An Overview of the International Marketing Environment

1. An Overview of the International Marketing Environment Dana-Nicoleta Lascu Chapter 2

2. Chapter Objectives • Discuss the world economic environment and examine different development perspectives. • Discuss the importance of emerging markets • Examine political risk and risk management • Discuss the impact of different legal systems and jurisdiction issues • Address intellectual property laws and the challenges involved in operating in legally ambiguous environments

3. The World Economy Rather than rising and falling separately, national economies have become interdependent and respond to the same environmental forces. The international economy has become one single unit.

4. The Economic Development Disparity • Firms from industrialized countries dominate the world economy, allocating resources based on market potential, rather than based on local needs. • Increasing economic gap between developed and developing countries • Developing countries maintain control over own resources (raw materials, labor) and access to local consumers. • Lessen economic gap by imposing barriers to international corporations

5. Economic Development Models The Rostow Modernization Model • Each stage is a function of productivity, economic exchange, technological improvements and income • Growth requires advancing from one stage to the next Traditional Society Transitional Society Take Off Drive to Maturity High Mass Consumption

6. Economic Development Models, continued The Marxist-Leninist Model • Similar to Rostow model in first stages • Subsequent stages depicted as a class struggle ending in revolution • Advancement is a function of control over the means of production, production outcomes, resource allocation, and the development of a mindset devoid of materialist needs

7. Economic Development Models, continued The Marxist-Leninist Model Primitive Society Slavery-Based Society Feudalism Capitalism Socialism Communism

8. Levels of Development Developed Countries GNP per capita of US $9,266 and above • Well-developed industrial and service sectors • Markets in maturity stage • Consumers with established preferences • Intense competition

9. Levels of Development, continued Emerging Countries GNP per capita of US $766 – $9,265 • Developing rapidly • Great potential BigEmergingMarkets • Present the greatest potential for international trade and expansion

10. Levels of Development, continued Developing Countries GNP per capita of of less than US $755 • Primarily agrarian • Located in different regions in Asia and Sub-Saharan Africa • Often neglected or under-served by large multinationals • Represent potential niche markets

11. Examples of Emerging Markets Asia:China, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Thailand Africa and the Middle East: South Africa and Israel Eastern Europe: The Czech Republic, Hungary, Greece, Portugal, Turkey The Former Soviet Union: Russia, Ukraine, and the Baltic's Latin America: Argentina, Brazil, Chile, Mexico, Venezuela

12. Emerging Markets • Big Emerging Markets • China,India (populations exceeding one billion) • South Korea • Argentina, Brazil, Mexico • South Africa • Poland, Turkey • Russia

13. Characteristics of Emerging Markets • High political stability • Sound currency, low inflation • Pro business, fiscally-conservative, transparent government policies • Guarantees for the repatriation of dividends and capital • Sound corporate law • Liquid securities market reflecting fair prices • Work ethics and a culture of integrity

14. Political Environment • At the basis of international law and international relations: sovereignty (self determination and independence from external interference) • International trade limits sovereignty • Governments can invoke sovereignty and jeopardize firm’s operations

15. Political Risk • Evaluating political risk: • Business periodicals (The Economist, WSJ) • Commercial sources (EIU, Chase, RUNDT’s) • Political risk signals • Poor economic performance • Repression of ethnic groups and/or general repression by the elite • Internal diversity and incongruent interests • Radically changing government structures • Fierce nationalist sentiment

16. Political Risk, continued • Risks related to government trade policies • Tariffs, exchange-rate controls, quotas, export/import license requirements, and other trade barriers • Risks related to government economic policy • Controlling foreign investment through taxes or transfer of assets from company to local ownership: • Confiscation • Expropriation • Nationalization • Creeping expropriation • Domestication • Risks related to labor and action groups • Risks related to terrorism

17. Minimizing Political Risk • Understand both ruling and opposing parties; remain politically neutral • Be exemplary corporate citizens • Sell a quality product or service that is essential for local development • Partner with local companies and create local expertise • Use local suppliers • Obtain insurance coverage against expropriation, nationalization, confiscation, and terrorism

18. International Legal Environment • International Laws • Host Country Laws • Home Country Laws • Legal Systems • Common law • Code law • Islamic law

19. Jurisdiction • Not usually automatic • European Court of Justice • The International Court of Justice

20. Intellectual Property Rights • Violation of intellectual property rightsis the most significant threat to the competitiveness of international corporations. • Losses attributed to the violation of intellectual property rights are estimated to be $60 billion a year.

21. Intellectual Property Protection • Patent • Protection of the rights of the inventor or of the firm to use and sell the invention for a specified period of time • Copyright • Rights of owner of original work of art to reproduce, sell, perform, or film the work • Trademark • Brand name, mark, symbol, motto, or slogan that identifies a brand and distinguishes it from competitors’ brands • Trade Secret • Know-how, formulas, and special blends that are not registered and are thus not protected by law

22. Factors Influencing Intellectual Property Violations • Lack of appropriate legislation • Lax enforcement • Unavailability of authentic products • High prices for authentic products that limit their accessibility to local consumers • Cultural Factors • Values that perceive imitation as a form of flattery • Feelings of interpersonal distrust and not getting fair deal • Emphasis on material wealth • Belief that technology is common domain

23. Protecting Intellectual Property • Countries that join the World Trade Organization must sign on to the TRIPS agreement (Trade-Related Aspects of Intellectual Property Rights) • International conventions have been gaining strength • Developed countries are lending support to emerging countries

24. ANTITRUST LAWS Prevent anticompetitive activities such as the creation of monopolies and cartels CORRUPTION LAWS Prevent multinational corporations from using unethical means to obtain competitive advantage in a particular market Foreign Corrupt Practices Act makes it illegal to bribe politicians Home Country Legislation

25. Chapter Summary • Competing models evaluate economic development: The Rostow model regards it as a function of productivity, exchange, technology, and income; the Marxist-Leninist model depicts development as a class struggle. Based on development, countries are categorized as: developing, developed, and emerging–the latter offer most potential. • Firms must evaluate and manage political risk related to government trade policies, economic policies, labor/political action groups, and terrorism. • Firms are affected by international, home-country, and host country laws–belonging to one of three judicial systems: common, code, and Islamic. Firms must decide jurisdiction and conflict resolution methods before conflicts arise. • Protection of intellectual property rights constitutes a priority for international firms.