of a companys products to consumers in different countries. It is very complex and requires a huge amount of financial resources.Everycountryhas its own laws on business and a company that aims at entering into business in another country must first know about them. Consumer tastes and preferences may also differ so marketing strategies must be formulated to cater to the needs of different consumers.International marketing requires more time and effort, not to mention its being very risky too. The international market is very uncertain and a company must always be ready for changes that may suddenly occur. It requires a higher level of commitment to succeed in an international market. When there are no boundaries for a company and it targets customers overseas or in another country, it is said to be engaged in international marketing. If we go by the definition of marketing given above, the process becomes multinational in this case. As such, and in a simplified way, it is nothing but application of marketing principles across countries. Here it is interesting to note that the techniques used in international marketing are primarily those of the home country or the country which has the headquarters of the company. In America and Europe, many experts believe international marketing to be similar to exporting. According to another definition, international marketing refers to business activities that direct the flow of goods and services of a company to consumers in more than one country for profit purposes only.Both domestic as well as international marketing refer to the same marketing principles. However, there are glaring dissimilarities between the two.Scope The scope of domestic marketing is limited and will eventually dry up. On the other end, international marketing has endless opportunities and scope.Benefits As is obvious, the benefits in domestic marketing are less than in international marketing. Furthermore, there is an added incentive of foreign currency that is important from the point of view of the home country as well.Sharing of technology Domestic marketing is limited in the use of technology whereas international marketing allows use and sharing of latest technologies.Political relations Domestic marketing has nothing to do with political relations whereas international marketing leads to improvement in political relations between countries and also increased level of cooperation as a result.Barriers In domestic marketing there are no barriers but in international marketing there are many barriers such as cross cultural differences, language, currency, traditions and customs.International marketing retains basis markets tenets of satisfaction and exchange. The fact that in international marketing, the transactions take places across national borders highlights the difference between domestic and international marketing.The basic principles of marketing still apply, but their applications, complexity, and intensity may vary substantially. Some adjustments are necessary in international marketing context. For example, the following figure shows the elements of marketing mix for international firmsBUSINESS STRATEGIESDifferentiation Cost leadership FocusMARKETING MIXPRODUCTDevelop tangible and intangible features that meet customer needs in divers marketsPLACEGet products and services into customers' hands via transportation and merchandisingPROMOTIONDevise ways to enhance desirability of the product or service to potential buyersPRICINGDevelop policies that bring in revenue and strategically shape the competitive environmentKEY DECISION-MAKING FACTORS Target customers: industrial or consumer Cultural influences Competition Standardization vs. customization Legal forces Economic factors/income levels Changing exchange ratesA company looking for improvement in its present position by exploring market abroad, could do it only through international marketing analysis and perspectives. International marketing have form ranging from import-export trade to licensing, joint ventures, wholly owned subsidiaries, turnkey operations and managements contracts. With international marketing rather than domestic one, some specific approaches have been developed. The approaches supply the answers of standardization and customization concerns.We distinguishthe ethnocentric approachthat is a managerial approach in which a firm operates internationally the same way it does domestically. This approach avoids the expense of development of new marketing product. It is generally used by some firms experiencing first internationalization. Firm adopting this approach may fail because it does not take into account the idiosyncratic needs of its foreign customers. Should there be an attempt to adjust the firm's marketing mix to satisfy customers, then we talk aboutpolycentric approach.In this approach, the corporate customizes its operations for each market it serves. Polycentric approach is more costly. However, it may yield revenues, since it exactly meet customers needs. Multidomestic international firms use to adopt this approach. Finally, firm may choose thegeocentric approach, in which a firm analyses the needs of its customers worldwide and then adopts standardized operating practices for all markets. There is a nuance between ethnocentric and geocentric approaches. Both argue for standardization. However, the ethnocentrism stagnate on the basis of what the firm does in its home country, whereas geocentric starts with not such home country bias. Instead, the geocentric approach considers the needs of all the firm's customers around the world and then standardizes on that basis.How may the local ideas, goods, and services fit into the international markets? May supplies be domestically-based or from abroad? What