Chapter 12Strengthening International Government Relations

Key PointsSources of Trade RegulationOpportunities, Threats and Political StrategyImpact of International Business-Government interactionProactive Management of Government relations

Sources of Trade Regulation

GATT and WTO Set up to deal with tariffs and non tariff

barriers to trade Tokyo Round in mid 1970s

Tariff barriers reduced significantly Partial success with non-tariff barrier reduction

mainly due to complexity and sensitivity

Sources of Trade Regulation

GATT and WTO Uruguay Round – 1986-1993

Challenging problems addressed – technical barriers, trade in services, intellectual property rights, trade in technology etc.

More member countries – 117 Problems of developing countries addressed

WTO formed – meets every 2 years

Trade Agreements and Associations U.S. – Canada Free Trade Agreement

Formed January 1988 – world’s largest free trade area

Dispute resolution mechanisms established NAFTA formed with Mexican representatives

Trade Agreements and Associations Association of Southeast Asian Nations

ASEAN formed August 1967 with 5 member states, presently has 10 members

Regarded as a loose economic cooperation channel but expected to change, FTA with China expected

Move towards ASEAN FTA

Trade Agreements and Associations (cont.) Asia-Pacific Economic Corporation

APEC established 1989, presently has 21 members Primary vehicle for open trade and economic cooperation Agreement to develop free trade yet to be reached

ANDEAN and MERCOSUR Composed of South American nations with an objective of

setting a common external tariff European Union

Slow process of European integration Founded on the principle of supra-nationality

Opportunities and Threats

Threats Government Actions Opportunities

Increase costs Reduce ROI Competitive disadvantage Increased competition Co-opt

Regulation Taxation Expenditure Privatization Consultation

Control competition Competitive advantage Subsidies, grants, customers Level playing field Influence policy

Opportunities and Threats from Government Actions

Political Strategy

Essential for a firm to form and implement political strategy

Formulation Objectives Issues Stakeholders (allies, opponents, targets) Position/Case (“public interest”)

Political Strategy Implementation

Timing Techniques

Direct (negotiate, litigate) Indirect (advocacy advertising, political

contributions) Vehicles (e.g. coalition, Government Relations

department, consultants) Style (e.g., confrontation or conciliation)

Impact of International Business-Government InteractionObjectives and Motivations of MNC-SOE Alliances and Acquisitions Objectives of MNCs

Increase profits, reduce potential risks and achieve economies of scale

Control/preempt competition, expand market share, achieve first mover advantage

Obtain lower-cost production or distribution facilities

Develop or adapt technology jointly, obtain new labor or technology resources

Expand domestic sales through overseas operations

Obtain new labor or technology resources

Impact of International Business-Government InteractionObjectives and Motivations of MNC-SOE Alliances and Acquisitions Objectives of SOEs or Privatized Enterprises

Ensure survival and financial viability Gain competitiveness and become profitable Acquire new technology and improve managerial

competence

Impact of International Business-Government InteractionObjectives and Motivations of MNC-SOE Alliances and Acquisitions Objectives of Governments

Generate public revenues from SOE sales Reduce subsidies to loss making SOEs, foreign

debts and public budget deficits Strengthen private sector, increase national

productivity and stimulate growth Expand shareholding among citizens and reduce

government role in economy

ENSURING THE SUCCESSFUL PRIVATIZATION OF ONTARIO HYDRO

Rolling blackouts in California have drawn attention to Ontario’s plans to privatize the production and distribution of electricity. The failure of privatization in California makes it all the more important for Ontario to understand what went wrong there, and why others (such as British Airways and British Telecom, for example) succeeded. This article describes the best practices in privatization, and provides lessons for both the Ontario government and the parties who would manage the privately owned corporations. For government, we recommend a controlled deregulation over time that would enable Ontario Hydro to adjust to market dynamics and avoid the California situation. For potential investors, we offernew ideas and business models to capitalize on the opportunities the opening of this market will provide.

BY DAVID W. CONKLIN AND TREVOR HUNTERIVEY BUSINESS JOURNAL JULY/AUGUST 2001

Proactive Management of Relations

1

“Government Policy as lever for global competitiveness” approach

Example: Porter’s home base/cluster concept

3

Non-location bound firm specific characteristics in MNE government interaction

Example: Use of strategic trade policy arguments to obtain government favors.

2

“Good corporate citizen” approach

Government policy not viewed as a major determinant of international competitiveness

4

Location bound firm specific characteristics in MNE government interaction

Government policy viewed as something which can be influenced through lobbying,

i.e., a proactive strategy

MNE’s Perception of Government Policy

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To achieve Benefits ofintegration

To achieve Benefits ofNational

Responsiveness

Viewed as outside the InfluenceOf MNE Managers

Viewed as Potentially Influencedby MNE Managers

MNE’s approach to Government Policy

Bargaining Power

Discriminatory enforcement occurs due to differing characteristics of subsidiaries – Bargaining Power

Sources of Bargaining power for host country Growing capability to replace the MNE’s products Control over access to raw materials, labor and

capital Sources of Bargaining power for MNE

Vertical integration