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Impact of political risks in international marketing: the case of West Africa


par Samuel Yapi ANDOH
University of Northern Washington, USA - MBA, International Marketing 2007
Dans la categorie: Commerce et Marketing
   
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Disponible en mode multipage

MBA THESIS

UNIVERSITY OF NORTHERN WASHINGTON, U.S.A.

Impact of political risks in international marketing: The case of West Africa

Student: Samuel Y. Andoh Supervisor: Dr. Joseph Paul.

CONTENTS

Introduction................................................................................................................2

PART ONE: THE CONTEXT OF INTERNATIONAL MARKETING AND POLITICAL RISK.

CHAPTER I: INTERNATIONAL MARKETING CONCEPT ......................................................5

1.1 Definitions.......................................................................................................5

1.1.1 Marketing

1.1.2 Marketing Mix

1.1.3 International marketing

1.2. Differences between domestic and international marketing.......................................5

1.3. International marketing environment .....................................................................7

1. 3.1 Cultural environment

1.3.2 Economic environment

1.3.3 Financial environment

CHAPTER II : POLITICAL ENVIRONMENT AND POLITICAL RISKS....................................10

2.1 General context .............................................................................................10

2.2 Classification and description of political risks ......................................................10

2.2.1 Classification based on the characteristics of the political risks

2.2.1.1 Ownership risk

2.2.1.2 Operating risk

2.2.1.3 Transfer risk

2.2.2 Classification based on host country actions

2.2.2.1 Political risk out of government control

2.2.2.2 Political risk induced by the government

2.2.3 Impact of some political risks

PART TWO: CASE STUDY: WEST AFRICAN COUNTRIES

CHAPTER I: METHODOLOGY FOR ASSESSING POLITICL RISKS......................................15

1.1 Study area .....................................................................................................15

1.2 Data sources, selection and analysis ..................................................................15

CHAPTER II: RESULTS AND COMMENTS .......................................................................17

2.1 Countries' political, demographic and economic profile.............................................8

2.2 Other specific political risks and impact .........18

2.2.1 Inflation rate and political crisis ......

2.2.1 Import and export in UEMOA zone during political conflicts ......

2.2.1 Employment distribution in UEMOA zone during political conflicts ......

2.3 Interactions between political risks .....................................................................22

2.4 Towards new types of political risks ...................................................................23

CHAPTER III: RECOMMENDATIONS .............................................................................................24

CONCLUSION ................................................................................................................................. 27

REFERENCES .................................................................................................................................28

INTRODUCTION

World 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 Griffin et all, beside supply factor and demand factor, political factor is the third factor influencing foreign direct investments [1]. 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.

As world is assimilated to a global village, increasingly, many MNCs are willing to invest in Africa in general and West Africa in particular. So, it might be helpful to look for what kind of political risks firms may face in West Africa? Our hypothesis is that political risks in West Africa are both specific to that continent and also common to that of other places.

West African problem is that, African countries are not investors' nations; they rarely invest in other countries. However, all of them are host countries. So deal with only what investors countries should do will yield bias to the debate. And so, to depict the actual situation and fit well what is going on, there is necessity to focus on what investors should do to avoid African government-induced political risks, and how those countries can behave to preserve a safe business environment.

Under some ongoing structural reforms of ECOWAS and UEMOA1(*), what are business opportunities in West Africa.? Also how the international marketer beside political risks, can reach the market. In particular the present thesis aims to review political risks in West Africa and to explore the link between country political disturbances and the some international trade indicators like production, import, exports, and so forth. Also some interactions between, and possible causes of, political risks will be assess in the context of Africa. After discussing those issues, some recommendations will be made accordingly.