are necessary adjustments the firm might do to overcoming global competition? These are some issues the international marketing ought to deal with. In addition, international marketing is subject to a new set of macro environmental factors, to different constraint, to different laws, cultures and societies.INTERNATIONAL MARKETING ENVIRONMENTInternational marketer operating around the world encountered various environment-related norms. The most critical environmental elements able to shape international marketing activities are cultural, economic, financial and political. The last one, matter of the present thesis, will be fully described in the next chapter.Cultural environmentThe ways people appreciate manufactured items, express their specific needs, and purchase, are deeply rooted in their culture. Culture itself is a collection of values, beliefs, behaviors, customs, and attitudes that distinguish and define a society. It is often said that culture is learned, shared and transmitted from one generation to the next. Nevertheless, in the context of international marketing, it seems not appropriate to learn a culture, we have to live it. That is why Stephen Kobin classified business travel and assignment overseas as the top two factors considered critical and important for culture knowledge. However, at least the factual knowledge of culture can be learned and the interpretive one be acquired through experience.International marketer needs both knowledges to master language, religion, values and attitudes, manners and customs, aesthetics, technology, education and social institutions, which all determine a given culture.In business context, two schools of thought exist. One assumes that business should prevail upon culture factors in marketing approach. The other proposes that companies must tailor business approach to individual culture. Also, for efficient managerial purpose, any international marketer should consider any cultural aspects of a given society if this is the only way to succeed there.In the case of Sub-Saharan Africa in general, and West Africa in particular, cultural similarities (religion, language, tradition patterns, high illiteracy...) are greater between countries. This psychological distance factor could guide the manager willing to trade within West African countries.Economic environmentInternational marketing activities are favored by appropriate economic environment. The secure economic environment could be judged by the international marketer through some market's characteristics such as population, income, consumption pattern, infrastructures, geography and attitudes towards foreign investments.The population growth rate serves for estimation and active population is the main source of labor a company may need. Markets require not only people but also purchasing power, which is a function of income, prices, savings, and credit availability. The share of income spent on products will provide an indication of the market development level as well as an approximation about how much money left for other purchases. So, information on the percentage of households in a market that own a particulars product, allow a further evaluation of market potential. The successful economic environment involves the presence of basic economic infrastructures. They consist of transportation (roads, railways, highways, and airports) the so-called linear development, energy (water supply, electricity, oil, gas), and communications systems (television, media, telephone, internet...).Regional economic groupings are powerful factors an international marketer should never neglect. In fact, economic integration in world markets transactions poses unique opportunities and challenges for corporate international marketing systems. Removing barriers between member markets and erecting new ones for non members will call for adjustments in past strategies to fully exploit the new situations.Financial environmentThe international marketer should make a careful analysis of the financial environment, since this area faces several risks. Even political risks are part of the financial risks, among many other such commercial risks, foreign exchange risks, inflation and so forth. In international business, the two major concerns for the manager are how to get paid and how to avoid the above mentioned risks. As money should flow between countries, credible financial infrastructures like facilitating agencies, commercial banks, research firms, are necessary. In some part of the world, the international firm may have to be an integral partner in developing the various infrastructures before it can operate, whereas in others, it may greatly benefit from their high level of sophistication.In West Africa, every single country has its won national commercial banks. However transactions towards neighboring countries are sometimes restricted to some amount of money and take time to be done. There are some commercial banks like Citibank, and Ecobank that faster service, since they are established in several countries. Also, Western Union and Money Gram are specialized money transfer agencies, which enable fluidity in transactions.The Political environment and political risksAssessing the political environment is an important part in any business decision. Laws and regulations passed by either local, regional and central government bodies can affect foreign firms' operations. Also, firms are comfortable assessing the political climates in their home countries. However, assessing the political climates in other countries is still problematic.CLASSIFICATION AND DESCRIPTION OF POLITICAL RISKSWhen doing international business, the manager may face several types of financial risks. The major types of financial risks are commercial