international mkt. chapter#5

7/25/2019 International Mkt. Chapter#5

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Chapter # 5

The Political and LegalEnvironment


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International Political Issues.

Nationalism

Sovereignty

Imperialism/domination Power

Ideologies

National interests Political risk


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A Snapshot of Chapter The political and legal environment in the home

country the environment in the host country andthe laws and agreements governing relationshipsamong nations are all important to the

international marketer! Compliance with them is mandatory in order to do

"usiness a"road successfully!

Such laws can control e#ports and imports "oth

directly and indirectly and can also regulate theinternational "usiness "ehavior of firmsparticularly in the areas of "oycotts antitrust

corruption and ethics!


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continue To avoid the pro"lems that can result from changes in the

political and legal environment the international marketermust anticipate changes and develop strategies for copingwith them!

$henever possi"le the manager must avoid "eing taken "y

surprise and thus not let events control "usiness decisions!

%n occasion the international marketer may "e caught"etween clashing home and host country laws! In suchinstances the firm needs to conduct a dialogue with the

governments in order to seek a compromise solution! Alternatively managers can encourage their government to

engage in government&to&government negotiations to settlethe dispute!


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continue 'overnmental disputes can result lost of "usiness volume and

employment and the firm can seek redress in court! In the final analysis a firm conducting "usiness internationally is

su"(ect to the notions/ideas of political and legal changes and may lose"usiness as a result!

The "est the manager can do is to "e aware of political influences and

laws and strive to adopt them as far as possi"le!


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Political/Legal Concerns of International

Marketers

)ome country political and legal circumstances )ost country political and legal circumstances host country! *ilateral and multilateral agreements treaties and laws

governing the relations "etween host and home countries!

)ome country government policies and the legal systems have a ma(orimpact on a firm+s opportunities a"road! ,#amples-

.inimum wage legislation affects the international competitiveness of afirm using highly la"or intensive production processes!

The cost of domestic environment safety regulations may alsosignificantly affect the pricing policies of firms in their internationalmarketing efforts


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estricting International Marketing

%ften however governments also have specific rulesand regulations restricting international marketing! Suchregulations are freuently political in nature and are"ased on the fact that governments "elieve commerce to"e only one o"(ective among others such as foreignpolicy and national security! 0our main areas ofgovernmental activities are of ma(or concern to theinternational marketer here-

!. Em"argoes or trade sanctions

$. E%port controls

&. Import controls and

'. The regulation of international "usiness "ehavior.


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1& ,m"argoes and Sanctions The terms trade sanctions and em"argoes as used here

refer to governmental actions that distort the free flow oftrade in goods services or ideas for decidedly adversarialand political rather than strictly economic purposes!

%ne key concern with sanctions is the fact thatgovernments often consider them as "eing free of cost!)owever even though they may not affect the "udget ofgovernments sanctions imposed "y governments canmean significant loss of "usiness to firms!

%ne estimate claims that the economic sanctions held in

place "y the 2nited States annually costs the countrysome 345 "illion in lost e#ports and that the success rateof all 2!S! sanctions where the 2nited States was part of asanction coalition remained in the 46 percent range!


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$( E%port Controls

,#port controls7 8esigned to deny or delay the acuisition of strategically

important goods "y the adversaries/rivals!

7 The legal "asis for e#port controls varies across nations!

7 8ual use items 9goods useful for "oth military and civilianpurposes: are controlled "y the ;oint


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&( Import Controls

In these countries either all imports or the imports of

particular products are controlled through tariff andnontariff mechanisms!

Tariffs place a ta# on imports and raise prices!

Nontariff "arriers like voluntar) restraint agreements

are self&imposed restrictions and cut"acks aimed atavoiding punitive/punishing trade actions from the host!

*uota s)stems reduce the volume of imports accepted"y a country!

The final effect of all these actions is a uantitativereduction of imports


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&( Import Controls 0or the international marketer such restrictions may

mean that the most efficient sources of supply are notavaila"le "ecause government regulations restrictimportation from those sources!

The result is either second&"est products or higher costs

for restricted supplies! This in turn means that thecustomer receives inferior service and often has to paysignificantly higher prices and that the firm is lesscompetitive when trying to market its products

internationally! Policymakers are faced with several pro"lems when

trying to administer import controls!

+irst most of the time such controls e#act a huge price

from domestic consumers!


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&( Import Controls A secondma(or pro"lem resulting from import controls is the downstream

change in import composition that results from these controls!

0or e#ample if the import of copper ore/mineral is restricted either throughvoluntary restraints or through uotas firms in copper&producing countriesmay decide to shift their production systems and produce copper wireinstead which they then e#port!

As a result initially narrowly defined protectionist measures may have toincrease in order to protect one downstream industry after another!

A final ma(or pro"lem that confronts the policymaker is that of efficiency!Import controls that are freuently designed to provide "reathing room to adomestic industry either to grow or to recapture its competitive position oftenturn out not to work!

=ather than improve the productivity of an industry such controls provide it

with a level of safety and a cushion of increased income yet let the drive fortechnological advancement fall "ehind!

Alternatively supply may respond to artificial stimulation and grow far"eyond demand!


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'( The regulation of international

"usiness "ehavior

)ome countries may implement special lawsand regulations to ensure that the international"usiness "ehavior of their firms is conducted

within the legal moral and ethical "oundariesconsidered appropriate!

The definition of appropriateness may vary fromcountry to country and from government to

government! Therefore such regulations theirenforcement and their impact on firms can differsu"stantially among nations!


