Political Environment

What is Political Environment?

Political Environment:

A set of political factors and

government activities in a
foreign market that can either
facilitate or hinder a
business' ability to conduct
business activities in the
foreign market
Common Political Factors
Let's look at some common
political factors that
influence the international Economic
business landscape. System
Governmental
System

Trade
Agreements

Let’s look at each in detail.

 Common Political Factors

Economic System:
The type of economic system a country builds is
a political choice. Foreign countries often will have
different economic systems from your domestic
market and adjustments often need to be made to
take these differences into account.

•Market Economy
•Socialist Economy
•Communistic Economic System
•Mixed Economies
 Common Political Factors

Governmental System
Businesses also must often contend
with different governmental
systems. Some governments are
easier to work with than others.
•Democracies
•Authoritarian Governments
•Monarchies
 Common Political Factors

Trade Agreements
Countries often enter into trade agreements to
help facilitate trade between them. If your country
has entered into a trade agreement with another
country, conducting business in that country will
usually be easier and less risky because the trade
agreement will provide some predictability and
protection.
What is Political Risks?

Political Risks:

Political risks are any

changes in the political
environment that may
adversely affect the value
of a firm’s business
activities.
Classification Political Risks
We may distinguish
two types of
classification of
political risks:

•
Classification based on
the characteristics of
political risks
•
Classification based on
host country actions

Let us look at each definition.

 Classification based on the characteristics of political risks

Tra
nsf
e r ri Ow
sk Op ner
era s hip
t
risk ing risk

Let us look at each in detail.

 Classification based on the characteristics of political risks

Tra
n sfe
r ri
sk Transfer risk:
Transfer risk applies to any future acts by a
host government that might constrain the
ability of a subsidiary to transfer payments,
capital, or profit out of the host country back
to the parent firm.
 Classification based on the characteristics of political risks

Op
er atin
g ri
sk Operating risk:
Operation risk proceeds from the uncertainty
that a host government might constrain the
investor’s business operations in all areas,
including production, marketing, and finance.
 Classification based on the characteristics of political risks

Ow
n ers
h ip r
isk Ownership risk:
Ownership risk is related to the possibility that
a host government might take action to restrict
an investor’s ownership and control of a
subsidiary in that host country.
Classification based o host country actions

Political Political
risk out risk
of induced
governm by
ent
control: govern
Wars, ment:
Revolution,
Terrorism, •Confiscati
Strikes, on
Extortion, •Expropria
tion
and •Domestica
Kidnapping tion
s
 Political risk induced by government
These risks constitute some laws directed against foreign firms.

Confiscation: Expropriation: Domestication:

It is the process It differs In this, foreign
of a somewhat from companies
government’s confiscation in relinquish
taking that there is control and
ownership of a some ownership to
property without compensation. the nationals.
compensation.
 Indicators of Political Instability
The following are some of the indicators of political instability :

Policies of the
Host
Social Government

Unrest

Attitude
of
Nationals
 Management of Political Risk
To manage political risk , an MNC can pursue a strategy of either
avoidance or insurance.

Avoidance means
Insurance is a
screening out
strategy to shift the
political uncertain
risk to other parties
countries
Conclusion

The international marketer’s

political environment is
complex and difficult
because of the
interaction among
domestic, foreign, and
international politics.
Some companies view
politics as an obstacle to
their effort to enter
foreign markets. For
other companies, political
problems are seen as
challenges and
opportunities.
CASE
Coke and Pepsi told to spill secrets or face ban
•Center for Science and environment, a
non-governmental organization, had
alleged that the soft drinks contains
unacceptable and unpermittable levels
of pesticides.
•Pepsi and coke ordered to reveal the
chemical composition of their soft drinks
and other ingredients that go into the
making of soft drinks for the first time in
the history of these companies.
•Some of the states like Kerala had
banned entry and sale of these drinks in
schools within the state.
•In fact, both the multinational
companies had to suffer a drop in their
sales after the controversy cropped up.
Economy of Singapore
 ENGINES OF GROWTH
Manufacturing Services New areas
• Chemicals • Logistics • Environmental
• Electronics • Consumer businesses technologies
• Precision engineering • Infocomms & media • Clean energy
• Biomedical sciences • Financial services • Digital media
• Aerospace/MRO • Professional services • Biotechnology
• Education services • Healthcare services
• Maritime & port
services
Developments GDP
• Metro (UKTI HVO) Total: US$307.9 billion
• Large bus tenders Per capita: US$53,604
Growth in 2011: 1.1%
• New airport terminal
GDP Rank: 36th
• New Port & terminals Inflation: 1%
• Sports Hub Ease of doing business rank: 2nd
Export & Import by Singapore
Export
 Exports S$518.922 billion
Major Export Partners:
1. Malaysia 12.2%
2. China 11.8%
3. Hong Kong 11.2%
4. Indonesia 9.9%
5. United States 5.8%
6. Japan 4.3%
7. South Korea 4.1%
8. Canada 3.7%
Import
 Imports S$463.779 billion
Major Import Partners
1. China 11.7%
2. Malaysia 10.9%
3. United States 10.4%
4. South Korea 6.4%
5. Japan 5.5%
6. Indonesia 5.2%
7. UAE 4.4%
 WHY SINGAPORE?
#21 in Ease of Doing Business
2nd most protective IP regime in the world and top in Asia
Pro-business environment, political stability

Key legal and financial hub

English is the language of business & education
Well educated and disciplined work force

Transparent procurement, low corruption & crime

One of the lowest corporate tax rates in the world (16.5%)
Few restrictions on foreign companies

Global, open economy, with few entry barriers

Strong links to China, India, and other high growth markets
India-Singapore Trade Relation
Bilateral Trade

 Singapore is India’s 10th largest trade partner

globally
 India was Singapore’s 12th largest trade
partner globally
 Singapore is India’s 2nd largest trade partners
in ASEAN
 Bilateral trade stood at US$ 17.1 billion in
2014-15
X-E between India & Singapore

2014-15 2015-16 % Growth

Exports 9,809.36 7,719.81 -21.30%

Imports 7,124.47 7,308.38 2.58%

Values in US$ Billions

Source: Ministry of Commerce & Industry, Export Import Data Bank

Major items of India’s exports to
Singapore during 2015-16

 Other Petroleum Oils and Oils Obtained From bituminous Minerals etc.
 Light Oils And Preparations
 Nickel, Not Alloyed
 Other Vessels, Fire Floats etc.
 Articles Of Other Precious Metal
 Aero planes And Other Aircraft
 Tugs And Pusher Craft
 Other Vessels For Transport Of The Goods And Other Vessels For The
Transport Of Both Persons And Goods
 Diamonds
 Semi/Wholly Milled Rice W/N Polished/Glazed
These products constitute 75.28% of Indian total exports to
Singapore
Major items of India’s imports from
Singapore during 2015-16

 Styrene
 Digital Processing Units
 Light Oils and Preparations
 Other Polymers of Ethylene in Primary Forms
 Non-Industrial Diamonds
 Vinyl Acetate
 P-Xylene
 Toluene
These products constitute 35.43% Indian total
imports from Singapore