Political Risk and Its Management in International Marketing, Öztiryakiler Example

Political Risk and Its Management in International Marketing, Öztiryakiler Example

​With the increasing of the international business activities, the intensified competition have emerged at the international market environments and as a result of this reason, there are some modifications have been seen at international marketing strategies. Also, political risks which can be appeared at macro environment, especially, may play the main role on these modifications. 

The companies which apply marketing activities at international market environments have to be aware of political risks beside economic, social, cultural and technological risks, because, political risks can affect directly or indirectly the factors which drives the international trade, from the customers' purchasing decisions to the companies' positioning decisions into the market environments.

​The return on investment rates at international marketing activities may not be at the desired levels in the companies which are being executed with a completely approach according to business functions, like these kind of situations which the expectations couldn't be gotten, the strategists and analysts make assumptions as the risks at macro environment can cause the deviations. 

The firms which sustain their businesses just at domestic market, pursue their trade activities at international marketing environments too, therefore, there is probable situation that the companies which tries to drive their business activities at their own home countries, can be affected too, however, the macro effect of the host countries' risky market conditions can be examined clearly at the companies which are operating international marketing activities. 

Finally, by the examination of company managers and teoricians who are interested in relationship between international marketing environment with political risks which can be arised at the different host country markets, much more healthy investment decisions could be taken.

1. Introduction

Innovations which emerge at production techniques with the developments at technology and information industry encourage both industrialized and nonindustrialized countries' economies at international marketing environment. Many companies from giant scaled to small scaled are struggling with chaotic conditions at international environment by developing products and services to attend global competition. With the spreading of enterpreneurships at international marketing environment causes the affects of cultural, social, economic and political risks to companies from many aspects and in addition, complicates the control of the marketing activities which exceed local market. 

Many companies which sustain their business activities, make analyses and researches from global perspective and broader frame, with the goal of finding the opportunities to evaluate the customer needs by using the strategies with much more objective manner at international marketing approach. 

While many variables at international environment increases the dynamism and comlexity of the international marketing activities, political actions at international marketing environment which are defined as uncertain by managers and researchers prepare caution scenarios for political risks. 

The theoretical frame in this research will include the company datas and cases from Öztiryakiler which is a firm at stainless steel industry and transforming the stainless steel raw material to kitchen equipments. 

The first part of the research contains introduction and at the second part of the study international marketing concept with international marketing environments will be examined generally. At the third section of the research, risk factors at international marketing will be evaluated. At the fourth part of the research, political risks with the parameters of the political risk management will be examined. The fifth and last part of the study includes the results of the political risks which Öztiryakiler company confronts at international marketing environment.

2. Literature Review

First of all the subject of the thesis concentrates on political risks at international marketing, so the literature of this subject must be examined. Therefore, in this part of the thesis, the past studies will be detected. 

Dickson (1989:2) assumed, firms which are making international businesses take risks on political instability, domestic unrest, terroristic attacks, tax unfairnesses and expropriation at host country environment. Conway (2013), proposed that political risks which has link with political variables, emerge at international environment, affect the companies which are sustaining their businesses at international markets. 

Pinto (2006) researched that how are the affects of FDIs to changing political conditions at host country environment. Jun and Singh (1996) proved that FDI rate decrease when the political risks increase at the sample of the developing markets. Similarly, the results of Gastanaga's analyses which were made on the chosen sample from developing countries, the regions where low instability and expropriation exposed are much more attractive for FDIs. 

On the other hand, Daude, Mazza and Morrison (2003) made a research about political instabilities which emerged at twenty seven countries of South America Continent and their affects to American and Japanese companies. Also, Tuman and Emmert (2004) proved that the companies which were from U.S. affected from political instabilities at host country environments. Al Nasser (2007) made a research with using nineteen countries from South America and Asia Continents, showed that the GDP rate, sociopolitic instability indicators and legal variables of these countries affected the FDI decisions. 

Dreher, Mikosh and Voigt (2010) proved that the countries which have memberships to the international organizations could attract the FDIs effectively. On the other hand, the results of Oliver's and Holzinger's (2008) study showed that sometimes political risks could be opportunity for the international firms. 

