GBE: Political

Environment

Poppy S. Winan,
[email protected]
h6p://poppysw.staff.ugm.ac.id
GENERAL BUSINESS
ENVIRONMENT

Why should we bother?

 The qualifying concept of
ceteris paribus means
that you do not need
to consider other variables
As business decision-making
is affected by many different
kinds of “things” or events,
decision-makers have to consider
many dimensions of human life,
physical as well as social
 CHALLENGES TO BUSINESS
CRIMINAL POLITICAL
ATTACKS INSTABILITY
RISK OF LOSS OF LIFE

LEGAL ECONOMIC
CHALLENGES VOLATILITY

RISK OF FINANCIAL LOSS

 Poli,cal Environment

Domes,c Interna,onal
Poli,cs Poli,cs

Poli,cal
Environment

8
Poli,cal Environment:
DOMESTIC POLITICS
 The likelihood that political
Analysis of political risks
forces will cause major
The likelihood that a should consider whether a
changes in a country’s
business’ foreign investment major change in control of
business environment that
will be constrained by a host the government is possible
government’s policy adversely affect the profits
and what the effects of such
and strategic goals of one or
a change might be
more businesses

Political Risk Source: Luthans & Doh, 2009

 Analyzing
Macro and Micro Political Risk
Macro political risks Micro political risks

• Major political • Government policies

decisions that are and actions that
likely to affect all influence selected
enterprises in the industries or
country specific foreign
businesses in the
country

Source: Luthans & Doh, 2009

Macro Risk Factors
• Freezing the movement of assets out of the host country
• Placing limits on the remittance of profits or capital
• Devaluing the currency
• Refusing to abide by the contractual terms of agreements
previously signed with MNC
• Industrial piracy (counterfeiters)
• Political turmoil
• Government corruption

Source: Luthans & Doh, 2009

Micro Risk Factors
• Some MNCs are treated differently than others
• Industry-specific regulations
• Taxes on specific types of business activity
• Restrictive local laws
• Impact of WTO and PTA regulations
• Government policies that promote exports and
discourage imports

Source: Luthans & Doh, 2009

DomesHc poliHcs

THE IDEAL:
STRONG NATION-STATE
WITH
WELL-FUNCTIONING GOVERNMENT
 1. State formation
Ruling elite consolidated a region The State
by force & economic resources –
and created institutions (army,
police, courts) in order to esablish
order & security.

2. Nation building
The state set a standard (language,
education, currency, scale, Stabilization Redistribution
measurement) within its region.

Regulation
3. Democratisation
The mass got access to
government apparatus & process. Security service -
internal & external Taxation &
4. Formation of welfare Budget
states
Rules for economic
The state supported equalization,
solidarity for the whole nation and activities
equality ethics.

Sources of legitimacy
 Functions of the State Improving
Addressing “market failure” equity
Providing pure “public goods” Protecting the
Defense; Law & order; Property rights; Macro- poor
Minimal
economic management; Public health Anti-poverty
function
program; Disaster
relief
Addressing Regulating Overcoming Providing social
externalities: monopoly: imperfect insurance:
Basic Utility information: Redistributive
Intermediate education; regulation; Insurance (health, pensions; Family
function Environmental Antitrust life, pensions); allowances;
protection policy Financial Unemployment
regulation; insurance
Consumer
protection
Coordinating private activity: Redistribution:
Activist
function Fostering markets; Cluster initiatives Asset
redistribution
Source: World Bank, World Development Report 1997 (Oxford University Press, 1997), p.27.
Transforming events (1)
Transforming events (2)
Transforming events (3)
POST SUHARTO ERA

Transi,on to
Democracy

Elec,on and Poli,cal

Fragmenta,on

Decentraliza,on
 “TransiHon to Democracy”
• It started when President Suharto in May 21, 1998
suddenly resigned amidst a great poli,cal turmoil in
the wake of great economic crisis.
• The successor, President B.J. Habibie ini,ated
liberaliza,on measures: freeing the press, releasing
poli,cal prisoners, relaxa,on of restric,on on dissent,
and the most important step toward democra,za,on,
i.e. conduc,ng parliamentary elec,ons in 1999.
• The transi,on culminated in the elec,on of
Abdurrahman Wahid , a non-sectarian Muslim-scholar
and a leader of democra,c movement, to become the
first President elected democra,cally.
 The Problem
• How to account for the reckless financing of
poli,cs in Indonesia, especially party poli,cs,
which is “patrimonialis,c” (trea,ng public
ma6ers as if they are private ones, vice versa)
and “clien,lis,c” (trea,ng ci,zens as if they
are clientele)?
• How to explain the propensity toward
“laissez-faire” on the part of those governing
Indonesia?
 Telling the Tale
• This is a story about a na,on-state bequethed
with a legacy of fragmenta,on: social,
cultural, poli,cal-ideological.
• From that condi,on emerged governments
which were unable to govern effec,vely short
of repressive measures.
• Democracy resulted from the “tug-of-war” of
1998-1999 failed to create governments
willing to deal decisively with real problems.
 EliHst TransiHon
• The poli,cal opening started by President Habibie
encouraged a variety of poli,cal actors to appear
and take part in the dynamic interac,ons
between the forces suppor,ng the New Order
regime and those opposing it.
• Emerged a new poli,cal constella,on:
– “pro-status-quo”: mostly within government
establishment; versus
– “reformist” groups: mostly extra-government
 Pro-Status-Quo: Two FacHons
• The first, the “hard-liners”: rejected poli,cal
reform as it would destroy their posi,on of
wealth and power.
• The second, the “sob-liners”: ready to join the
reform movement with the condi,on that it
would not destroy the general poli,cal
framework that they considered s,ll
workable.
 Pro-Change: Two-Plus Strands
• The "radicals“: demanded "revolu,onary change, now.”
Consisted of mostly loosely-organized groups whose
dynamics mostly came from student leaders.
• The "moderate“: wanted poli,cal reform without
unnecessarily destroying the whole system. Enjoyed much
broader supports from the diverse groups in the
opposi,on, especially from the leaders of the biggest
Muslim as well as na,onalist organiza,ons.
• The "opportunists", those who kept a "wait-and-see"
posi,on. When it all started, most poli,cal elites
belonged to this category, including those who has,ly
created poli,cal par,es to join the June 1999 elec,ons.
ElecHons & PoliHcal FragmentaHon
• Elec,ons in Indonesia have been unable to
facilitate the establishment of strong and solid
founda,on for effec,ve government.
• The biggest winner in the Elec,ons of 1955, got
only 22% of the votes; up to 34% in 1999, but
down to 21% in 2004 and stay at 20.8% in 2009.
• For party poli,cs in Indonesia, fragmentation
and inability to create a winning coali4on seem
to be the “norm”.
 Stubbornly Fragmented?:
The Results of ElecHons of 1955 & 1999

