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68    PART 2 • STRATEGY FORMULATION


                                      Political, Governmental, and Legal Forces
                                      Federal, state, local, and foreign governments are major regulators, deregulators, subsi-
                                      dizers, employers, and customers of organizations. Political, governmental, and legal
                                      factors, therefore, can represent key opportunities or threats for both small and large
                                      organizations.
                                         For industries and firms that depend heavily on government contracts or subsidies,
                                      political forecasts can be the most important part of an external audit. Changes in patent
                                      laws, antitrust legislation, tax rates, and lobbying activities can affect firms significantly.
                                      The increasing global interdependence among economies, markets, governments, and
                                      organizations makes it imperative that firms consider the possible impact of political
                                      variables on the formulation and implementation of competitive strategies.
                                         In the face of a deepening global recession, countries worldwide are resorting to pro-
                                      tectionism to safeguard their own industries. European Union (EU) nations, for example,
                                      have tightened their own trade rules and resumed subsidies for various of their own indus-
                                      tries while barring imports from certain other countries. The EU recently restricted imports
                                      of U.S. chicken and beef. India is increasing tariffs on foreign steel. Russia perhaps has
                                      instituted the most protectionist measures in recent months by raising tariffs on most
                                      imports and subsidizing its own exports. Russia even imposed a new toll on trucks from the
                                      EU, Switzerland, and Turkmenistan. Despite these measures taken by other countries, the
                                      United States has largely refrained from “Buy American” policies and protectionist
                                      measures, although there are increased tariffs on French cheese and Italian water. Many
                                      economists say the current rash of trade constraints will make it harder for global
                                      economic growth to recover from the global recession. Global trade is expected to decrease
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                                      2.1 percent in 2009 compared to an increase of 6.2 percent in 2008. Russia has said that
                                      “protective tariffs are necessary to allow Russian companies to survive the recession.” This
                                      view unfortunately is also the view at an increasing number of countries.
                                         Governments are taking control of more and more companies as the global economic
                                      recession cripples firms considered vital to the nation’s financial stability. For example, France
                                      in 2009 took a 2.35 percent equity stake in troubled car-parts maker Valeo SA. President
                                      Nicolas Sarkozy of France has created a $20 billion strategic fund to lend cash to banks and car-
                                      makers as many governments become more protectionist. The United States of course also is
                                      taking equity stakes in financial institutions and carmakers and is “bailing out” companies too.
                                         The UK government in 2009 took a 95 percent stake in the banking giant Royal Bank
                                      of Scotland Group PLC in a dramatic move toward nationalization. The government gave
                                      the bank $37 billion and insured another $300 billion of the bank’s assets. The UK govern-
                                      ment also recently increased its stake in Lloyds Banking Group PLC to 75 percent.
                                      Similarly, the U.S. government has taken over Fannie Mae and Freddie Mac and has raised
                                      its stake even in Citigroup to 40 percent.
                                         As more and more companies around the world accept government bailouts, those
                                      companies are being forced to march to priorities set by political leaders. Even in the
                                      United States, the federal government is battling the recession with its deepest intervention
                                      in the economy since the Great Depression. The U.S. government now is a strategic man-
                                      ager in industries from banking to insurance to autos. Governments worldwide are under
                                      pressure to protect jobs at home and maintain the nation’s industrial base. For example, in
                                      France, Renault SA’s factory in Sandouville is one of the most unproductive auto factories
                                      in the world. However, Renault has taken $3.9 billion in low-interest loans from the French
                                      government, so the company cannot close any French factories for the duration of the loan
                                      or resort to mass layoffs in France for a year.
                                         Political relations between Japan and China have thawed considerably in recent
                                      years, which is good for the world economy because China’s low-cost manufactured
                                      goods have become essential for the functioning of most industrialized nations. Chinese
                                      premier Wen Jiabao addressed the Japanese parliament in 2007, something no Chinese
                                      leader has done for more than 20 years, and Japanese prime minister Shinzo Abe has
                                      visited Beijing. Japan’s largest trading partner is China, and China’s third-largest
                                      trading partner is Japan—after the European Union, number one, and the United States,
                                      number two.
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