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Chapter 3

POLITICAL ANDLEGAL ENVIRONMENT

Prepared by Robin Roberts

Griffith University


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Learning objectives

After studying this chapter, youshould be able to:

Describe how the nature andpolicies of individualgovernments affect theenvironment for doing business

Discuss how social and culturalpressures and political risk affectthe business environment


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Learning objectives

Outline international legalagreements and briefly discusstheir strengths and limitations

Describe how international andlocal laws, conventions andagreements affect international

marketing decisions


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Overview

Business needs to considerpolitical and legal environmentalforces

The economic interests of thecountry that an internationalmarketer does business in might

not necessarily coincide withtheir own

The political and legal

environments that impact them


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Political environmentindividual governments

The government at home andabroad will affect the way in whichbusiness operates and several

issues need to be considered: home country versus host country

structure of government

government policies and regulation


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Home country versus hostcountry

Home country where the

parent organisation is based the relationship between home

and host countries needs to be

considered Frances explosion of a nuclear

device in the Pacific in the 1990s

laws at home

Americans forbidden to take bribes



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Home country versus hostcountry

Host country the country in

which the company can dobusiness

Marketers must understand the

nature of the host countryspolitical and legal climate

internet growth in China

increasing FDI in Vietnam



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Structure of government ideology

Communism

system with strict regulation of privateownership

most enterprises are state owned

Capitalism system where free enterprise and private

ownership is encouraged

Socialism


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Structure of government

Political parties

Single party system North Korea

Dual Party System USA

Multi Party System Italy



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An important role of governmentis to promote a countrys nationalinterests

they invest in important industries

offer incentives to a variety ofindustries

reason to restrict or block trade are: national security

develop new industries

protect declining industries



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Government policies andregulation

Incentives and government

programs tax incentives for hi-tech industries

in certain parts of China

agricultural subsidies in Europe

Government procurement

The Buy American Act

50% of the parts of a product purchased



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Trade Laws

economic trade control

tariff - taxing imports directly

non-tariff barriers - quotas, subsidies,

local content requirements, standards,anti-dumping

political trade control

embargoes and sanctions


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Government policies and regulation

Investment regulations

Ownership controls

Australias Foreign Investment ReviewBoard and the control it exercises whenassets are deemed to be in the

national interest blocking Kuwaiti ownership of US ports

by the US government

Financial controls


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Macroeconomic policiesdetermine

cost of capital

level of economic growth

rates of inflation

international exchange rates

Managed through:

fiscal policy and monetary policy


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Political environment socialpressures and political risk

Managing the politicalenvironment

national interest

Venezuelas control of national oilinterests and ongoing fight with Exxon

government policy areas

legal

administrative

direct market


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Government policy areasand instruments

Table 3.1


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Table 3.1 Country risk assessment


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Table 3.3Examples of countryrisk ratings (selectedcountries ranked bycurrent overall rating)


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Table 3.3Continued

T i


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Terrorismand the world economy

Terrorist attacks are an emergingconcern

Business and government

concerns

Post 9/11 inherent changes inthe way international business is

conducted

Contingency planning is at theforefront of business strategy

planning


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International agreements

Nations developing relationshipswithone another

Free Trade Agreements Australia and USA

Global Agreements

World Trade Organisation G7

Comprehensive agreements

Australia and New Zealand comprehensive and effective free trade

I t ti l l d th


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International law and thelocal legal environment

Managers need to understandthe laws of both the country theydo work in and the country they

come from international law

local legal systems and laws

jurisdiction

I t ti l l d th


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International Law

Rules and regulations voluntarily

adopted by, and binding onstates in their dealings with oneanother

difficult to enforce in some cases

East Timor and Australia over thedisputed boundaries of the Timor Sea in2002


I t ti l l d th


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Local legal systems and laws Business practices and the legal

system price fixing and collusion comparative advertising

Regulation on e-commerce

Types of legal systems statute

common

Cultural values and legal systems

I t ti l l d th


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Table 3.4 Legal issues facing theorganisation

I t ti l l d th


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Local legal systems and laws

Jurisdiction

Which location to enforce the law?

What about transactions on theinternet?

Should it be the country where the

vendor is based or should it bewhere the customer is?


I di


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Issues transcendingnational boundaries

While there are a number ofissues, four stand out:

1. ISO 9000 and 14000

2. Intellectual property protection

3. International treaties forintellectual property protection

4. Corrupt practices

I t di


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ISO 9000 and 14000

Issues of quality transcending

borders Allow businesses to talk with one

voice across national boundaries

Standards adopted and driven bythe EU


I t di


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Intellectual property protection

Patent-Copyright-Trademark-Design

more enforceable in some countriesthan others

major infringements occurring

globally Bit torrent/DVD and music downloads

Trade secrets

issue of protection against


I t di


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International treaties forintellectual propertyprotection

Paris Convention for the Protectionof Industrial Property

Patent Law Treaty

WTO

How enforceable?


I t di


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Corrupt Practices

Often seen from a culturalperspective

is charging interest on loans acorrupt practice?

in some countries it is considered corrupt

Bribery US citizens can be prosecuted for

violations abroad



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Summary

You should now have anunderstanding of:

How the nature and policies ofindividual governments affectthe environment for doingbusiness

How social and culturalpressures and political riskaffect the business environment


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Summary

Outline international legalagreements and briefly discusstheir strengths and limitations

Describe how international andlocal laws, conventions andagreements affect international

marketing decisions


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