Transcript Chapter Learning Objectives

Chapter 6
The Political and Legal
Environment: A Critical
Concern
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Slides prepared by Kate Mizerski, Edith Cowan University
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Chapter Learning Objectives
• How different governmental types, political parties,
nationalism, target fear/animosity and trade
disputes can affect the environment for marketing
in foreign countries
• The political risks of global business and the factors
that affect stability
• The importance of the political system to
international marketing and its effect on foreign
investments
• The impact of political and social activists, violence
and terrorism on international business
• How to assess and reduce the effect of political
vulnerability
• How and why governments encourage foreign
investment
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Chapter Learning Objectives
(cont.)
• The four heritages of today’s legal systems
• The important factors in jurisdiction of legal
disputes
• Issues associated with jurisdiction of legal disputes
and the various methods of dispute resolution
• The unique problems of protecting intellectual
property rights internationally
• How to protect against piracy and counterfeiting
• How the legal differences between countries and
how the differences can affect international
marketing plans
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Global Perspective: How APEC
Attempts to Combat Corruption
• APEC’s statement on ‘fighting corruption through
improved international legal cooperation’ provides a
strong foundation for its commitment to strengthen
cooperation on extradition, prosecution, mutual
legal assistance and recovery of proceeds of
corruption.
• Governments control and restrict company’s
activities by encouraging and offering support of by
discouraging and banning or restricting its
activities.
• International law recognises the sovereign right of a
nation to grant or withhold permission to do
business within its political boundaries and to
control where its citizens conduct business.
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Stability of Government Policies
• Governments are not always stable and
friendly. Even if they start out this way,
they may change which can have an effect
on multinational firms.
• Issues that can affect the stability of a
government:
– Radical shifts in government philosophy when
an opposing political party ascends to power.
– Pressure from nationalist and self-interest
groups.
– Weakened economic conditions.
– Bias against foreign investment.
– Conflicts between governments .
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Forms of Government
• Three basic types of government in use
today:
– Rule by one (monarchy or dictatorship)
– Rule by few (aristocracy – or oligarchy)
– Rule by many (democracy)
• The form of government shapes the
economy as they propose, introduce,
adjust and implement various types of
policies to secure economic and social
goals.
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A Sampling of Government Types
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Political Parties
• Changes in political parties can have a
major effect on trade conditions.
Therefore, must understand the parties’
prevailing attitudes towards business.
– Great Britain
 The Labour Party Vs. The Conservative Party
• A current assessment of political
philosophy and attitudes within a country is
important in gauging the stability and
attractiveness of a government in terms of
market potential.
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Nationalism
• Nationalism is an intense feeling of national pride
and unity, an awakening of a nation’s people to
pride in their country.
• National interest and security are more important
than international relations.
• The more a country feels threatened by some
outside force or as the domestic economy declines,
the more nationalistic it becomes in protecting itself
against intrusions.
• Nationalism comes and goes as conditions and
attitudes change, and foreign companies welcomed
today may be harassed tomorrow and vice versa.
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Trade Disputes
• Disputes between trading nations may
entail a risk to markets in general or to
trading relations and negotiations.
– China
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Political Risks
•
•
•
Confiscation – the seizing of a company’s assets without
payment.
Expropriation – where the government seizes an investment
but some reimbursement for the assets is made.
Domestication – when host countries gradually cause the
transfer of foreign investments to national control and ownership
through a series of government decrees by mandating:
– Transfer of ownership, either whole or partially to nationals.
– Large number of nationals be promoted into managerial
positions.
– Control of decision-making be in the hands of nationals.
– Majority of the products must be locally produced.
– There be specific export regulations for participation in
world markets.
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Factors Influencing the Risk Reduction
Process in International Marketing
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Economic Risks
• Exchange controls
– Stem from shortages of foreign exchange held
by a country.
• Local-content laws
– Countries often require a portion of any product
sold within the country to have local content.
• Import restrictions
– Selective restrictions on the import of raw
materials , machines and spare parts to force
foreign industry to purchase more supplies
within the host country and thereby create
markets for local industry.
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Economic Risks (cont.)
•
•
•
Tax controls
– A political risk when used as a means of controlling
foreign investments. May be raised without warning
and in violation of formal arrangements.
Price controls
– Essential products that command considerable public
interest
 Pharmaceuticals
 Food
 Petrol
 Cars
Labour problems
– Labour unions have strong government support that
they use effectively in obtaining special concessions
from business.
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Political Sanctions
• One nation or a group of nations may
boycott another nation, thereby stopping
all trade between the countries, or may
issue sanctions against the trade of
specific products.
– U.S. boycotts of trade with Cuba/Iran
• History indicates that sanctions are often
unsuccessful in reaching desired goals,
particularly when other major nations’
traders ignore them.
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Political and Social Activists
• Not usually officially sanctioned by the
government.
• Can interrupt the normal flow of trade.