Because of the above mentioned reasons, the studies were made at the past predominantly from macro frame and firm analyses weren't made deeply, so in this thesis project the macro and micro dimension of the analyses will be combined.

2.1. Research Subject

Political risk and its management in international marketing, the examination of the Öztiryakiler firm's international marketing activities from the political risk perspective.

2.2. Goal of the Research

Conceptually, this research has two goals. These are how the company which is making international marketing activities is affecting from risky conditions at political environment and which strategies can be applied for managing the political risks.

2.3. Importance of the Research

In this research both macro and micro risk factors are considered and a firm is evaluated with many analyses so this study may add new values to literature because of mentioned reasons.

2.4. Main Sample of the Research

The research is structured on qualitative datas, however, the host countries' political environments which are Öztiryakiler's international marketing operations' positions, are used as main sample.

2.5. Sample of the Research

The samples of the research are formed from deep and face to face interviews qualitatively. On the other hand, quantitatively, the samples are formed from the countries' political risk indexes which selected from main sample for regression and times series.

2.6. Research Problem

How the political risks which are at international marketing environment affect the firms' international marketing activities and which strategies can be used for managing them.

2.7. Research Model

Research is modelled by using political risks as independent variable and international marketing activities as dependent variable.

Political Risks' Effects to International Marketing

Independent Variable: Political risks

Dependent Variable: International marketing activities

2.8. Research Model Design

Research model is designed by using case metods from qualitative research models. Also, algorithmic model is designed by using regression analysis from quantitative methods in cause and effect relationship frame.

2.9. Hyphotesis of the Research

Research includes also regression analyses, so hyphotesis tests will be carried out. H0 (Null): Political risks don't affect Öztiryakiler firm's international marketing activities. H1 (Alternative): Political risks affect Öztiryakiler firm's international marketing activities.

2.10. Data Collection and Analysis Technique

Observation technique and questionnaire studies are applied for data collection, on the other hand deep interviews and face to face meetings are used for qualitative analyses, also this research contains times series and regression analysis for quantitative analyses.

2.11. Assumptions of the Research

The risk factors different than political risks at macro environment are assumed stable and the datas which are accumulated from the managers of Öztiryakiler don't include any bias is assumed.

2.12. Restrictions of the Research

Necessary time for the research's theoretical part is 6 months and needed time for the practice part of the research is 2 months. The regression analyses of the practice part of the research are done by just using the six years period of the raw material prices because of data constraints, but, however general price trend and correlational relationship gave the expected results. As financial constraints, the raw material price and EGYPT sales datas were provided from Öztiryakiler without price, the political risk indexes were provided as free sample from PRS (Political Risk Service) company.

2.13. The Relationship Between Import Activities of Öztiryakiler and Political Risks

Öztiryakiler is transforming the stainless steel raw material to kitchen equipments, so this company needs stainless steel as raw material periodically and the managers of Öztiryakiler import this raw material from five countries. Germany, South Korea, China, Japan and Taiwan are the countries which Öztiryakiler is importing the stainless steel raw material. From this perspective, the political risks at these countries may affect the price of the stainless steel raw material, assumption could be made. From this assumption, the prices datas of stainless steel raw material between 2010 and 2015 have been gotten from Öztiryakiler and political risk indexes of the countries which are mentioned above have been gotten from PRS to reflect the political risks of the determined countries.

Hyphotesis Tests 

H0: Germany's political environment has no effect to stainless steel raw material price which is purchased from Germany. 

H1: Germany's political environment has effect to stainless steel raw material price which is purchased from Germany. 

H0: China's political environment has no effect to stainless steel raw material price which is purchased from China. 

H1: China's political environment has effect to stainless steel raw material price which is purchased from China. 

H0: Japan's political environment has no effect to stainless steel raw material price which is purchased from Japan. 

H1: Japan's political environment has effect to stainless steel raw material price which is purchased from Japan. 

H0: South Korea's political environment has no effect to stainless steel raw material price which is purchased from South Korea. 

