Ch2 - Politics Legal v2

Chapter 2
Avoiding the pitfalls

of the international
political
and legal
environment
Different types of national
governments
Parliamentary governments
Citizens interact via voting
Industrialised nations - parliamentary democracies
Absolutist governments
Dictate government policy without considering
citizens opinions
Other governments
Most governments fall between the two extremes
Some monarchies and dictatorships have
parliamentary elections
Copyright 2014 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781442560833/Fletcher/International Marketing/6e
2
Role of government in economy:
Participator
Most extreme form of involvement is state
trading company (STC), a feature of
communist governments
Businesses need to establish degree of
government involvement
Protection of strategic industry and
bilateral agreements
Potential areas of commercial activity
undertaken by government include:
State-owned enterprises
Statutory marketing authorities
The pace of privatisation
3
Facilitator
Governments can act as a facilitator at macro $36
level via national industry policies: million
National economic plan
Harnessing the resources of the private sector
The public sector
External sources through bilateral and multinational
aid $200
Government can also facilitate at micro level: million
Tax incentives
Subsidies
Concessional loans or grants
4
Regulator
Governments regulatory activities involve:
Taxes in the domestic market e.g.:
Payroll tax
Road and haulage taxes
Inspection fees
Embargoes or boycotts on dealing with other
countries
Sometimes these are approved by the UN
Some are imposed by one country alone
They can be detrimental to all countries involved
5
Regulator (1)
Actions by individual governments can raise
questions of intrusion on national sovereignty:
Measures that are designed to delay or control the
acquisition of strategically important goods
Regulation of food exports can create both shortages and
escalation of prices in local markets
Restriction on imports to defend the local product; improve
balance of payments
Restrictions on foreign direct investment (FDI) limit the
ability of foreign firms to invest
Imposing countervailing duties on products to offset
subsidies given in the originating country
Imposing duties is an anti-dumping measure 6
Government intervention: Reasons
Reasons for:
Infant industries protection and national security
Safeguarding employment
Protection of citizens from imported human, animal and plant
health risks and to ensure food self-sufficiency
Where the playing field in the international market
is not level, government must act to redress the balance
Official investment and export promotion are needed
to compete with countries that do the same
Reasons against:
Intervention increases inefficiency
Tariffs are poor device for achieving industrial development
Protectionist responses do not always result in recovery 7
Political stability and risk
Political stability refers to gradual and
non-violent change
Indicators of political instability:
Degree of social unrest
Frequency of changes in the regime
Extent to which
country is divided
culturally
Religious division
Linguistic diversity
8
Sources of political instability
Political sovereignty: government
seeks to exert influence over foreign
operations through increases in taxes
Political conflict:
Turmoil unanticipated upheaval on major
scale e.g., military coup
Conspiracy planned act of aggression
against those in power e.g., assassination
Internal war organised violence on a
large scale against a government
Political instability example
G7 leaders hold crisis talks on

Ukraine during nuclear summit
Think about
Political instability
Ongoing conflict between Russia and Ukraine has
impacted on the stability of the region. View the video
and answer the following questions:
https://www.youtube.com/watch?v=HGIdeHnx7M8
1. Consider the geographical and historical factors

that have intertwined the politics and economics of
both countries.
2. How does the conflict between Russia and Ukraine

impact on the rest of the world?
11
Sources of political instability (1)
Political intervention: government
action forces the firm to change its
strategies, polices or operations:
Expropriation - official seizure of a
foreign firms property supposedly in
the public interest
Domestication - process in which
control and restriction are designed
to reduce the influence of the foreign
firm in the company
Cancellation of export/import licences
Making currency inconvertible
12
Risk and the political environment
Is the country a democracy or dictatorship?
Does the government rely on the free market or on
itself to allocate resources?
Are products or services to be offered in the public or
the private sector and, if the latter, is there a policy of
preferment for local firms?
When changing policies, does the government rely on
the rule of law or act arbitrarily?
How stable is the existing government and does
political change result in major changes to economic
policies?
13
Risk and product-related factors
What is the effect of adequate supply on the
countrys security or welfare?
Is the product a critical input for other industries?
Is the product socially or politically sensitive, as with
food and drugs?
Does the product have national defence significance,
as with uranium?
14
Risk and external factors
State of relations between government of home
country and government of other country
Size of international firm the larger it is, the more
threatening it may appear to be
Extent to which firm has visibility as a foreign business
the larger its visibility, the greater its vulnerability
15
Risk and external factors example
16
Risk and company factors
The general reputation of the firm internationally as
a good corporate citizen
The extent of past contributions by the firm to the
welfare and development of the host country
The extent to which operations in the country have
been localised
17
Think about
Risk and opportunities
While there are investment opportunities, there is also
risk in developing markets and assessing them. View
the video and answer the following questions:
http://www.youtube.com/watch?v=vNSLnIxvhnk&NR=1
1. Identify the macro risk (overall business
environment, potential market) and their implications
in doing business in China.
2. Then, identify the micro risk (who doing business
with) and their implications in doing business in
China.
18
Managing the overseas
political environment
Localisation of operations: the greater the
local ownership of an operation the less
likely it is to be subjected to political risk
When a foreign country demands that a firm
reduce its ownership, a firm can:
Leave the country altogether
Totally indigenise the company
Negotiate an arrangement under the new laws
Take pre-emptive action
19
Marketing implications of the
political environment
Carefully examine the political climate
Study the history of the governments intervention in
foreign business activities
Analyse the foreign government for its:
Stability
Competence in economic management
Frequency of changes in policy toward foreign investment
Nature of the relationship between the government and the
people
20
Differing legal systems
and jurisdictions
Common law
Based on traditions, past practices, legal precedents,
interpretations via court decision
Code law
Is derived from Roman law and operates in most countries
where common law is not used
The legal system is generally divided into three separate
codes - civil, commercial and criminal
All inclusive system of written rules/codes; courts adopt
precedence to fit the case
21
Differences between common law
and code law
22
Differing legal systems
and jurisdictions (1)
Islamic law
Is based on the Koran and is applied to varying degrees by
Islamic countries
It defines a complete system of social and economic
behaviour, with the overriding objective of social justice
Other legal codes
Included in this group are tribal or indigenous laws e.g.,
Aboriginal or Maori law
Also included are socialist laws based on the tenets of
Marxism
23
International law
International law grows out of the agreement of two or
more nations and implies a desire to lessen
differences in the way countries treat legal problems
Generally, international law minimises the range of
differences between national laws, particularly in
connection with political and military issues
Coverage has become much broader encompassing:
International trade
Investments
Taxation
Labour relations
Intellectual property
The environment
24
International law example
International law does not allow one

