1. Political change is one of the most significant risks that companies face when they take on international marketing. For example, American and British oil companies operating in Iran faced high losses when that country nationalized the oil industry. Such government intervention is intended to achieve domestic political ends, although it can also be used to motivate a foreign country to change its political ways. Nations have come to recognize that they can use political means to further their own economic interests, but these means may well result in loss of assets for companies operating within foreign jurisdictions.
Expropriation is seizure by a government of foreign owned assets. In this way, assets developed by a company based in one country may be expropriated by another country when the assets fall into the jurisdiction of the second country. International law recognizes the rights of countries to undertake this type of action, but require that prompt, adequate and effective compensation be made to the company whose assets are being seized. Such compensation is intended to make up for the fact that the company has invested in the target country, and although companies may well debate the value of compensation which is considered adequate, this part of expropriation is intended to keep the seizure within the bounds of international law (Root, 1994, p. 93).
When seizure of foreign assets occurs without compensation, or when the compensation is obviously inadequate to cover the company's actual investment, it is no longer expropriation, but confiscation. Confiscation is not legal under international law, and tends to occur when communist nations take over noncommunist nations, or when a totalitarian nation seizes assets in order to increase its own economic well-being. Such actions are nearly always motivated by politics, such as the disintegration of relations between two former allies (Root, 1994, p. 94).
In s...