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

Chapter 5
The Political, Legal, and
Regulatory Environments
of Global Marketing
Power Points
by
Kristopher Blanchard
North Central University
© 2005 Prentice Hall
5-1
The Political Environment
Political cultures provide context
– Governing party’s attitude toward
• Sovereignty
• Political risk
• Taxes
• Threat of equity dilution
• Expropriation
© 2005 Prentice Hall
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Nation-States and Sovereignty
“Every sovereign state is bound to respect the
independence of every other sovereign state,
and the courts in one country will not sit in
judgment on the acts of government of
another done within its territory.”
- U.S. Supreme Court Chief Justice Fuller
© 2005 Prentice Hall
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Nation-States and Sovereignty
Stage of Development
Political and economic
– Protectionist laws lesser developed
– Free trade – advanced
development
– Cronyism
– Market vs. Non-market
The ultimate resource of a government is power, and
we’ve seen repeatedly that the willpower of
governments can be overcome by persistent attacks
from the marketplace.
- Neal Soss
© 2005 Prentice Hall
5-4
Political Risk
Risk of change in political environment or
government policy that would adversely
affect a company’s ability to operate
effectively and profitably
When perceived political risk is high, a
country will have a difficult time attracting
foreign direct investment
© 2005 Prentice Hall
5-5
Categories of Political Risk
EIU
Business
Environment Risk
Intelligence
PRS Group
World Political
Risk Forecasts
War
Fractionalization of the
political spectrum
political turmoil
probability
Social unrest
Fractionalization by
language, ethnic,
and/or religious
groups
Equity
restrictions
Orderly political transfer
Restrictive/coercive
measures required to
retain power
local operations
restrictions
Politically motivated
violence
Mentality (xenophobia,
nationalism,
corruption, nepotism)
Taxation
discrimination
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Causes of Political Risk
Tension between aspirations and reality
Primarily occurs in lower and lower-middle
income countries
– Indonesia and economic crisis
When political risk occurs in high income
countries, it is generally due to a longstanding conflict
– Northern Ireland
© 2005 Prentice Hall
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Expressions and Symptoms of
Political Risk
The less developed
a country the
greater the risk
Increased economic
uncertainty
increases risk
© 2005 Prentice Hall
5-8
Expressions and Symptoms of
Political Risk
Income
High
Triad
Countries
Russia,
Indonesia,
China
Low
Risk
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High
5-9
Taxes
Government taxation policies
– High taxation can lead to growth in a black
market
Corporate taxation
– Companies attempt to limit tax liability by
shifting location of income
© 2005 Prentice Hall
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Seizure of Assets
Expropriation – governmental action to
dispossess a foreign company or investor
– Compensation should be provided in a
“prompt, effective, and adequate manner”
– When no compensation is provided, it is
called confiscation
© 2005 Prentice Hall
5-11
Seizure of Assets
Nationalization - a government takes
control of some or all of the enterprises in
an entire industry
– Acceptable according to international law
if
• Satisfies public purpose
• Includes compensation
© 2005 Prentice Hall
5-12
International Law
The rules and principles that nation-states
consider binding among themselves
Disputes between nations are issues of
public international law
– Judicial arm of the United Nations
– World Court or International Court of Justice
(ICJ)
© 2005 Prentice Hall
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Common Law vs. Civil Law
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Common Law vs. Civil Law
Common Law country
– Disputes are decided
by reliance on the
authority of past
judicial decisions
– Companies are legally
incorporated by state
authority
© 2005 Prentice Hall
Civil Law country
– Legal system reflects
the structural concepts
and principles of the
Roman Empire
– Companies are formed
by contract between
two ore more parties
who are fully liable for
the actions of the
company
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Islamic Law
Legal system in many Middle Eastern countries
Based on the sharia - a comprehensive code
governing Muslim conduct in all areas of life
– Koran–- Holy Book
– Hadith
• Based on life, sayings, and practices of
Muhammad
• Identifies forbidden practices “haram”
© 2005 Prentice Hall
5-16
Sidestepping Legal Issues
Get expert legal help
Preventing conflicts
– Establish jurisdiction
– Protecting intellectual
property
– Avoid bribery
© 2005 Prentice Hall
5-17
Jurisdiction
Refers to a Court’s authority to rule on particular
types of controversies arising outside of a nation’s
borders or to exercise power over individuals or
entities from different countries.