PART ONE

The context of international marketing and political risks

Chapter 1: International marketing concept

1. 1 Definitions

1.1.1 Marketing: is 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 objectives2(*).

1.1.2 Marketing Mix: consists of the way a firm chooses to address product development, pricing, promotion and distribution. Generally, it is admitted that marketing Mix encompasses the 4P: Product, Pricing, Promotion and Place (distribution). Often, two or more firms express share marketing services and expertise. This is marketing alliance

1.1.3 International marketing: is 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.

1. 2. Differences between international and domestic marketing

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 firms

Figure 1: The elements of the Marketing Mix for international firms

BUSINESS STRATEGIES

Differentiation Cost leadership Focus

MARKETING MIX

PRODUCT

Develop tangible and intangible features that meet customer needs in divers markets

PLACE

Get products and services into customers' hands via transportation and merchandising

PROMOTION

Devise ways to enhance desirability of the product or service to potential buyers

PRICING

Develop policies that bring in revenue and strategically shape the competitive environment

KEY DECISION-MAKING FACTORS

· Target customers: industrial or consumer

· Cultural influences

· Competition

· Standardization vs. customization

· Legal forces

· Economic factors/income levels

· Changing exchange rates

Source, Ricky W. Griffin, International business, 2005, page 459

A 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 distinguish the ethnocentric approach that 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 about polycentric 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 the geocentric 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.

1. 3. International marketing environment

International 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. [2] The last one, matter of the present thesis, will be fully described in the next chapter.

1.3.1. Cultural environment

The 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 [3] 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.

1.3.2. Economic environment

International 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.

In West Africa, there are also several economic grouping, but the most important are ECOWAS (Economic Community of West African States), and UEMOA (Union economique et Monetaire Ouest Africaine) we will further describe in the second part of the thesis.

1.3.3. Financial environment

The 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.

Chapter 2: The Political environment and political risks

2.1. General context

Assessing 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.

2.2. Classification and description of political risks

When 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.

2.2.1 Classification based on the characteristics of political risks

Characteristics 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.

2.2.1.1. Ownership risk

In 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.

2.2.1.2 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.

2.2.1.3 Transfer risk In which the government interferes with a firm's ability to shift funds into and out of the country.

2.2.2 Classification based host country actions

We can distinguish two types: political risks out of the government control and political risk induced by the government.

2.2.2.1 Political risks out of government control.

There are risks or events arise from nongovernmental actions, factors that are outside the government responsibility. There are wars, 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 of externally induced financial constraints and externally imposed limits on imports or exports, especially in case of embargoes or any economic sanctions against the host country.

2.2.2.2 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.

Expropriation is 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.3(*) Also, expropriation can refrain other companies from investing in the concerned country.

Confiscation is 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.

Domestication offers 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 risks are less dangerous but more common such as boycott, sabotage. When facing shortage of foreign currency, government, sometimes, attempts to control the movement of capital in and out of the country. Often, exchange controls are 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 import can 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 a price 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 called macro political risks. Unlike, nationalization, strikes, expropriation may affect only a handful and specific firm, they are named micro political risks.

2.2.3. Impact of some political risks

Some 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 firms

TYPES

IMPACT ON FIRMS

Expropriation

Loss of future profits

 
 

Confiscation

Loss of assets

Loss of future profits

 
 

Campaigns against foreign goods

Loss of sales

Increased costs of public relations efforts to improve public image

 
 

Mandatory labor benefits legislation

Increased operating costs

 
 

Kidnappings, terrorists threats, and other forms of violence

Disrupted production

Increased security costs

Increased managerial costs

Lower productivity

 
 

Civil wars

Destruction of property

Lost sales

Disruption of production

Increased security costs

Lower productivity

 
 

Inflation

Higher operating costs

 
 

Repatriation

Inability to transfer funds freely

 
 

Currency devaluations

Reduced value of repatriated earnings

 
 

Increased taxation

Lower after-tax profits

Source, Ricky W. Griffin, International business, 2005, page 73

In 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. What is going on in West Africa?

PART TWO

Case study: West African countries

Chapter 1: Methodology for assessing political risks

1.1. Study area

The study area is Western Africa. It encompasses sixteen countries. They are Benin, Burkina Faso, Capo Verde, Cote d'Ivoire (Ivory Coast), Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, and Togo. All of them are member countries of ECOWAS4(*) except Mauritania. However, at the creation of the organization in 1975, Mauritania was member. It left ECOWAS later to join the Arabic community of the northern of Africa. ECOWAS covers all West African area, with a population of about 260 millions. ECOWAS encouraged free trade between member states but the cooperation is still more political than economic. To mitigate conflicts of the region, ECOWAS has established a West African force.

