Chapter 5 The Political, Legal, and Regulatory Environments of Global Marketing

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 The Political Environment Political Risk –The risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably Political risk can deter a company from investing abroad

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Causes of Political Risk Tension between the resident’s aspirations and goals and the real conditions at a given time is a cause of political risk –The level of political risk is inversely related to a country’s stage of economic development What does this mean?

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Political Risk Expropriation –Governmental action to dispossess a foreign company or investor with compensation although often inadequate Confiscation –Dispossessing a foreign company or investor without compensation Nationalization –Occurs when government takes control of some or all enterprises in a particular industry

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Political Risk Creeping Expropriation –Applies to limitations on economic activities of foreign firms in particular countries Includes limitation on repatriation of profits, dividends, and royalties Other issues include increased local content requirements and quotas for hiring local nationals, and price controls

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 International Law International law are rules and principles that nation-states consider binding upon themselves –Pertains to property, trade, and immigration –Applies only to the extent that countries are willing to assume all rights and obligations in these areas

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Common Law vs. Civil Law Common law systems rely on authority of past judicial decisions (cases) –49 U.S. states have fully adopted the UCC which codifies a body of specifically designed rules covering commercial conduct –Louisiana (U.S. state) has adopted both the UCC and the French civil code Civil law systems reflect structural principles of the Roman Empire in the sixth century

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Common Law vs. Civil Law Common Law Countries –India, Pakistan, Malaysia, Singapore, and Hong Kong Civil Law Countries –Japan, Korea, Thailand, Taiwan, Indonesia, and China

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Islamic Law The legal system in many Middle Eastern countries is Islamic Law –The sharia is a comprehensive code governing Muslim’s in all areas of life including business –The code is derived from two sources The Koran – the Holy Book written in Arabic The Hadith – based on the life, sayings, and practices of Muhammad

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Intellectual Property Patents and trademarks that are protected in one country are not necessarily protected in another –Thus, patents and trademarks must be registered in each country of business Patent –A formal legal document that gives an inventor the exclusive right to make, use, and sell and invention for a specified period of time

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Intellectual Property Trademark –A distinctive mark, motto, device, or emblem that a manufacturer affixes to a particular product or package to distinguish it from other manufacturers Copyright –Establishes ownership of a written, recorded, performed, or filmed creative work

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Infringement of Intellectual Property Counterfeiting –The unauthorized copying and production of a product Associative Counterfeiting or Imitation –Using a product name that differs from a well-known brand, but is close enough that consumers associate the product with the genuine item Piracy –The unauthorized publication or reproduction of copyrighted work

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Intellectual Property Lanham Act –Also known as the Trademark Act of 1946 –Covers trademarks in the United States The European Patent Convention –Effective in the EU and Switzerland

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Companies Receiving the Most U.S. Patents in 1996 CompanyNo. of Patents IBM1,867 Canon1,544 Motorola1,068

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Antitrust Regulations Cartel –A group of separate companies that collectively set prices, control output, or take other actions to maximize profits –OPEC is an example of a cartel –In the United States, most cartels are illegal

2002 – Chapter 5Andrew P. Yap - FIU – MAR Corruption Rankings 1.Nigeria 2.Pakistan 3.Kenya 4.Bangladesh 5.China 6.Cameroon

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Foreign Corrupt Practices Act (FCPA) The FCPA makes it a crime for U.S. corporations to bribe an official of a foreign government or political party to obtain or retain business –Payment to third parties with these intentions are also prohibited by the FCPA –However, “grease” payments are considered legal by the FCPA What are grease payments?

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Foreign Corrupt Practices Act (FCPA) Enforcement of the FCPA has generally been lax Penalties for violations include severe jail sentences (in excess of 1 to 5 years) and heavy fines (in excess of $1 million) –Fines cannot be paid or reimbursed by the company

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Foreign Corrupt Practices Act (FCPA) Criticisms of the FCPA –It is wrong, according to critics, to impose U.S. laws, standards, values, and mores, on American companies and citizens worldwide –The FCPA puts U.S. companies in a difficult position to compete with foreign competitors

2002 – Chapter 5Andrew P. Yap - FIU – MAR 4156 Alternative Dispute Resolution Formal Arbitration –A means of settling international business disputes outside the courtroom –Generally involves a hearing of all parties before a three-member panel The result is usually a decision that the parties agree in advance to abide by