Politically Correct

Gerry Caffrey’s first Thursday Night Insight explains why politics should never be ignored.

At B2B International we conduct many market assessments for companies considering expanding into new countries with their products. Our analysis for these studies routinely examines many market forces. Among these are political and regulatory trends at work in each country. Events over the past few months in places like Egypt underscore how important it is to obtain a firm grasp of the political situation before investing. Companies considering entering the UK, for example, would want to take a hard look at the UK’s new Bribery Act. Likewise, in Brazil you need to understand their Congress’s multi-party alliances. Companies more than ever need to increase their level of analysis towards making a careful evaluation of how these forces impact their ability to meet business goals efficiently.

A few months ago we completed a project for a manufacturer of energy-generating equipment. They needed an assessment of the opportunity in India, China, U.S. and several other economies. As would be expected, each country had its own set of market forces at work. Remarkably, for all the countries we studied, the key control point driving market success was not macroeconomic trends, nor was there any lack of demand for the client’s product in these countries. The most important driver turned out to be each country’s respective government policy on “green energy” – in some cases evolving rapidly – making the difference in the economics of projects involving turbines. Our recommendation to the client going forward was to monitor each country’s shifting policies and laws closely, especially those linked to energy policy and related tax breaks/incentives and, prior to investing in entering a market, to conduct a thorough political analysis.

Coincidentally, at the same time as we were working on the project, the point of this Thursday Night Insight was highlighted in a long Economist magazine article entitled “Businesspeople Need to Think Harder About Political Risk”. The article summarizes things quite succinctly:

The most important advice is to take politics seriously. Oil and mining companies have always done this. Royal Dutch Shell has run a profitable business in Nigeria for more than 50 years despite a dangerous and volatile environment. “New economy” companies have tended to be much more naïve. …. Companies need to go further than just buying advice. They need to put more emphasis on local knowledge … ”

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