Union Economique et Monetaire Ouest Africaine (UEMOA)5(*) is the French speaking countries economic integration group. It comprises of eight countries (Benin, Burkina Faso, Cote d'Ivoire (Ivory Coast), Guinea Bissau, Mali, Niger, Senegal, and Togo. Unlike ECOWAS, UEMOA is a full economic integration organization. There are no political activities. It constitutes a real free trade area. Transactions have being facilitated because countries members share the same currency, CFA ($ 1 = 500 CFA), and the same official language, French. They all have the same colonial background because they have been colonized by France, except Guinea Bissau that is a former Portuguese colony. Other countries, which own their currencies are Gambia, Ghana, Guinea, Nigeria, Sierra Leone, they form the West Africa Monetary zone (WAMZ), or simply called the second monetary zone [4].

1.2. Data sources, selection and analysis.

To assess political risks and markets patterns in West Africa, we rely on different data sources. Most data about political risks are difficult to be obtained, since governments are reluctant to publish and make official any political disturbances they may face. To this regards man relies on the author throughout knowledge of the region. Some historical archives were assessed though web site [4-6]. Also, we compiled data from the publications of ECOWAS, and UEMOA that is an economic grouping of French speaking countries libelled (Union Economique et Monetaire Ouest Africaine). We also, carried out some online researches by visiting main internet directories such Yahoo.com, Google.com. Key words like, «political risks, expropriation, domestication, confiscation, west African wars, Africa import and export, Gross domestic products Africa, », have been used. In addition, we interviewed some key workers of ECOWAS's economic branches. We assessed the official websites of the heads of states of West African countries, and some international political risks management -related organizations such as times publications, global assessment risk6(*) [7-12]. For additional economic information and countries ranking indicators we refer to the journal, Le Monde [13]. Upon compilation of data, analysis has been performed by Excel to calculate, percentage, ratio, average, and sum, and make appropriate figures.

Chapter 2: Results and comments

2.1. Countries' political, demographic and economic profile

The following table summarize political risks and some key socio economic indicators of West African countries (15 Ecowas member states). Political risks are mainly the type outside government control risks.

Table 2: Countries' political, demographic and economic profile

Countries

Political risks *

Level of political risk

Population (2006)

GDP per capita

Growth rate (%)

HDI

Benin

· Revolution (1980)

· Coup d'etat (1980)

Highest

8 700 000

510

4

0.428

Burkina Faso

· Revolution (1983)

· Coup d'etat (1986)

· Nationalization

Highest

13 600 000

400

5

0.342

Capo Verde

· Revolution

Highest

500 000

1 870

5

0.722

Cote d'Ivoire

· Coup d'etat (1999)

· Civil war (2002)

· Public violence

Highest

20 000 000

840

0

0.421

Gambia

· Human right issues

Highest

1 500 000

290

5

0.479

Ghana

· Coup d'etat (1980s)

· Revolution

High

22 600 000

450

6

0.532

Guinea

· Revolution (1960)

· Strikes (2007)

Highest

9 800 000

370

3

0.445

Guinea Bissau

· Coup d'etat (2000)

· Wars

Highest

1 400 000

180

4

0.349

Liberia

· Coup d'etat (1985)

· Wars (1995)

· Terrorism

Highest

3 400 000

130

5

n.a

Mali

· Secessionism

· Coup d'etat (1992)

Highest

13 900 000

380

5

0.338

Niger

· Coup d'etat (2000)

Highest

14 400 000

240

5

0.311

Nigeria

· Coup d'etat (1980s)

· Wars (Biafra)

· Religious faction

Highest

134 500 000

560

7

0.448

Senegal

· Secessionism

High

11 900 000

710

6

0.460

Sierra Leone

· Coup d'etat (1999)

· Terrorism (2000)

· Wars ( prior 2002)

Highest

5 700 000

220

8

0.335

Togo

· Political crisis

· One year long strikes (1992)

Highest

6 300 000

350

3

0.495

AVERAGE

 
 

17 880 000

503.75

5

0.439

TOTAL

 
 

268 200 000

8 060

 
 
 
 
 
 
 
 
 

United States

 

Lowest

300 000 000

43 740

4

0.948

HDI = Human development Index (United Nations, UNDP), * year of occurrence of the risks, other are 2006-2007 data.