• Can range from those who seek to bring
about peaceful change to those who resort
to violence and terrorism to effect change..
– Worldwide boycott of Nestle products
– Free Burma Campaign (FBC)
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Violence and Terrorism
•
•
•
The US State Department reported 3,200 terrorist
incidents worldwide in 2004.
Goals of terrorism:
– To embarrass a government and its relationship with
firms by targeting multinationals.
– To generate funds by kidnapping executives to
finance terrorist goals.
– To use multinationals as pawns in political or social
disputes not specifically directed at them.
– To inflict terror within a country as did September 11.
Reasons to expect that businesses will become
increasingly attractive to terrorists because they are less
well defended than government targets and because of
what they symbolise.
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Cyberterrorism and Cybercrime
• The internet is a vehicle for terrorist and
criminal attacks by foreign and domestic
antagonists wishing to inflict damage on a
company with little chance of being
caught.
• It is hard to determine if a cyber attack has
been launched by a rogue state, a
terrorist, or by a hacker as a prank.
• Tools for cyberterrorism can be developed
to do considerable damage to a company,
an entire industry, or a country’s
infrastructure.
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Politically Sensitive Products and
Issues
• Products that have or are perceived to have an
effect on the environment, exchange rates, national
and economic security, and the welfare of people
and that are publicly visible or subject to public
debate, are more likely to be politically sensitive.
– Fast-food restaurants
• Health is often the subject of public debate, and
products that affect or are affected by health issues
can be sensitive to political concern.
– Australian controversy over genetically modified
(GM) foods
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Forecasting Political Risk
•
•
•
•
Political risk assessment is an attempt to forecast
political instability to help management identify and
evaluate political events and their potential influence on
current and future international business decisions.
The greatest risk to international marketers is the threat
of the government actually failing, causing chaos in the
streets and markets.
Risk assessment is used to estimate the level of risk a
company is assuming when making an investment and to
help determine the amount of risk it is prepared to
accept.
A necessary part of a market analysis is an assessment
of the probable consequences of a marketing plan as
some marketing activities are more susceptible to
political considerations than others.
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Top 20 States in Danger of Failing
(Ranked)
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Reducing Political Vulnerability
• Relations between governments and MNCs are
generally positive if the investment:
– Improves the balance of payments by
increasing exports or reducing imports through
import substitution.
– Uses locally produced resources
– Transfers capital, technology, and/or skills
– Create jobs
– Make tax contributions
• Political parties seeking publicity or scapegoats for
their failure often serve their own interests by
focusing public opinion on the negative aspects of
MNCs whether true or false.
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Reducing Political Vulnerability
(cont.)
• Strategies that MNCs use to
minimise political vulnerability and
risk:
–
–
–
–
–
–
Joint ventures
Expanding the investment base
Licensing
Planned domestication
Political bargaining
Political payoffs
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Bases for Legal Systems
• Four heritages form the bases for the
majority of the legal systems of the world.
– Common law – derived from English law.
– Civil or code law – derived from Roman law.
– Islamic law – derived from interpretation of the
Koran.
– Marxist-socialist law – derived from Marxistsocialist economies.
• Even though a country’s laws may be
based on the doctrine of one of the four
legal systems, its individual interpretation
may vary significantly.
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Common and Code Law
• Common law seeks “interpretation through the past
decisions of higher courts which interpret the same
statues or apply established and customary
principles of law to a similar set of facts.”
• Under code law the legal system is generally
divided into three separate codes:
– Commercial
– Civil
– Criminal
• Common law is recognised as not being allinclusive, whereas code law is considered
complete as a result of catchall provisions found in
most code-law systems.
• Under common law, ownership is established by
use; under code law, ownership is determined by
registration.
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Islamic Law
• The basis for the Shari’ah (Islamic) law is
interpretation of the Koran.
• Islamic law defines a complete system that
prescribes specific patterns of social and economic
behavior for all individuals.
– Property rights
– Economic decision making
– Types of economic freedom
• Among the unique aspects of Islamic law is the
prohibition against the payment of interest.
• The Islamic system places emphasis on the ethical,
moral, social, and religious dimensions to enhance
equality and fairness for the good of society.
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Marxist-Socialist Tenets
• Marxist-socialist legal systems revolve
around the key areas of economic, political
and socialist policies of the state.
• Under the premise that law is strictly
subordinate to prevailing economic
conditions, such fundamental propositions
as private ownership, contracts, due
process, and other legal mechanisms have
had to be developed.
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Jurisdiction in International Legal
Disputes
•
•
•
•
No confirmed judicial body exists to address legal
commercial problems arising between citizens of different
countries.
Legal disputes can arise in three situations:
– Between governments
– Between a company and a government
– Between two companies
Jurisdiction is generally determined in one of three ways:
– On the basis of jurisdictional clauses included in
contracts.
– On the basis of where a contract was entered into.
– On the basis of where the provisions of the contract
were performed.
