Chapter 5 The Political and Legal Environment

1. Chapter 5The Political and Legal Environment 0

2. Home Country Political and Legal Environment 0 • While deciding upon a firm’s international marketing activities the manager needs to concentrate on three areas:

3. Home Country Political and Legal Environment 0 • Firms are affected by government policies and the legal system, and this has a major impact on a firm’s opportunities abroad. • The cost of domestic safety regulations may significantly affect the pricing policies of firms in their international marketing efforts; example being Environmental Superfund.

4. Home Country Political and Legal Environment 0 • Governments may attempt to aid and protect the international marketing efforts of companies through gray market activities.

5. Home Country Political and Legal Environment 0 • Four main areas of governmental activities which are of major concern to the international marketer are:

6. Home Country Political and Legal Environment 0 • Embargoes and sanctions - Government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes. • Unilateral impositions result in shift in trade, and do not produce the desired result. • Governments often consider sanctions as being free of cost.

7. Home Country Political and Legal Environment 0 • Export control • The legal basis for export controls varies across nations.

8. Home Country Political and Legal Environment 0 • Export control • The U.S. export control system is based on the • The exporter must obtain an ______ ________, which consists of written authorization to send a product abroad.

9. Exhibit 5.3 - The U.S. Export Control System 0

10. Home Country Political and Legal Environment 0 • Export control • Reduces flows of technological knowledge to control the sophistication of armaments used by insurgent groups.

11. Home Country Political and Legal Environment 0 • Import controls • Either all imports or imports of particular products are controlled through tariff and non tariff mechanisms. • Tariffs - • Voluntary restraint agreements - • Quota systems -

12. Home Country Political and Legal Environment 0 • Problems faced while administering import controls: • They exact a huge price from domestic consumers. • They bring about downstream change in import composition. • Supply may respond to artificial stimulation and grow far beyond demand.

13. Home Country Political and Legal Environment 0 • Regulation of international business behavior • Boycotts - • Antitrust measures - • Bribery and corruption -

14. Host Country Political and Legal Environment 0 • Political risk - The risk of loss when investing in a given country caused by changes in a country’s political structure or policies. • Major types of political risk • Ownership risk - • Operating risk - • Transfer risk -

15. Exhibit 5.4: Exposure to Political Risk 0

16. Host Country Political and Legal Environment 0 • Government policies to combat political risks include • Expropriation - • Confiscation -

17. Host Country Political and Legal Environment 0 • Government policies to combat political risks include • Domestication - • Effects of domestication include: • Poor cooperation and communication from managers. • Disruption of international distribution plans.

18. Host Country Political and Legal Environment 0 • Common risks faced by most businesses operating abroad: • Shortage of foreign currency. • Prolonged negotiations with government officials. • Government control on the prices of imported products or services.

19. Host Country Political and Legal Environment 0 • Countries differ in their laws as well as in their implementation of these laws. • Two major legal systems popular worldwide are: • Common law - • Code law -

20. Host Country Political and Legal Environment 0 • Antidumping laws – • Laws may be designed to protect domestic industries and reduce imports.

21. Host Country Political and Legal Environment 0 • Dealing with the intricacies of national politics: • Ignore prevailing rules and expect to get away with it. • Develop coalitions or constituencies to motivate legislators and politicians to consider and implement change through:

22. The International Environment 0 • International politics • If bilateral political relations between countries improve, business can benefit.

23. The International Environment 0 • International law • No enforceable body of international law exists; • Firms are restricted by both home and host country laws.

24. The International Environment 0 • International law • In case of a conflict in deciding which country’s law to follow, firms can choose either arbitration or litigation.

25. The International Environment 0 • International terrorism and marketing • Terrorism is the systematic use (or threat) of violence aimed at attaining a political goal and conveying a political message. • Terrorism creates new opportunities for firms in a few industries like construction, security, and information technology.

26. The International Environment 0 • International terrorism and marketing • Direct effect of terrorism on business activities are the immediate cost levied on individual firms. • Chill effect -

27. The International Environment 0 • International terrorism and marketing • Physical damage inflicted by terrorism disrupts power supply, communication, transport and other forms of infrastructure, thereby disturbing the supply of inputs, resources and services. • Regulations imposed by the government to reduce a country’s vulnerability to terrorism may delay the supply of inputs, increase administrative burden and require firms to invest in new procedures.

28. Exhibit 5.6 - A Model of Corporate Preparedness for Terrorism 0

29. Ethical Issues 0 • The ethical obligations faced by multinational enterprises include:

30. Ethical Issues 0 • Corporate governance and responsibility • Corporate governance - • Its key elements include:

31. Exhibit 5.7 - Comparative Corporate Governance Regimes 0

32. Ethical Issues 0 • Intellectual property - • Bribery and corruption • The Foreign Corrupt Practices Act (FCPA) was passed in 1977 to disallow U.S. firms to bribe foreign officials for business purposes. • Functional lubrication -

33. Ethical Issues 0 • Bribery and corruption • In the process driven by “_______ _____,” the amount depends on the individual official and is for the official’s own personal use.

34. Ethical Issues 0 • Bribery and corruption • The Organization for Economic Cooperation and Development (OECD) in 1999 agreed to change the bribery regulations among its member countries to prohibit the tax deductibility of improper payments.