risks, political risks, exchange rate risks, and other such as inflation-related risks. Thus, political risks are non-commercial risks. Political risks are any changes in the political environment that may adversely affect the value of a firm's business activities. Political risks may occur in any nation, but the risks vary considerably between countries. We may distinguish two types of classification of political risks. A classification based on the characteristic of political risks and a classification or categorization based on the local government actions or control.Classification based on the characteristics of political risksCharacteristics refer to as the facts that are inherent to each political risk. In other terms, their uniqueness or what make them different from one another. There are three types of such characteristics: ownership risks, operating risks, and transfer risks.Ownership riskIn which the property of the firm is threatened through expropriation, confiscation or domestication. Ownership risk exposes property and life.The triad will be explained in the second classification.Operating risk: In which there is interference with the firm operations. The ongoing operations of the and/or the safety of its employees are threatened through changes in laws, environmental standards, tax codes, terrorism, armed insurrection or wars, and so forth.Transfer risk: In which the government interferes with a firm's ability to shift funds into and out of the country.Classification based host country actionsWe can distinguish two types: political risks out of the government control and political risk induced by the government.Political risks out of government control.There are risks or events arise from nongovernmental actions, factors that are outside the government responsibility. There arewars, revolution, coup d'etat, terrorism, strikes, extortion, and kidnappings. They all derived from some unstable social situation, with population frustration and intolerance. All these risks can generate violence, directed towards firms' property and employees. We may also have the case ofexternally induced financial constraints and externally imposed limits on imports or exports, especially in case of embargoes or any economic sanctions against the host country.Political risks induced by the government:These risks constitute some laws directed against foreign firms. Some government-induced risks are very drastic. There are expropriation, confiscation and domestication.Expropriationis the seizure of foreign assets by a government with payment of compensation to the owners. In other terms, it is involuntary transfer of property, with compensation, from a privately owned firm to a host country government. Expropriation may generate some funds for the owners. However, procedures to get paid from the government are sometimes protracted and the final amount remains low. Furthermore, if no compensation is paid, conflicts may erupt between the host country and the country of the expropriated firm. For instance, the relations between U.S. and Cuba acknowledge such situation, since Cuba does not offer compensation to U.S. firms that have their assets sized.Also, expropriation can refrain other companies from investing in the concerned country.Confiscationis another type of ownership risk similar to expropriation, except compensation. It is involuntary transfer of property, no compensation, from a privately owned firm to a host country government. In confiscation, firms do not receive any funds from government. Thereby, it represents a more risky situation for foreign firms. Some industries are more vulnerable to confiscation than others because of their importance to the host countries and their lack of ability to shift operations. Sectors such as mining, energy, public utilities, and banking have been targets of such government actions.Domesticationoffers to governments a subtle control over the foreign investments. There is a partial ownership transfer and companies are urged to prioritize local production and to retain a large share of the profit within the country. Domestication can negatively impact the international marketer activities, as well as that of the entire firm. For example, if foreign companies are forced to hire nationals as managers, poor cooperation and communication can result. If domestication was imposed within a short time span, poorly trained and inexperienced local managers would head the firm operations with possible lost of profits.Other government actions-related risksare less dangerous but more common such asboycott, sabotage. When facing shortage of foreign currency, government, sometimes, attempts tocontrol the movement of capitalin and out of the country. Often,exchange controlsare levied selectively against certain products or companies. Exchange controls limit importation of goods so that firms might be confronted with difficulties in their regular transactions.Severe restrictions on importcan be a motive for foreign corporate to shut down. Governments may also raise the tax rate applied to foreign investors in order to control them and their capital. Government may implement aprice control system. Such control uses to derive from a sensitive political situation. For example, social pressure may result in a kind of price standardization for particular sectors like food, transportation, fuel, and healthcare.Political risks like arms conflicts, insurrection may affect all firms in the country equally. For that reason they are calledmacro political risks. Unlike, nationalization, strikes, expropriation may affect only a handful and specific firm, they are namedmicro political risks.Impact of some political risksSome negative effects of political risks on firm are summarized in the following table.