H1: South Korea's political environment has effect to stainless steel raw material price which is purchased from South Korea. 

H0: Taiwan's political environment has no effect to stainless steel raw material price which is purchased from Taiwan. 

H1: Taiwan's political environment has effect to stainless steel raw material price which is purchased from Taiwan. 

While the hyphotesis tests are being installed the macro risk factors other than political risks are accepted stable.

Display-1: Political Risk Indexes According To Countries and Years

​Political risk indexes have been designed by using government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, military in politics, religious tension, laws and orders, ethnic tension, democratic accountability and bureaucracy quality parameters and have been gotten from PRS company as free sample. 

If political risk indexes are shown as x, 

x<50 ise, too high political risk degree, 

50<=x<60 ise, high political risk degree, 

60<=x<70 ise, moderate level political risk, 

70<=x<80 ise, low political risk degree, 

80<=x<100 ise, too low political risk degree, 

ranges are emerged like above. 

Display-2:The average purchasing price of 1kg stainless steel according to years

​On the other hand the purchasing prices of stainless steel had been gotten from Öztiryakiler according to countries and these prices were used while installing the predictive models and correlations. Also, JMP 12.1.0 and Microsoft Excel 2013 were used for setting quantitative models. 

Display-3: Germany Raw Material Price Model

​Display-4: China Raw Material Price Model

​From the display-3 there is no significant effect of Germany's political risk index to stainless steel prices which are purchased from Germany, becuase Prob>F value is bigger than 0.05 and the correlation between Germany's political risk index and the purchasing price of the stainless steel which is purchased from Germany is -0.36691, therefore there is a little negative correlation between Germany's political risk index and the price of stainless steel. Because of these reasons H0 is accepted and H1 is rejected for Germany.(Hammadde Fiyatı=Raw Material Price)(Almanya=Germany) 

From the display-4 there is significant effect of China's political risk index to stainless steel prices which are purchased from China, becuase Prob>F value is smaller than 0.05 and the correlation between China's political risk index and the purchasing price of the stainless steel which is purchased from China is -0,91829, therefore there is a very strong negative correlation between China's political risk index and the price of stainless steel. Because of these reasons H1 is accepted and H0 is rejected for China.(Çin=China) So the regression model can be installed as; 

Raw Material Price(TL)=11,716189-0,0777403*China(PRI) 

according to the taken period prices and political risk indexes. 

Display-5: Japan Raw Material Price Model

​From the display-5 there is no significant effect of Japan's political risk index to stainless steel prices which are purchased from Japan, becuase Prob>F value is bigger than 0.05, however the correlation between Japan's political risk index and the purchasing price of the stainless steel which is purchased from Japan is -0,64438, therefore there is a strong negative correlation between Japan's political risk index and the price of stainless steel. But, because of the Prob>F value, H0 is accepted and H1 is rejected for Japan.(Japonya=Japan) 

Display-6: South Korea Raw Material Price Model

​From the display-6 there is significant effect of South Korea's political risk index to stainless steel prices which are purchased from South Korea, becuase Prob>F value is smaller than 0.05 and the correlation between South Korea's political risk index and the purchasing price of the stainless steel which is purchased from South Korea is -0.96314, therefore there is a very strong negative correlation between South Korea's political risk index and the price of stainless steel. Because of these reasons H1 is accepted and H0 is rejected. (Güney Kore=South Korea) 

So the regression model can be installed as; 

Raw Material Prices(TL)=21,506705-0,2102934*South Korea(PRI) 

according to the taken period prices and political risk indexes. 

Display-7: Taiwan Raw Material Price Model

​According to display-7 there is no significant effect of Taiwan's political risk index to stainless steel prices which are purchased from Taiwan, becuase Prob>F value is bigger than 0.05, however the correlation between Taiwan's political risk index and the purchasing price of the stainless steel which is purchased from Taiwan is -0,7036, therefore there is a strong negative correlation between Taiwan's political risk index and the price of stainless steel. But, because of the Prob>F value, H0 is accepted and H1 is rejected for Taiwan.(Tayvan=Taiwan)

2.14. The Relationship Between EGYPT Sales of Öztiryakiler and Political Risks in EGYPT

After the deep interviews with Öztiryakiler's managers, EGYPT had been selected to be analyzed according to political environment of EGYPT, because there are many political risks had been emerged between 2010 and 2015 years period at EGYPT. 

