Assessing Political Vulnerability

There are at least as many reasons for a company’s political vulnerability as there are political philosophies, economic variations, and cultural differences. Some companies appear to be more politically vulnerable than others, in that they receive special government attention. Depending on the desirability of a company, this special attention may result in positive actions toward the company or in negative attention.

Unfortunately, a marketer has no absolute guidelines to follow to determine whether a company and its products will be subject to political attention. Countries seeking investments in high priority industries may well excuse companies from taxes, customs duties, quotas, exchange controls, and other impediments to investment. In a bid to attract foreign investment and increase exports India announced a new trade policy that eases restraints and offers tax breaks for companies developing and maintaining infrastructures. Conversely, firms either marketing products not considered high priority or that fall from favor for some other reason face unpredictable government restrictions.

As a case in point, Continental Can Company’s joint venture to manufacture cans for the Chinese market faced a barrage of restrictions when the Chinese economy weakened. China decreed that canned beverages were wasteful and must be banned from all state functions and banquets. Tariffs on aluminum and other materials imported for producing cans were doubled and a tax was imposed on canned drink consumption. For Continental can, an investment that had the potential or profit a few years was rendered profitless by a change in the attitude of the Chinese government.

Politically Sensitive Products and Issue:

Although there are no specific guidelines to determine a product’s vulnerability at any point, there are some generalizations that help to identify the tendency for products to be politically sensitive. Products that have or are perceived to have an effect on the environment, exchange rates, national and economic security and the welfare of people (and particularly children – recall the story of Barbie in Saudi Arabia), and that are publicly visible or subject to public debate, are more likely to be politically sensitive.

Fast food restaurants, which are intended to be visible, have often been lightning rods for groups opposed to foreign companies. Health authorities closed a Kentucky Fried Chicken (KFC) restaurant for health reasons (two flies were seen in the kitchen) after months of protesters arguing that foreign investment should be limited to high technology. India does not need foreign investment in junk food, said the leader of a protesting farmers group. The store was later reopened by court order.

Health is often the subject of public debate, and products that affect or are affected by health issues can be sensitive to political concern. The European Union has banned hormone treated beef for more than a decade. There is a question about whether the ban is a valid health issue or just protection for the European beef industry. The World Trade Organization concluded in 1989 that the ban has no scientific basis; nevertheless, Europe has yet to lift the ban. Reluctance to respond to the WTO directive may be the result of the recent outcry against genetically modified (GM) foods that has, for all practical purposes, caused GM foods to be found to be banned in Europe. Public opinion against Franken food has been so strong that Unilever announced that it would be using GM ingredients in all its products in Britain. Additionally, 11 leading restaurant chains, including McDonald’s, Pizza Hut, Wimpy, and Burger King, have gone GM free. The issue in the United States has not risen to the same level of concern as in Europe; to forestall such adverse public opinion, many US companies are slowing the introduction of GM foods. Fearing a strong public reaction as in Europe, McDonald’s has decided to stop using genetically modified potatoes for its French fries in its US stores.