The most clear-cut decisions can be made when the
contracts or legal documents supporting a business
transaction include a jurisdictional clause.
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International Dispute Resolution:
Conciliation
• Conciliation is a nonbinding agreement
between parties to resolve disputes by
asking a third party to mediate differences.
• Conciliation sessions are private and all
conferences between parties and the
mediator are confidential.
• Although conciliation may be the friendly
route to resolving disputes it is not legally
binding; thus an arbitration clause should
be included in all conciliation agreements.
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International Dispute Resolution:
Arbitration
• Most arbitration is conducted under the
auspices of one of the more formal
domestic and international arbitration
groups organized specifically to facilitate
the resolution of commercial disputes.
• The popularity of arbitration has led to a
proliferation of arbitral centers established
by countries, organisations, and
institutions.
• Contracts and other legal documents
should include clauses specifying the use
of arbitration to settle disputes.
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International Dispute Resolution:
Litigation
• The best advice is to seek settlement.
• Deterrents to litigation:
– Fear of creating a poor image and damaging
public relations.
– Fear of unfair treatment in a foreign court.
– Difficulty in collecting a judgment that may
otherwise have been collected in a mutually
agreed settlement through arbitration.
– The relatively high cost and time required when
bringing legal action.
– Loss of confidentiality.
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Counterfeiting and Piracy
• Estimated by ICC that total value of counterfeit and
pirated goods globally amount to more than
US$600 billion.
• The piracy industry has grown so sophisticated that
many counterfeit goods are almost impossible to
distinguish from the original.
• Counterfeit and pirated goods come from a wide
range of industries including:
– Apparel
– Automotive parts
– Agricultural chemicals
– Pharmaceuticals
– Books, record and film
– Computer software
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Piracy Rates for Computer Software,
Top and Bottom 20
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Inadequate Protection
• There have been many cases where
companies have legally lost the rights to
trademarks and have had to buy back
these rights or pay royalties for their use.
– McDonald’s in Japan
• Many businesses fail to take proper steps
to legally protect their intellectual property.
• The failure to protect intellectual property
rights adequately in the world marketplace
can lead to the legal loss of rights in
potentially profitable markets.
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Prior Use versus Registration
• Prior Use – whoever can establish first use
is typically considered the rightful owner.
• Registration – the first to register a
trademark or other property right is
considered the rightful owner.
• A company that believes it can always
establish ownership in another country by
proving it used the trademark or brand
name first is wrong and risks the loss of
these assets.
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International Conventions
• Three major international conventions:
– The Paris Convention for the Protection of
Industrial Property
– The Inter-American Convention
– The Madrid Arrangement
• World Intellectual Property Organisation (WIPO)
– Responsible for the promotion of the protection
of intellectual property and for the
administration of the various multilateral treaties
through cooperation among its member states.
• Patent Cooperation Treaty (PCT)
• European Patent Convention (EPC)
• The Trade-Related Aspects of Intellectual Property
Rights (TRIPs)
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Marketing Laws
•
•
•
All countries have laws regulating marketing activities.
– Promotion
– Product development
– Labelling
– Pricing
– Channels of distribution
Usually the discrepancies across markets cause
problems for trade negotiators, but particularly for
managers and their firms.
– Banning or restricting advertising to children.
There often are vast differences in enforcement and
interpretation among countries having laws covering the
same activities.
– Laws governing sales promotions in the European
community.
– Product comparison laws.
– Packaging and labelling laws.
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Green Marketing Legislation
• Green marketing laws focus on
environmentally friendly products and on
product packaging and its effect on solid
waste management.
• Antitrust
– With the exception of the U.S., antitrust laws
were either nonexistent or not enforced in most
of the world’s countries for the better part of the
20th century.
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Summary
•
•
•
•
•
The foreign firm must strive to make its activities
politically acceptable or it may be subjected to a variety
of politically condoned harassment.
The foreign marketer frequently faces the problem of
uncertainty of continuity in government policy.
As governments change political philosophies, a
marketing firm accepted under one administration might
find its activities undesirable under another.
An unfamiliar or hostile political environment does not
necessarily preclude success for a foreign marketer if the
company becomes a local economic asset and responds
creatively to the issues raised by political and social
activities.
If a company is considered vital to achieving national
economic goals, the host country often provides an
umbrella of protection not extended to others.
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Summary (cont.)
•
•
•
•
Businesses face a multitude of problems in their efforts to
develop successful marketing programs.
– Varying legal systems of the world and their effect on
business transactions.
Just as political climate, cultural differences, local
geography, different business customs, and the stage of
economic development must be taken into account, so
must such legal questions as jurisdictional and legal
recourse in disputes, protection of intellectual property
rights, and legislation of foreign governments.
The Internet creates a new set of legal entanglements,
many of which have yet to be properly addressed.
The freedom that now exists on the World Wide Web will
only be a faint memory before long.
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