Any West African nation has experienced at least one «out of government control political risks». A part from Senegal which has been never confronted with coup d'etat, all other countries suffered from coups. 5 in 15 countries (33%) have been at wars in their history. The most recent civil wars in the region are that of Sierra Leone ended in 2002, and Cote d'Ivoire started the same year, which is currently under post war recovery. Liberia has drastically been destroyed by more ten years war (1985-1995), followed by political instability. We know that civil wars per se, are responsible of destruction of property, lost sales, disruption of production, increased security costs, and lower productivity, to name a few. Political upheavals are generally protracted. They may occur decades ago and still have harmful impact on the socioeconomic situation and on foreign firms willingness to invest.

It is true that the table did not take into account other political risks such as ownership, and transfer risks. However, the results point out the country's political riskiness based on the Euromoney's survey [14]. This evaluation considered all types of political risks. Our analysis demonstrated that 100% of West African countries are classified «high risk», and among them 80% are classified «highest risk». There are no countries with medium, low or lowest risks like the United States. In that condition it is truly difficult to find an international marketer pushing his firm to invest in West Africa, because it is a risky area.

With the population data, we show that these 15 countries represent a market of 260 millions potential customers. But all of them cannot even assess to new products because of the lack of foreign investments due to the fearful situation surrounding the market. Though some countries enjoy economic growth (average = 5%) at U.S level, the GDP per capita remains low (average = 503.75), and the Human Development Index (HDI, encompasses education, life expectancy and income), is one of the lowest (average = 0.439) far behind U.S.'s figures.

Speculation about population growth is a critical issue for future international marketing. The number of people in a particular market provides one of the most basic indicators of market size. In the coming year, the world population will change with Africa having the highest growth rate (above 3%), whereas U.S. and Western Europe will remains less than 1%. Of the World 8.47 billions people, by 2025, more than 1.2 billions will be African [15-16]. On market size basis, market opportunities will grow in Africa. Yet, peace is needed.

2.2. Other specific political risks and impacts

2.2.1 Inflation rate and political crisis

The following figure compares the inflation rate between UEMOA (Union Monetaire West Africaine), and WAMZ (West Africa Monetary Zone). All eight member states of UEMOA share the same currency, CFA, while each member of WAMZ (Ghana, Guinea, Nigeria, Liberia, Sierra Leone) has it own currency.

The finding is that the inflation rate of WAMZ is far above that of UEMOA from 2001 to 2003.

During this period, each group was facing tough political situation. Sierra Leone and Cote d'Ivoire have been at wars. Though civil war has been prevailing in each group, UEMOA kept a low inflation rate. We assume that, this low rate is due to the relative stable currency, CFA. Regional monetary grouping is a factor that favor better exchange rate in transactions. European Union is another good example. Therefore, in international marketing operations, a marketer should look for currency stability, and choose to work with such monetary grouping countries, even though some political risks may exist. West Africa nations, through ECOWAS are now planning to make one major currency by putting UEMOA and WAMZ together.

2.2.2 Import and Export in UEMOA zone during political conflicts

The following figure shows that from 2000 to 2003, EUMOA total exports exceeded imports. During that period, Cote d'Ivoire the largest economy of the group, 40% of total share, has been at civil war. Though in conflicting situation, UEMOA did not face any trade deficit. Production might be disrupted but products can cross borders and be sold in neighboring countries. This resulted in increase trade in other UEMOA countries and contributes to keep the overall exports higher. An international marketer that really knows the terrain where is making business, could always find opportunities when political risks erupt.

2.2.3 Employment distribution in UEMOA zone during political conflicts

We have selected employment status in UEMOA countries capital cities, in 2001-2002. Figure 4 is an illustration.

Private informal sector owns 76% of the employments, private firms supply jobs up to 14%, public administration is responsible of 7% of jobs rate against 2% for states-owned firms and 1% for other, mainly association sector.