Table 1. Holistic table summarizing the major political risks and their effects on firmsTYPESIMPACT ON FIRMS

ExpropriationLoss of future profits

ConfiscationLoss of assets

Loss of future profits

Campaigns against foreign goodsLoss of sales

Increased costs of public relations efforts to improve public image

Mandatory labor benefits legislationIncreased operating costs

Kidnappings, terrorists threats, and other forms of violenceDisrupted production

Increased security costs

Increased managerial costs

Lower productivity

Civil warsDestruction of property

Lost sales

Disruption of production

Increased security costs

Lower productivity

InflationHigher operating costs

RepatriationInability to transfer funds freely

Currency devaluationsReduced value of repatriated earnings

Increased taxationLower after-tax profits

Source, Ricky W. Griffin, International business, 2005, page 73In long run, and depending on the severity of the risks, action taken by government may decrease income and be detrimental to the host country economy. Strong political risks that are deeply rooted in the country governance habit might be barriers to foreign investment and country prosperity.

chapter 33.1GETTING GLOBAL: POLITICAL AND LEGALENVIRONMENTGetting acquainted with how politics and law affect business activities around the world is a critical concern of todays successful global organizations. Especially in the past ten years, there have been substantial political changes around the world that have shaped business operations. New markets have opened, old ones have closed, and the level of uncertainty that exists presents many marketing challenges. Below I will discuss some of most important political and legal issues that are faced when doing business across borders.Political Environment:Stability of Government Policies:Although the preferred political climate for a global firm is stable and friendly, organizations may still profit and succeed in traditionally unfavorable conditions. The most important idea is that the government is stable and the set of rules or codes of behavior that affect business are predictable and adaptable. If the potential for profit exists and is permitted by government policies, a global firm can still function.There are 5 main political causes of instability that affect the international markets: Some forms of government seem to be inherently unstable Changes in ruling political parties Extreme nationalism Animosity targeted toward specific countries Trade disputesPolitical Risks:Below is a brief list of the kinds of political risks a company faces when doing business internationally. Confiscation, Expropriation and Domestication Economic risks associated with the political environment (exchange controls, local-content laws, import restrictions, tax controls, price controls, labor problems) Political Sanctions (boycotting trade altogether or on specific products by one country to another) Political and Social Activist and Nongovenrmental Organizations Violence, Terrorism and War Cyber terrorism and CybercrimeIn order to understand how the political environment impacts your business, you must analyze how politically vulnerable your company is. Unfortunately, there are no universal guidelines to do so, but understanding how much your business is affected by the political environment can identify threats to your firm. It also important to note that high priority products and industries in a country may have more favorable government restrictions.To decrease how vulnerable your business is to political conditions, it is especially important for the marketer to forecast risk and engage in business ventures that may benefit them. Some examples of these practices include forming joint-ventures, expanding your investment base, licensing your products/services, or political bargaining through lobbying.

