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

1.1.1 Marketing

1.1.2 Marketing Mix

1.1.3 International marketing

1.2. Differences between domestic and international marketing. 5

1. 3.1 Cultural environment

1.3.2 Economic environment

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 UEMOA 1 (* ). 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.

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 objectives 2 (* ).

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

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