Informal private sector is a specific work area in developing. It comprises of individual not officially register as corporate, but who work as such. Some work like, carpentry, shoes repairing fabric, hair cut shops...etc, are concerned. As shown in the figure, it represents a huge segment of market, which any international marketer should take into account if his firm activities should encompass those sectors. Because he will have to share customers with those individuals, plan should be carefully tailored. People working in the informal private sector are easy to delocalize to work for a national or multinationals, since their working conditions are too hard and gains too small.

The formal private sector covers only 14% of employment. This means that opportunities still exist, and one should foster private investments, mainly in other non agricultural industries like communication, mining, electricity, electronic, and so forth. Increasing investment is a way to reduce the redundancy high rate (11.4%) in UEMOA Zone.

States-owned firms represent only 2%, this is an indicator of privatization that is going on in every country in Africa.

2.3 Interactions between political risks

There are some interactions between political risks man should not ignore. A revolution or strikes are very often symptomatic of coup d'etat, which in turn paves the way for wars. As shown in table 2, almost all countries that have been into coup d'etat, face wars later on. In the same way, a government conducting expropriation is neither far from confiscation nor domestication. One risk entails this other. In some case, people can combine many risks as means to operate. For instance, the methods used by terrorists against business facilities include bombing, arson, hijacking, and sabotage. To obtain funs, the terrorists resort to kidnappings, armed robbery, and extortion7(*).

Obviously, impacts on economic indicators are also interrelated. Even, environmental factors such cultural, economic, financial and political and legal are also interconnected. Some cultural components of the society may generate ethnocentrism, or lead directly to religious factions and nationalism. So, the problem is not to run away from political risks; rather the international marketer should keep in mind such connections to carefully investigate the causes of political risks.

The international marketing manager should bear in mind that Multinational Companies (MNCs) can either improve or hurt the economy of the host country. MNCs may make direct investments in new plants and factories and thereby creating jobs. Also, jobs can be provided for local constructors, builders, and suppliers. Technology could be transfered to host country. MNCs may pay tax that benefic for national and local authorities like municipalities.

However, there is a subtle or opened competition between MNCs and local firms, which may results in lost of profits and jobs for the latter. MNCs can also increase the competition for workers or introduce products or practices incompatible with the local culture. As local economy is becoming dependant from MNCs, once an unfortunate event like shut down occurs, the entire local economy is at high risk.

In area where corruption rate is high like West Africa, MNCs can go for some illegal procedure of tax payment, as well as natural resources exploitation. By corrupting government officers, MNCs will enrich some individuals and the state itself will stay poor.

Also, unfair incentives would allow foreign firms to keep exploiting their employees with low income and no other suitable advantages. Such practices can result in strike, extortion, sabotage and aggression of MNCs property and employers.

2.4 Towards new type of political risks.

In analyzing political risks occurrence factors, and as we have mentioned in the classification, one focuses on risks out of government control and political risks caused by the host country. This is true. However, foreign firms also can create some political risks. Simply, how could we understand the crucial lack of infrastructures in a Africa continent full of natural resources, which move from there to other places? Any international marketer, who would operate by developing the local environment, is going to avoid additional political risks and therefore will succeed. Doing business in Africa, require honesty and fairness and respect vis-à-vis the local people. African people did not forget yet, the heavy burden of four centuries of slavery and colonization, which are nothing but «exploitation». Thus, when international firms overlook the local people right and compromise their survival, there is a kind of «historical reflex» that shows up and pushes the entire population, and mainly the youth standing against the threat.

An international marketer willing to succeed in a long run business in Africa should remember that historical context. Very often, investors and other Western political leaders fail to realize that time has passed and mind has being changing. With globalization, increased level of education, awareness raising programmes around the world, African people do know what is able to help emerge from the current situation they are into. Therefore, should they feel being neglected; they will fight back by erecting criticism and violence. So, firms that neglect or put aside the host country economic interests, are generating «foreign firms- induced political risks».