Legal Environment:Legal Systems: Its important to know the rules you must play by. There are four major bases for legal systems: Common law: found in the UK, the US, Canada and other countries under English influence Islamic Law: Derived from the Koran and found in Islamic States Commercial legal system: Found in Marxist-socialist economies and states like China, and the former Soviet Union Civil or Code law: found in Germany, France, Japan and non-Islamic and non-Marxist countriesThis is just one way to categorize how different nations practice law. For more information on how law systems can be classified,click here.Jurisdiction in International Legal Disputes:There are three different types of international legal disputes; those between governments, between a company and a government and between two companies. There is no absolute international law system, so there are many ways to handle conflict. The question most commonly asked in these instances are Whose law governs?In order to resolve legal issues, there are three general ways to determine jurisdiction. On the basis of jurisdictional clauses in contracts On the basis of where a contract was entered into On the basis of where the provisions of the contract were performedSome laws that are essential to focus on that are involved with global marketing are: intellectual property rights laws, commercial laws within countries (such as marketing laws), environmental laws, foreign countries antitrust laws, and cyber laws.Government policies and laws vary from country to country, and doing business abroad means that government may have a greater level of involvement than what you are used to in domestic business. Overall, the primary marketing objective is to develop a plan that will be enhanced or at least not negatively affected by the political and legal environments.Political and Regulatory EnvironmentThe nationalistic spirit that encourages self-reliance in many nations has led them to engage in practices that have been very damaging to other countries' marketing organizations.For example, foreign governments can intervene in marketing programs in the following ways: Contracts for the supply and delivery of goods andservices The registration and enforcement oftrademarks,brandnames, and labeling Patents Marketingcommunications Pricing Product safety, acceptability, and environmental issuesPolitical StabilityBusiness activity tends to grow and thrive when a nation is politically stable. When a nation is politically unstable, multinational firms can still conduct business profitably. Most firms prefer to engage in the export business rather than invest considerable sums of money in investments in foreign subsidiaries.Inventorieswill be low and currency will be converted rapidly. The result is thatconsumersin the foreign nation pay high prices, get less satisfactory products, and have fewer jobs.Trading Blocksand AgreementsUS companies make one-third of their revenues from products marketed abroad, in places such as Asia and Latin America. The North American Free Trade Agreement (NAFTA) further boosts export sales by enabling companies to sell goods at lower prices because of reduced tariffs.Regional trading blocs represent a group of nations that join together and formally agree to reduce trade barriers among themselves. The Association of Southeast Asian Nations (ASEAN) is an example of a regional trading block. This agreement allows for the free exchange of trade, service, labor, andcapitalacross the 10 independent member nations. In addition, ASEAN promotes the regional integration of transportation and energy infrastructure.One of the potentially interesting results of trade agreements like ASEAN or NAFTA is that many products previously restricted by dumping laws, which are laws designed to keep out foreign products, would be allowed for sale.Almost all the countries in the Western hemisphere have entered into one or more regional trade agreements. Such agreements are designed to facilitate trade through the establishment of a free trade area, customs union or customs market. Free trade areas and customs unions eliminate trade barriers between member countries while maintaining trade barriers with non-member countries. Customs unions maintain common tariffs and rates for non-member countries. A common market provides for harmonious fiscal and monetary policies while free trade areas and customs unions do not.The creation of the single European market in 1992 was expected to change the way marketing is done worldwide. It meant the birth of a market that was larger than the United States, and the introduction of European Currency Units (Euros) in place of the individual currencies of member nations. Experience in multilingual marketing would help non-European companies succeed in this gigantic market. With new technologies such as multilingual processing programs, it would be possible totargetpotential customers anywhere in Europe, in any language, with the same marketing campaign.Progress toward European unification has been slow, so many doubt that complete unification will ever be achieved. However, on January 1, 1999, 11 of the 15 member nations took a significant step toward unification by adopting the Euro as the common currency. These 11 nations represented 290 million people and a USD 6.5 trillion market. Still, with 14 different languages and distinct national customs, it is unlikely that the European Union (EU) will ever become the "United States of Europe."TariffsMost nations encourage free trade by inviting firms to invest and to conduct business there, while encouraging domestic firms to engage in overseas business. These nations do not usually try to strictly regulate imports or discriminate against foreign-based firms. There are, however, some governments that openly oppose free trade. For example, many Communist nations desire self-sufficiency, so they may restrict trade with non-Communist nations.The most common form of restriction of trade is the tariff, which is a tax placed on imported goods. Protective tariffs are established in order to protect domestic manufacturers againstcompetitorsby raising the prices of imported goods. Not surprisingly, US companies with a strong business tradition in a foreign country may support tariffs to discourage entry by other US competitors.ExpropriationAll multinational firms face the risk of expropriation. That is, the foreign government takes ownership of plants, sometimes without compensating the owners. However, in many expropriations there have been payment, and it is often equitable. Many of these facilities end up as private rather than government organizations. Because of the risk of expropriation, multinational firms are at the mercy of foreign governments, which are sometimes unstable, and which can change the laws they enforce at any point in time to meet their needs.

CHAPTER 4Impact of Political Stability on Businesses and Working Professionals4.1 The Perils of Political Instability and UncertaintyIf there is one thing that business leaders and entrepreneurs hate that is instability in the macro environment. Businesses operate according to forecasts and scenarios about the future that comprise surprises as well as certainties. However, as much as businesses factor in uncertainty, the one thing that wants to avoid at all costs is the instability in the macro environment that results from political gridlock, extremism, and political dysfunction. This is the reason why many emerging markets in Asia and Africa either attract or repel foreign investors. For instance, until recently, African countries were shunned because of the civil war like situation there whereas some Asian countries were similarly avoided by businesses because of the political uncertainty due to frequent regime changes and even coups. As the case of India and China, which we shall discuss in detail in the next section, illustrate, businesses flock to regions and states where there is political stability. Further, businesses like to operate in an environment that is not marred by frequent strikes, social unrest, and chaos as their operations would be hit adversely due to these factors.

