Japan is currently battling a dilemma as to whether to increase its sales tax. A group of 60 experts is meeting to discuss their views on the issue. Prime Minister Shinzo Abe must “decide by early October whether he will go ahead with a plan to raise the current 5% sales tax to 8% next April and to 10% in October 2015.” According to law, the increase must be made but the Prime Minister has the right to delay it if it were to harm the economy.
The group of 60 agreed to enter the debate with no preconceived biases in order for the best outcome to remain possible.
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The effects of politics on international marketing is determined by both the bilateral political relations between home and host countries and the multilateral agreements governing the relations among groups of countries.
The government-to-government relationship can have a profound effect, particularly if it becomes hostile. Numerous examples of the linkages between international politics and international marketing exist. One such example involves British-Icelandic relations, following the Icelandic government’s 2008 decision to assume control of three of the country’s largest banks hit hard by the global credit crunch.
Iceland initiated a deposit freeze that affected deposits of approximately 4.5 billion pounds from British citizens.
The British government promptly used its anti-terror law to seize and estimated 4 billion of Icelandic resources, which, in turn, forced Iceland to cover the losses of British depositors at a cost to Icelandic taxpayers of more than 2.2 billion pounds. With a population base of only 300,000 people, such new debt was huge.
While the U.K. chose to adopt this “stick” approach, the Dutch government secured a commitment from Iceland to pay back its savers using a different tactic, perhaps more conducive to long-term good neighborly relations. It offered to loan Iceland the money.
Excerpt from the 9th Edition of International Marketing by Michael Czinkota and Ilkka Ronkainen.