1955 % 1999 %
PNI (Na,onalist) 22 PDI-P (Na,onalist) 34
Masyumi (Modernist Muslim) 21 Golkar (Na,onalist) 22
NU (Tradi,onal Muslim) 19 PKB (Tradi,onal Muslim) 12
PKI (Communist) 17 PPP (Mixed Muslim) 10
PAN (Modernist Muslim) 7
PBB (Modernist Muslim) 2
PK (Modernist Muslim) 1
Other par,es 21 Other par,es 12
Total 100 Total 100
Source: Liddle, “Indonesia’s Democratic Elections”, Mimeograph (2004)
 Stubbornly Fragmented? (2):
Elec,ons of 1999, 2004 and 2009 (percentage)
PoliHcal Party 1999 2004 2009
PDI-P (Na,onalist) 34 18 14.03
Golkar (Na,onalist) 22 21 14.45
PKB (Tradi,onal Muslim) 12 10 4.94
PPP (Mixed Muslim) 10 8 5.32
PAN (Modernist Muslim) 7 6 6.01
PBB (Modernist Muslim) 2 2 ---
Demokrat (Na,onalist) ---- 7 20.85
PK/PKS (Modernist Muslim) 1 7 7.88
GERINDRA (Na,onalist) - - 4.46
HANURA (Na,onalist) - - 3.77
Other par,es 12 21 18.29
• The fact the current President got a clear
majority of the votes in a direct elec,ons did
not alter the way the governance is done.
• Coali,on government does not necessarily
mean weak government as long as you have a
confident leadership.
• Compromise & inclusion resulted in a
cumbersome and bulky government that is
unable to se6le issues definitely, to deal with
rivals asser,vely, to punish offender
decisively.
Interna,onal
Poli,cal
Environment
Transforming events (1)

32
Transforming events (2)

33
Transforming events (3)

34
 The changing profile of the global business
environment

Trade liberalisa,on

Technological development
& innova,on

Antudes toward MNCs

(Fatehi, n.d; Rugman & Collison, 2009)

Globalisa,on
35
What is globalisation?

Globalisa,on is "the process of social, poli,cal, economic,

cultural, and technological integra,on among countries
around the world”
(Hodge6s, et. al, 2006)
 Globalisa,on: Poli,cal Aspect

• The extension of poli,cal power and poli,cal ac,vity

across the boundaries of the modern na,on-state (Held,
et.al: 1999)
– The growing impact of intergovernmental, interna,onal non-
governmental organiza,ons, transna,onal pressure groups ,
regional and global governance
– Global problems: terrorism, environmental problems
• Challenges the tradi,onal dis,nc,ons between the
‘domes,c/interna,onal’, ‘inside/outside’, ‘territorial/non-
territorial’
• Diminishing effec,veness of na,onal borders
• Increased interdependencies among countries

37
 Globalisa,on: Economic Aspect
• The intensifica,on and stretching of economic interrela,ons
across the globe (Steger, 2003)
– Transna,onal corpora,ons
– Interna,onal economic ins,tu,ons
– Regional trading systems
• ‘It’s measured in respect of the growing intensity, extensity,
and velocity of world wide economic interac,ons and
interconnectedness from trade through produc,on and
finance, to migra,on’ (McGrew, 2005):
– Decreased trade barriers
– Increased free trade
– Adop,on of export oriented policy
– Increased global demand for capital

38
 Cultural: ‘AmericanisaHon’ or ‘GlocalisaHon’?

• The intensifica,on and

expansion of cultural
flows across the globe
(Steger, 2003)
• Homogenized popular
culture Vs. Glocalisa,on

39
The Sustaining Forces of Globalisa,on

Greater policy
liberalisa,on

Increased flows
of goods, Greater efficiency
services, and of business
people

Greater market
access (McKenna, n.d)
THANK YOU