First of all, how the Öztiryakiler's sales at EGYPT change between 2010 and 2015 years period and the degree of the correlational relationship between sales and political risks are examined. 

Display-8: EGYPT Sales of Öztiryakiler and Political Risk Index of EGYPT

​Display-9: Transfer Function Analysis

​EGYPT sales had been gotten from Öztiryakiler and political risk index had been gotten from PRS. 

The assumption of this situation is there may be a correlational relationship between EGYPT sales of Öztiryakiler and political risk index of EGYPT, so the hyphothesis tests of this assumption are; 

H0 (Null): There is no significant relationship between the sales of Öztiryakiler at EGYPT with political risk indexes of EGYPT, between the years of 2010 and 2015. 

H1 (Alternatif): There is significant relationship between the sales of Öztiryakiler at EGYPT with political risk indexes of EGYPT, between the years of 2010 and 2015. 

Display-10: The Linear Relationship Between Sales and Political Risk Indexes

​From the display-10 there is significant relationship between EGYPT's political risk index and Öztiryakiler's sales at EGYPT, becuase Prob>F value is smaller than 0.05 and the correlation between South Korea's political risk index and sales of Öztiryakiler at EGYPT is 0.918378, therefore there is a very strong positive correlation between EGYPT's political risk index and the sales. Because of these reasons H1 is accepted and H0 is rejected. (Mısır=EGYPT) 

So the regression model can be installed as; 

EGYPT Sales(TL)= (-314165)+9129,7872*Mısır(PRI), 

according to the taken period prices and political risk indexes. 

2.15. The Data Which Were Gathered from Deep Interviews

After the deep interviews which were made with Öztiryakiler's managers; 

1) When Öztiryakiler's annual reports were examined are there any testimonies could be found about macro risks cautions? 

Öztiryakiler's managers mostly answered this question as ''The company has not got systematic strategy for international marketing environment risks but periodically the sales are being checked by the regional managers and the datas are being reported to central management, however there is no any other strategic studies about macro risks. 

2) According to you are there any important effects of political risks to the company's international marketing activities? 

The managers of Öztiryakiler answered this question as ''We think that there are many important effects of political risks to international marketing activities and this situation can be understood from Russia, Iran, Iraq and EGYPT sales especially.'' 

3) If you think that there is significant effect of political risks to international marketing activities, can you explain by cases this situation? Also, what are the applicative techniques you used which minimize the effects of political risks at macro environment? 

The managers of Öztiryakiler answered this question as ''We think that there are many effects of political risks to international marketing activities, we lived this situation in EGYPT at 2011 and 2014 intensely and we used risk transfer method to minimize the effects of political risks. On the other hand, we also applied risk distribution and political risk insurance methods to manage the political risks especially at Middle Eastern region. 

4) The company's risk perception and risk management degrees are at which level? The managers of Öztiryakiler answered this question as ''We think that this company is not at expected levels according to risk perception and risk management. 

Öztiryakiler's managers had given these answers objectively and so, Öztiryakiler has many weaknesses about managing political risks like many other companies.

Conclusion and Evaluation 

In this research there are many problems and hyphotesis evaluated, so international marketing with political risk management subject is examined with deep understanding by using both quantitative and qualitative methods. According to findings from micro perspective a company which has name of Öztiryakiler was analysed according to both importing and exporting activities which are the subsets of international marketing activities. On the other hand, from macro perspective the countries' political environments are analysed by using political risk indexes. Finally both micro and macro environment of international marketing components are associated with each other by using regression analyses, time series and deep interviews, therefore findings of this study has shown that there are many effects of political risks to import and export activities of Öztiryakiler at some regions which especially hold significantly high political risks.

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