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'( The regulation of international "usiness "ehavior

Several ma(or areas in which nations attempt to govern the international marketing activities

of its firms are "o)cotts where"y firms refuse to do "usiness with someone often forpolitical reasons> antitrust measures wherein firms are seen as restricting competition> andcorruption which occurs when firms o"tain contracts with "ri"es rather than throughperformance

Ara" nations for e#ample have developed a "lacklist of companies that deal with Israel!,ven though enforcement of the "lacklisting has decreased some Ara" customers stilldemand from their suppliers assurances that the source of the products purchased is notIsrael and that the company does not do any "usiness with Israel!

*oycott measures put firms in a difficult position! Caught in a we" of governmental activitythey may "e forced to either lose "usiness or pay fines! This is particularly the case if a firm+sproducts are competitive yet not uniue so that the supplier can opt to purchase themelsewhere! )eightening of such conflict can sometimes force companies to withdrawoperations entirely from a country


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'( The regulation of international

"usiness "ehavior The second area of regulatory activity affecting

international marketing efforts of firms is antitrust laws!These can apply to the international operations of firmsas well as to domestic "usiness!

In the ,uropean 2nion for e#ample the commissionwatches closely when any firm "uys an overseas

company engages in a (oint venture with a foreign firmor makes an agreement with a competing firm!

The commission evaluates the effect these activities willhave on competition and has the right to disapprove suchtransactions!

, third area in which some governments regulate

international marketing actions concerns "ri"ery andcorruption!

The 2nited States has taken a lead on this issue "ypassing laws in the sphere of ethics that affect 2!S! firmsoperating overseas!


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-ost Countr) Political and Legal

Environment

Political ,ctions and isk0irms usually prefer to conduct "usiness in a country with a sta"le and friendlygovernment "ut such governments are not always easy to find!

.anagers must therefore continually monitor the government its policies and itssta"ility to determine the potential for political change that could adversely affectcorporate operations!

There is political risk in every nation "ut the range of risks varies widely fromcountry to country!

Political risk is defined as the risk of loss when investing in a given country caused"y changes in a country+s political structure or policies such as ta# laws tariffse#propriation of assets 9taking companies into govt! control: or restriction in

repatriation of profits!0or e#ample a company may suffer from such loss in the case of e#propriation ortightened foreign e#change repatriation rules or from increased credit risk if thegovernment changes policies to make it difficult for the company to pay creditors!

In general political risk is lowest in countries that have a history of sta"ility andconsistency!


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-ost Countr) Political and Legal

Environment

Legal ifferences and estraints)ome country laws

)ost country laws

International law

Two ma(or legal systems popular worldwide are-

7 Common law& *ased on tradition and depends less onwritten orders and codes than on precedent/e#ample andcustom!

7 Code law&*ased on a comprehensive set of writtenorders that spell out legal rules e#plicitly> "ased on=oman law


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International

7 Treaties and agreements respected "y a num"er ofcountries influence international "usiness operations!

7 0irms are restricted "y "oth home and host country laws!

In case of a conflict in deciding which country+s law to followfirms can choose either ar"itration or litigation!


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International Terrorism

?Terrorism is the systematic use 9or threat: ofviolence aimed at attaining a political goal andconveying a political message!

7 Terrorists direct their strikes at "usiness morethan any other target!

7 Terrorism creates new opportunities for firmsin a few industries like construction securityand information technology!


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7 8irect effect of terrorism- the immediate costimposed on individual firms!

7 Indirect effect on "usiness activities- the real

or perceived decline in per capita incomepurchasing power and stock market values!

7 Chill effect & 2ncertainty a"out the state of anation+s economy leads to a sharp reductionin demand for "oth consumer and industrialgoods!


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7 Physical damage disrupts power supplycommunication transport and other forms ofinfrastructure there"y distur"ing the supply ofinputs resources and services!

7 Terrorism deteriorates transnationalrelationships!

7 =egulations imposed "y the government to

reduce a country+s vulnera"ility/weakness toterrorism may delay the supply of inputsincrease administrative "urden and reuirefirms to invest in new procedures!


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,thical Issues

The ethical o"ligations faced "ymultinational enterprises include-

7 Corporate governance and responsi"ility

7 Intellectual property rights

7 *ri"ery and corruption


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Corporate governance andresponsi"ility

Corporate governance& =elationships amongstakeholders that determine and control thestrategic direction and performance of an

organi@ation!7 Its key elements include-

Transparency of a firm+s operation!

0inancial results!

Principles "y which it measures sales e#pensesassets and lia"ilities!


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*ri"ery and corruption

7 The +oreign Corrupt Practices ,ct +CP,01

passed in 1BB to prohi"it 2!S! firms to "ri"e

foreign officials for "usiness purposes!

7 +unctional lu"rication/Ena"ling pa)ments1theamount is small it is standardi@ed and is passed onto others involved in the processing of thedocuments!

7 2ri"er)1the process driven "y individual greedDthe amount depends on the individual official and isfor the official+s own personal use!


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7 In 16 the %rgani@ation of American States 9%AS:officially condemned "ri"ery!

7 The %rgani@ation for ,conomic Cooperation and8evelopment 9%,C8: in 1 agreed to change the

"ri"ery regulations among its mem"er countries toprohi"it the ta# deducti"ility of improper payments!

7 The Sar"anes&%#ley Act of 4554 was intended to protectinvestors "y improving the accuracy and relia"ility of

corporate disclosures!

*ri"ery and corruption


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Class iscussionTopic

The impact of terrorism in0rance and other countries of,urope on the internationaltrade with Asian countries

especially with .uslimcountries!

The conseuences of

terrorism should "e discussed"oth in short run and long runon the international "usinessas well!

international mkt. chapter#5

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