4.2 The Contrasting Examples of China and IndiaTurning to the contrasting examples of China and India, the former attracts foreign capital and businesses, as the country is relatively stable politically and socially. Though there are sporadic instances of social unrest that recur in some volatile regions and provinces of the country, on the whole, the country is attractive to foreign businesses. Indeed, the attractiveness is so intense that different regions of the country compete and vie with each other for businesses to set up their operations there. In contrast, India is in the recent past fallen out of favor with businesses that prefer doing business elsewhere and taking their investments to countries that offer political stability. Further, the case of India also resembles China in so far as the competition for businesses to setup their operations is concerned. Indeed, some states in India offer more stability than the others as well as continuity of policies. The last point is very important as more than anything else; businesses prefer the policies that were followed during a governments tenure to be continued even when there is a change of government. In other words, India and the states where the incoming government changes the policies are certainly not acceptable to the investors who take their projects elsewhere.4.3 Why Businesses Like a Stable Macro EnvironmentThe reasons for businesses favoring political stability is that once they get the permits and the licenses to operate in regions and states, they invest a lot of money in setting up facilities. Further, even during the process of acquiring land and other assets, they need the cooperation of the government to facilitate the same. Apart from this, political instability hurts them as their employees are often forced to skip work because of strikes and other protests and this impacts the profits of the businesses negatively. Moreover, businesses like a region that is friendly and welcoming towards them and not a hostile and unfriendly dispensation. The point here is that political instability hurts everything from profits to operations to the working conditions of the employees and hence, businesses avoid it. The other aspect about political instability is that key laws and regulations are often stuck in the legislatures and the parliaments and key approvals are mired in bureaucratic delays. All these factors conspire to create a situation that is not conducive for businesses. Finally, it is indeed the case that capital is country blind and region blind and migrates and flows to wherever it is welcome and wherever the macro situation is conducive. This is the lesson that politicians of all hues must understand if they are to develop their constituencies.Political and legal risk in international businessPolitical and legal risks are two very important aspects of running a business of which an entrepreneur should be aware. Failure to recognize these risks and adjust accordingly could potentially hinder the performance of the overall business.What is political risk?Political risk is generally defined as the risk to business interests resulting from political instability or political change. Political risk exists in every country around the globe and varies in magnitude and type from country to country. Political risks may arise from policy changes by governments to change controls imposed on exchange rates and interest rates (Barlett et al, 2004). Moreover, political risk may be caused by actions of legitimate governments such as controls on prices, outputs, activities, and currency and remittance restrictions. Political risk may also result from events outside of government controls such as war, revolution, terrorism, labor strikes, and extortion.Political risk can adversely affect all aspects of international business from the right to export or import goods to the right to own or operate a business. How to evaluate your level of political riskForms of investment and risk: For a firm considering a new foreign market, there are three broad categories of international business: trade, international licensing of technology and intellectual property, and foreign direct investment. A company developing a business plan may have different elements of all three categories depending on the type of product or service.The choice of entry depends on the firms experience, the nature of its product or services, capital resources, and the amount of risk its willing to consider (Schaffer et al, 2005). The risk between these three categories of market entry varies significantly with trade ranked the least risky if the company does not have offices overseas and does not keep inventories there. On the other side of the spectrum is direct foreign investment, which generally brings the greatest economic exposure and thus the greatest risk to the company.Protection from political riskCompanies can reduce their exposure to political risk by careful planning and monitoring political developments. The company should have a deep understanding of domestic and international affairs for the country they are considering entering. The company should know how politically stable the country is, strength of its institutions, existence of any political or religious conflicts, ethnic composition, and minority rights. The countrys standing in the international arena should also be part of the consideration; this includes its relations with neighbors, border disputes, membership in international organizations, and recognition of international law. If the company does not have the resources to conduct such research and analysis, it may find such information at their foreign embassies, international chambers of commerce, political risk consulting firms, insurance companies, and from international businessmen familiar with a particular region. In some countries, the governments will establish agencies to help private businesses grow overseas. Governments may also offer political risk insurance to promote exports or economic development. Private businesses may also purchase political risk insurance from insurance companies specialized in international business. Insurance companies offering political risk insurance will generally provide coverage against inconvertibility, expropriation and political violence, including civil strife (US Small Business Administration). Careful planning and vigilance should be part of any companys preparation for developing an international presence.Government policy changes and trade relationsA government makes changes in policies that have an impact on international business. Many reasons may cause governments to change their policies toward foreign enterprises. High unemployment, widespread poverty, nationalistic pressure, and political unrest are just a few of the reasons that can lead to changes in policy. Changes in policies can impose more restrictions on foreign companies to operate or limit their access to financing and trade. In some cases, changes in policy may be favorable to foreign businesses as well.To solve domestic problems, governments often use trade relations. Trade as a political tool may cause an international business to be caught in a trade war or embargo (Schaffer et al, 2005). As a result, international business can experience frequent change in regulations and policies, which can add additional costs of doing business overseas.4.4 Political stability and instabilityEven in countries perceived as politically stable, political change can have a significant impact on business. This may simply be because government changes the legal framework, which as we have seen in the previous section is wide-ranging, but it could also be that a change of government changes the political attitudes towards business. This may result in less 'business-friendly' policies, changes in business taxation and regulations or, perhaps, political changes that affect the firm's marketing.Governments can also change the social agenda and this may impact on firms. For example, a government may introduce, or modify, a minimum wage. Many businesses oppose a minimum wage as they believe it: increases costs damages flexibility reduces international competitiveness, especially against those countries which do not have minimum wage levels.Governments may also sign up to additional agreements. For example, the European Union governments agreed to improve the terms and conditions of employees in the Social Chapter of the1992 Maastricht treaty, which sets out broad social policy objectives concerning working conditions, consultation of workers, employment rights, and social security. This gave employees many additional rights including: Paternity rightson the birth of a child Additionalemployment protection Equal employment status for part-timeworkers Maximum working hours Free movementof EU nationals Free associationin trade unions and collective bargaining Aminimum working ageof 16 Protection for disabled workersChanges of this nature will affect firms significantly and may increase their costs. However, additional rights could also result in improved motivation and this may help compensate for higher costs. Businesses will look carefully at all political changes to assess the impact that they will have on them and their competitors.Political instabilityPolitical instability can have an even greater impact on business and it may make them reluctant to invest in new capital or enter new markets. It may even encourage relocation of activities to a more stable and predictable area as business owners hate risk! Political instability in an area where a firm operates will mean that the firm has to be very flexible and adaptable; ready to change their operations at very short notice to reflect changes in the political environment.

