MKT303 International Marketing Week 2 Macro-environmental Forces – Political and EconomicCOMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. The lecture material contains content owned by Kaplan Business School and other materials copyrighted by Sørensen, H. E. (2012). Business Development: A Market-Orientated Perspective. John Wiley & Sons Ltd Do not remove this notice.Learning Outcomes 1. Explain the functions of government in terms of its effect on international marketing 2. Identify those aspects of the local political-legal environment that affect a firm’s international marketing 3. Recognise those aspects of the political-legal environment in the foreign market that will affect the risk of operating in that country 4. Economic factors and implications in International businessHow Do PEST Factors Affect Business5 Introduction • Political and legal risks are a major factor in deciding whether to enter an international market • Political and legal issues in the international environment are often intertwined • Government influence includes local, regional and state government bodies as well as the national government • The national political environment is shaped by variables such as ideology, the economic system and the strength of nationalism1. Political Factors • Political and legal factors impact on how successfully a business might operate in a particular country • Does the country of market entry welcome the sort of business your organisation will be conducting? • If so there may be subsidies for operating businesses there7 Different types of national governments • Parliamentary governments – Citizen’s interact via voting – Industrialised nations - parliamentary democracies • Absolutist governments – Dictate government policy without considering citizens opinions • Other governments – Most governments fall between the two extremes – Some monarchies and dictatorships have parliamentary electionsPolitico-economic factors • Political forces can lead to economic benefits between nations. • Democratic/capitalist nations trade with one another and try to cooperate & assist one another. • Japan-Australia Economic Partnership Agreement (JAEPA) from 15 January 2015 https://www.youtube.com/watch?v=GKliUBPprxM Key benefits - read http://www.tiq.qld.gov.au/export/free-trade-agreements/jaepa/Japanese Government Subsidy • Japanese government encourages foreign companies to set up innovation centers with Japanese companies and provide them a subsidy for doing so. • This is so that Japan can increase its innovation projects in collaboration with other foreign companies • Also increase Foreign Direct Investment (FDI) • https://www.jetro.go.jp/en/invest/incentive_programs/info.html Let’s watch Japan’s stance attracting foreign investment https://www.youtube.com/watch?v=igxtO_UgKZ0Trans-Pacific Partnership (TPP) Published on 1 Jun 2015 • https://www.youtube.com/w atch?v=4juvjcRfChM • The member states are the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. • The pact aims to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. • The TPP would mostly benefit developing nations eg. Vietnam - manufacturing industry growing fast. • Boost exports to developed countries eg. US • Also attracting FDI into the member nations.Definition of FDI • Governments impact on FDI levels through incentive programs to attract FDI. • Desire for foreign investors to do business within those countries impact on incentive schemes. • Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. • The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business. • http://study.com/academy/lesson /what-is-foreign-directinvestment-definitionadvantages-disadvantages.htmlInternet/Tech Companies in China • Here's Why American Tech Companies Keep Failing in China? • https://www.youtube.com/ watch?v=k2J8hlZBwv0 • What are the 3 reasons that web based companies find it hard to succeed in China?2. Technological factors - China • How China Is Changing Your Internet | The New York Times • https://www.youtube.com/watch?v=VAesMQ6VtK8 • Published on 9 Aug 2016 • In China, a sheltered internet has given rise to a new breed of app, and American companies are taking notice.Dictatorship Governments Let’s watch this dictatorship government on North Korea • https://www.youtube.com/watc h?v=R-emDpQlFWI 1. What is a dictator government? 2. How does this impact on trade relations and foreign direct investment? 3. How many countries are governed by dictator governments? 4. How can dictator governments be eliminated? Kim Jong-un since 201115 The role of government in the economy: Participator • The most extreme form of involvement is the state trading company (STC) which was a feature of communist governments • Businesses need to establish the degree of government involvement • Protection of strategic industry and bilateral agreements • Potential areas of commercial activity undertaken by government include: • State-owned enterprises • Statutory marketing authorities • The pace of privatisation16 The role of government in the economy: Facilitator • Governments can act as a facilitator at the macro level via national industry policies including: • National economic plan • Harnessing the resources of the private sector • The public sector • External sources through bilateral and multinational aid • They can also facilitate international marketing at the micro level via: • Tax incentives • Subsidies • Concessional loans or grants etc.17 The role of government in the economy: Regulator • Governments’ regulatory activities can involve: – Taxes in the domestic market e.g.: • Payroll tax • Road and haulage taxes • Inspection fees – Embargoes or boycotts on dealing with other countries • Sometimes these are approved by the UN • Some are imposed by one country alone • They can be detrimental to all countries involvedGroup Exercise • Find 2 other students from countries other than yours to join for discussion • Discuss how your home country’s government acts as: 1. Participator 2. Facilitator 3. RegulatorUS Embargo • Watch this YouTube on the US-Cuban Embargo and write down the 7 reasons why the US should end the embargo. • Doing business with Cuba easier now but the USCuban embargo has ensued from 1958 due to Cuba’s support of terrorism. • https://www.youtube.com/w atch?v=jSWUDnRn6gYGroup Discussion Exercise • How will Fidel Castro’s death influence US-Cuban relations from a trade perspective? • How will Donald Trump’s election influence these relations? Research on your computers regards the below publicity.Government Interventions • Apart from embargoes there are also less severe government interventions which just make it harder to do business with certain countries. Reasons for government interventions: • Safeguarding employment for domestic market • Where the playing field in the international marketplace is not level, government must act to redress the balance • Protection of citizens from imported human, animal and plant health risks and to ensure food self-sufficiencyRole of government in the economy • The extent of government intervention in the economy varies over time in different countries • The GFC saw unprecedented government intervention in countries with traditionally low levels of intervention such as the USA 23The Global Economic Crisis • Meltdown is a four-part investigation into a world of greed and recklessness that brought down the financial world. • The show begins with the 2008 crash that pushed 30 million people into unemployment, brought countries to the edge of insolvency. • Watch the first few minutes of this great documentary about the truth behind the Global Economic Crisis • https://www.youtube.com/watch?v=VQzEWeGJLP0Tutorial • Google in China: Government Censorship and Corporate Reputation • Read this case study and answer the questions provided