Global Marketing Management, 5e Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 1 Chapter 5 Political and Legal Environments

Chapter Overview 1. Political Environment--Individual Governments 2. Political Environment--Social Pressures and Political Risk 3. Terrorism and the World Economy 4. International Agreements 5. International Law and Local Legal Environment 6. Issues Transcending National Boundaries Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 2

Introduction  International marketers should be aware that the economic interests of their companies can differ widely from those of the countries in which they do business.  International marketers must abide by various international agreements, treaties and laws.  Political and legal climates are inherently related and inseparable because laws are generally a manifestation of a country’s political processes. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 3

1. Political Environment - Individual Governments  Government affects almost every aspect of business life in a country.  National politics affect business environment directly, through changes in policies, regulations, and laws.  The political stability and mood in a country affect the actions a government will take.  Home Country versus Host Country. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 4

1. Political Environment - Individual Governments  Structure of Government  Ideology  Communism  Capitalism  Socialism  Political Parties Single-party-dominant country Dual-party system Multi-party system  Government Policies and Regulations It is the role of government to promote a country’s interests in the international arena for various reasons and objectives such as: national security, developing new industries, and protecting declining industries. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 5

1. Political Environment - Individual Governments  Incentives and Government Programs  Government Procurement  Trade Laws  Tariff and Nontariff Barriers (Exhibit 5-1)  Embargoes and Sanctions  Export License Requirements  Investment Regulations (ownership and financial controls)  Macroeconomic Policies (governments’ monetary and fiscal policies such as the cost of capital, level of economic growth, rates of inflation and international exchange rates) Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 6

Exhibit 5-1: Tariff and Nontariff Barriers Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 7

2. Political Environment - Social Pressures and Political Risk  Social Pressures and Special Interests Foreign companies also have to consider social factors as part of the political environment of host countries, e.g., feelings of nationalistic sentiment.  Managing the Political Environment  Expropriation  Confiscation  Nationalization  Domestication Policy/Phase-Out Policy  Countertrade (See Exhibits 5-2 and 5-3.) Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 8

Exhibit 5-2: Government Policy Areas and Instruments Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 9

Exhibit 5-3: Country Risk Assessment Criteria Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 10

Exhibit 5-4: Examples of Country Risk Ratings Chapter 5 11 Copyright (c) 2007 John Wiley & Sons, Inc.

3. Terrorism and the World Economy  According to an IMF study, the September 11, 2001 terrorist attacks in New York and Washington D.C. resulted in major losses for the U.S. economy.  The short-term lost economic output was estimated as $47 billion.  The stock market lost $1.7 trillion. In addition, 125,000 workers were laid off for 30 days.  Terrorist activities disrupt international movement of supplies and merchandise and financial flows. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 12

4. International Agreements  G7 (Group of Seven) is an economic policy coordination group made up of political leaders from Canada, England, France, Germany, Italy, Japan, and the United States.  G8 (Group of Eight) consists of G7 and Russia.  COCOM (The Coordinating Committee for Multilateral Controls) was founded in 1949 to stop the flow of Western technology to the former Soviet Union; members countries include Australia, Japan and the NATO countries except Iceland. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 13

5. International Law and Local Legal Environment  International Law (the law of nations) comes from three main sources:  Customs  International treaties  Court decisions Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 14

5. International Law and Local Legal Environments  Local Legal Systems and Laws  Business Practices and the Legal Systems Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 15

Chapter 5Copyright (c) 2007 John Wiley & Sons, Inc International Law and Local Legal Environments  Regulations on e-Commerce - privacy issues  Types of Legal Systems Common Law Code (written) Law Islamic Law Socialist Laws Civil Law Commercial Law

5. International Law and Local Legal Environment  Cultural Values and Legal Systems  Japan’s population of lawyers is low.  In the U.S., emphasis is on explicit contracts and a reliance on the legal system is high.  In China, relationships (guanxi) and verbal contracts are important.  In Brazil, Jeitinho is used to find solutions outside the legal system.  Planning Ahead  Arbitration and Enforcement Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 17

Chapter 5Copyright (c) 2007 John Wiley & Sons, Inc. 18 Exhibit 5-6: The Number of Lawyers per 100,000 Residents

6. Issues Transcending National Boundaries  ISO 9000 certification has become an essential marketing tool for firms.  ISO is based on the principle of self – regulation, thereby minimizing surveillance and sanctions.  Intellectual Property Protection  TRIPs (Trade-Related Aspects of Intellectual Property Rights)  Patent (first-to-file & first-to-invent principles) Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 19

6. Issues Transcending National Boundaries  Copyright The Digital Millennium Copyright Act (DMCA)  Trademark (prior-use, first-to-use & first-to-file principles)  Trade Secret  Paris Convention  Patent Cooperation Treaty  Patent Law Treaty (See Exhibit 5-7.) Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 20

Exhibit 5-7: Ratings for the Level of Intellectual Property Protection in Various Countries Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 21

6. Issues Transcending National Boundaries  European Patent Convention  Berne Convention  Antitrust Laws of the United States  The Sherman Act  The Clayton Act  Extraterritorial application of U.S. antitrust laws  Export Trading Company (ETC) Act of 1982 Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 22

6. Issues Transcending National Boundaries  Antitrust Laws of the European Union  Foreign Corrupt Practices Act (FCPA) of 1977  The FCPA was designed to prohibit the payment of any money or anything of value to a foreign official, foreign political party, or any candidate for foreign political office for purposes of obtaining, retaining, or directing business. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 23

6. Issues Transcending National Boundaries  The FCPA does not prohibit so-called facilitating or grease payments.  Small payments to lower level officials are allowed to expedite the process.  FCPA does not prohibit bribery payments to nongovernmental personnel. Chapter 5Copyright (c) 2009 John Wiley & Sons, Inc. 24