Employees of foreign companies should
understand the extent to which they are subject to
jurisdiction of host-country courts
Courts have jurisdiction if it can be demonstrated
that the company is doing business in the state the
court sits
© 2005 Prentice Hall
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Intellectual Property
Intellectual property must be registered in
each country where business is conducted
– Patent – gives an inventor exclusive right to
make, use, and sell an invention for a specified
period of time
– Trademark – distinctive mark used to
distinguish it from competing products
– Copyright – establishes ownership of a written,
recorded, performed, or filmed creative work
© 2005 Prentice Hall
5-19
Infringement of Intellectual Property
Counterfeiting – unauthorized copying and
production of a product
Associative Counterfeit/Imitation – product
name differs slightly from a well-known
brand
Piracy – unauthorized publication or
reproduction of copyrighted work
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Intellectual Property
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Protecting Intellectual Property
International Convention for the Protection of
Industrial Property
– Paris Convention
– Honored by 100 countries
– Facilitates multi-country patent registration, ensures
that once a company files, it has a “right of priority” in
other countries for 1 year from that date
Patent Cooperation Treaty
European Patent Convention
© 2005 Prentice Hall
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Antitrust
Designed to combat restrictive business practices and to
encourage competition
– Enforced by FTC in the US, Fair Trade Commission in
Japan, European Commission in European Union
– Example: The Sherman Act of 1890 prohibits certain restrictive
business practices including fixing prices, limiting production,
allocating markets, or any other scheme designed to limit or avoid
competition. Law applies to US companies outside US borders and
to foreign companies operating in the US
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Licensing and Trade Secrets
Contractual agreements in which a licensor allows
a licensee to use patents, trademarks, trade secrets,
technology, and other intangible assets in return
for royalty payments or other forms of
compensation
Important considerations
– What assets may be licensed
– How to price assets
– The rights granted
© 2005 Prentice Hall
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Licensing and Trade Secrets
Trade secrets are confidential information or
knowledge that has commercial value and is
not in the public domain and for which
steps have been taken to keep it secret
To prevent disclosure
– Use confidentiality contracts
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Bribery and Corruption
Foreign Corrupt Practices Act
– Requires publicly held companies to institute
internal accounting controls that would record
all transactions
– Makes it a crime for a US corporation to bribe
an official of a foreign government or political
party to obtain or retain business
– Prohibits payments to third parties when there
is reason to believe it may be channeled to
foreign officials
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2003 Corruption Rankings
7 ‘cleanest’ countries
1. Finland
2. Iceland
3. Denmark
4. New Zealand
5. Singapore
6. Sweden
7. Netherlands
© 2005 Prentice Hall
7 most corrupt countries
1. Bangladesh
2. Nigeria
3. Haiti
4. Paraguay
5. Myanmar
6. Tajikistan
7. Georgia
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Conflict Resolution
Litigation
Formal arbitration
– Settles disputes outside of court
– Groups agree to abide by panel’s decision
1958 United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral
Awards
– Most important treaty regarding international
arbitration
© 2005 Prentice Hall
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Conflict Resolution
Country
USA
Australia
United Kingdom
France
Germany
Hungary
Japan
Korea
© 2005 Prentice Hall
Lawyers per 100,000 people
290
242
141
80
79
79
11
3
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The Regulatory Environment
Agencies, both governmental and nongovernmental, that enforce laws or set
guidelines for conducting business
Marketing activities affected by
international and regional economic
organizations
– EU
– WTO
© 2005 Prentice Hall
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Looking Ahead
Chapter 6 Global Information Systems and
Market Research
© 2005 Prentice Hall
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