CONCLUSIONSome degree of political risk exists in every country, although the nature and importance of these risks vary. In political risks assessment, as in most business decisions, it is a matter of balancing risks rewards.If a firm is considering an investment in a political risky environment, it should be sure that it can obtain rates of return that are high enough to offset the risks of entering that market.A firm might build a domestic political support in the host country by being a good corporate citizen.International marketing is very important for organisations, they must use the right tools such as the four P's, Place, Product, Price and Promotion to create global marketing programmes. Marketing, research and development, manufacturing and other activities make up a company's value chain which firms use to create superior customer value. International companies must persist in pursuing a competitive advantage over their competitors. Although all companies must use the marketing mix, value chain and competitive advantage whether they operate domestically or internationally, the global companies must not fail to pursue global opportunities or they face being pushed aside by bigger, stronger global competitors.International marketing does not necessarily mean offering products all over the world but maybe in a few select countries. International marketing strategies can be based on different elements such as brands, product design, product positioning, distribution or advertising.The importance of international marketing can be seen in rankings published in magazines such as the Wall Street Journal for their profits, revenues or other measurable categories. It does not necessarily matter the size of an opportunity depending on the product and more business people are learning that increasing profit and revenues indicate hunting for new markets outside their own home land.Therefore I have to agree that international marketing should be such an important aspect of any business if they wish to compete against global giants that seek to operate within other domestic markets and threaten to devour existing local firms.