Let consider the privatization we have mentioned above. As former Soviet Union nations, African countries are shifting firm ownership from public to private. Sometimes, governments are under financial pressure and have to do so to save some key corporate like oil, water supply, electricity and post industries. In Africa, there is a second type of political risk we may call «exterior pressure-induced firms». In fact, some governments are reluctant to sell states-owned firms. However, given the worse economic condition, and the burden of exterior and even interior indebtedness, Western governments (mainly former colonizers), make pressure to acquire some states-owned firms operating in promising sectors like energy, water, and agriculture. We may call it privatization, but actually it is not real privatization.

Chapter 3: Recommendations

Before making recommendations, it is important to review some limitations of this study. The main limitation is the shortage of data about political risks. Though, we have focused on some political risks, others were not properly coped with. For instance, it would have been much better to analyze in deep the extent of expropriation, confiscation, domestication, and nationalization. What are governments that perform such political risks? What are their purposes? How many firms have been under such risks and what are they countries of origin? Also, the scarcity of organs of trade regulations in Africa, did not allow us to make some case study so elucidate how do firms use to address political risks, and whether is the system similar in the 15 countries of ECOWAS? However, the above limitations did not hamper our objectives. Subsequently, based on the findings, the following recommendations have been made.

i. Any African country should have a corporate of experts in international marketing, to form association like American Marketing Association (AMA). This network of African experts will work in partnership with association of other developed and developing countries. Such groups of professionals will raise the importance of international marketing to domestic firms, trade related-decision makers, government bodies or organization like ECOWAS, WAMZ, and UEMOA...etc. Furthermore, the association could advocate and do some social mobilization about political risks in the context of Africa. Such home-based marketing experts could help foreign investors understand the African context, by leading them to generate local wealth and support local economy.

ii. To protect themselves from changes in international environment, firm should continually monitor the political situations in the countries in which they operate by consulting with local staff, embassy officials, and, where appropriate, firms specializing in political risks management. The monitoring system should be built up on some political risks indicators and determinants. Each international marketing department of any firms should elaborate it own criteria of political stability propitious to foreign investments. For instance, gathering indicators and their determinants can be done by providing clear and precise answers to the following questions proposed by some authors8(*). Firms can score this set of questions and obtain a score that could serve as guideline.

1. Is the country a democracy or dictatorship?

2. Is power concentrated in the hands of one person or one political party?

3. Does the country normally rely on the free market or on government controls to allocate resources?

4. How much of a contribution is the private sector expected to make in helping the government achieve its overall economic objectives?

5. Does the government view foreign firms as a means of promoting or hindering its economic goals?

6. Are the firm's customers in the public or private sector?

7. If firm's customers are in public, does the government favor domestic suppliers?

8. Are the firm's competitors are in the public or private sector?

9. If competitors are in public sector, will the government allow foreigners to compete with the public firms on even terms?

10. When making changes in its policies, does the government act arbitrarily, does it rely on the rules of law?

11. How stable is the existing government?

12. If the government leaves office, will there be drastic changes in the economic policies of the new government?

iii. Before starting any activities, at the implementation face, the foreign firms should have an international business contracts with the host country, which clearly define the right and obligations of each side. The contracts between West African countries and foreign firms should provide answers to each political risk. Resolution should not only focus on the effects of the risks, but deal with the deep causes of the risks. Since we believe that any political risk has it root somewhere, investigations should lead to the causes. Then, foreign firms and host government responsibilities should be clearly established in an outstanding fair process. To make the process corruption free or intimidation free, it is better in delicate conflicts to adopt arbitration9(*). Because of the speed, privacy, and informality of such proceedings, disputes can often be resolved cheaply than through the court system. It is time to urge African governments and decision-makers to create association like the American Arbitration Association to softly mitigate trade conflicts through arbitration. It is known that 16 francophone African nations have established a regional commercial arbitration court in Abidjan, Cote d'Ivoire. [17]. Duplication of such initiative is welcomed in Africa, because it builds trust and confidence, and increases foreign investments.

iv. Another alternative for African nations is to follow the United States example. U.S. uses to negotiate bilateral treaties to protect its firm from arbitrary actions by host country governments. This is a government- to- government negotiation. These treaties require the host country to agree to arbitrate investment disputes involving host country and citizens of other country. Inversely, the treaties can ask the country of the foreign firms to keep host country rules and be responsible for any damages they may cause to the host country.

