Impact of political risks in international marketing: the case of West 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 extortion^7(*).

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 authors^8(*). 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 arbitration^9(*). 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.

* ⁷ Michael R. Czinkota et al, International Marketing, 6^th 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.