v. In all cases, cautious contracts should find room for the following issues: Which country's law applies, the host country or the foreign firm home country, and in which country should the issue be resolved? Which technique should be use to resolve the conflicts that may occur, litigation, arbitration, mediation or negotiation? And how will the settlement be enforced? Individual country courts should be involved in the contract process, so that in case of disputes they can react accordingly.

vi. International communities like the WTO, must appropriately react if one side did not observe the terms of the contracts. There is need for the WTO to fairly start guiding and protecting the world business partners with possibility to sue the guilty party in courts. This would bring in relief in Africa.

vii. The United States created the Overseas Private Investment Corporation (OPIC) that insures US overseas investments against nationalization, insurrections or revolutions, and foreign-exchange inconvertibility. Such institutions can be adapted to serve and protect African countries' interest.

viii. Also, the World Bank's Multilateral Investment Guarantee Agency (MIGA), which provides insurance against political risks, should be known from African countries. And if not done yet, MIGA must include some actions in it guidelines that can protect African host countries.

CONCLUSION

Some 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; for example, the firm might purchase inputs from local suppliers where possible, employ African countries citizen in key management and administrative positions, and support local charities.

West African is confronted with many political upheavals, but the market potential is still high. International marketing is a one of the pillar of world peace, as international relations are. So invest in a risky country could yield peace that will increase profits. What and how much information a firm needs to assess political risk will depend on the type of business it is and how it is likely to be in the host country. Given that the more they stay and the more they may get into political trouble. Also, the more they stay, and the more they need to legally support the host country.

ECOWAS is currently carrying out political, economical and monetary reforms that could establish a strong democratic order and facilitate the free move of goods and services. The promising future of the region with plethoric natural resources requires special attention from international marketers.

REFERENCES

1. R.W Griffin et W. Michael. Pustay, International Business, 4th edition. Pearson Prentice hall, 2005, USA

2. Michael R. Czinkota et al, International Marketing, 6th edition, Harcourt College Publishers, 2001, USA.

3. Stephen. J. Kobrin, International Expertise in American Business, New York Institute of International Education, 1984, 38.

4. P. J. Obaseki, «The future of West African Monetary Zone (WAMZ) programme» West African Journal of Monetary and economic integration, Volume 5, 2005, 2-5

5. M.O. Ojo. Towards a common currency in West Africa: progress, lessons and prospects, West African Journal of Monetary and economic integration, Volume 5, 2005, 6-10

6. F.Egwaikhike, et al. Foreign direct investments in the West African monetary zone: Assessment of flows, volatility and growth. West African Journal of Monetary and economic integration, Volume 5, 2005, 20-28.

7. ECOWAS, www.ecowas.int / www.cedeao.int

8. UEMOA, www.izf.net

9. AON, www.aon.com;

10. Global Risk Assessment, www.grai.com ;

11. Willis, www.willis.com ;

12. Times publication, www.times-publications.com

13. Le Monde, Numéro spécial, Bilan annuel 2006 de tous les pays du monde, Atlas, 2007.

14. Euromoney's survey of country risk, Euromoney, September 2002, p.211 fff

15. Thomas M. McDevitt, World population profile: 1998, Washington, DC: Government printing office. p.1-2.

16. www.census.gov,

17. «Commercial law Plan in Francophone Africa,» Financial Times, May 13, 1999, p.9

* 1 ECOWAS and UEMOA are West African regional economic organizations. They will be fully described later.

* 2 International Business, Ricky Griffin et al, 4th edition, 2005, page 630.

* 3 International business, page 65

* 4 ECOWAS, www.ecowas.int / www.cedeao.int

* 5 UEMOA, www.izf.net

* 6 www.aon.com; www.grai.com ; www.willis.com ; www.times-publications.com

* 7 Michael R. Czinkota et al, International Marketing, 6th edition, page 175

* 8 International business, page 73

* 9 Arbitration is a process by which both parties to a conflict agree to submit their cases to a private individual or body whose decision they will honor.