state to steal the territory of another
on the basis of a referendum
(Julie Bishop, 2014)
Legal jurisdiction
A common problem in international business is
determining which countrys law applies
Jurisdiction can become the subject of dispute where:
Practice of international law conflicts with national law
A nation tries to impose its laws on another
Business people operating overseas are required to
conform to the laws of their home country
26
Legal risk
Legal risk is the likelihood of unfavourable outcomes
due to legal uncertainties. It can arise from:
Non-compliance with laws and regulations
Changes in laws and regulations
Failure to protect the firms legal rights and interests
Contractual and non-contractual liabilities
Disputes and litigation
27
Law and the marketing mix
Laws governing each element of the
marketing mix may vary between countries
Product-related laws apply to:
The physical and chemical aspects of a product
Packaging and labelling requirements
Price
Many countries do not operate a free-market
system which impacts on price due to
government price control, anti-dumping laws
and laws related to transfer pricing
28
Law and the marketing mix (1)
Distribution is affected by regulations
covering physical distribution of
goods/carriers, the nature of channels
and intermediaries/resellers
Promotion is highly regulated in some
countries and includes:
Trade descriptions
Prohibitions on advertising certain products
Prohibitions on using certain words
Limitations on promotional expenditure
Content and style of advertising
Other promotional elements
29
Impact of law: Environment
Increasing move towards global
environmental standards
Environmental laws relate to:
Packaging, including material used
Recycling
Pollution
Energy consumption
30
Impact of law: Human resources
$58
million
Need to conform to local labour
laws, including:
Local laws regarding employment of
expatriate staff
Employment of unskilled guest

workers
31
Impact of law: Intellectual property
Differs between countries depending on legal systems
(common law versus code law)
Protection of intellectual property through:
Patents provide legal monopoly for specific period
Copyright protects original literary, musical, artistic and
dramatic works
Trademarks distinguish one product/service from another and
prevent others offering the product/service with a similar mark
Different rules apply in different countries
Firms can apply for registrations in other countries
but often the cost outweighs the benefits
WTO Trade in Intellectual Property (TRIPS) contains
new rules to protect intellectual property (IP)
32
Impact of law: Intellectual property (1)
33
Impact of law: Intellectual property (2)
Piracy is common with IP

Piracy refers to the unauthorised copying or use of
someone elses intellectual property
Brand piracy can involve taking a global brand or logo
and applying it to a product with which it has no
connection or by modifying existing global brand
names
The degree to which this is considered an important
issue varies between countries
34
Branding issues - Counterfeits
Think about
Legal versus ethics
Listen to Stay With Me and I Wont Back Down and

answer the following questions:
1. Do you think that Stay with Me has violated
copyright?
2. Even if you find no legal implications, what about
ethical ones?
Reducing the impact of foreign laws
on international activities
Transfer pricing
Firm sets the prices at which they transfer products,
technologies or services to their affiliates in other countries
Often used to arrange affairs so that countries offering most
benefits are targeted
International countertrade
Linking of an import and an export transaction in a
conditional way
Dumping
Selling products in an overseas market for below cost or
below domestic prices
Prohibited by the WTO
37
Marketing Implications - Legal
Be aware of those areas where international law
might impinge on international marketing activities
Be aware of differences in legal practices between
the home market and the overseas market
In many countries there is a difference between what
the law says and what people actually do
Interpretation of laws also differs between countries
following the same legal system
International marketers need to be sensitive to the
legal differences between the home country and
overseas markets
38
Contracts and dispute resolution
Conciliation: a third party mediates between
the parties; aim is to maintain an ongoing
relationship
Arbitration: a third party acts as a referee
on the merits of the case and makes a
determination that both parties agree to
accept
Litigation: legal ruling on the merits of the
case
39
Impact of law on international
operations: Anti-trust
Firms moving to overseas markets need to be aware
of anti-trust legislation
Laws with regard to anti-trust have been in existence in the
US for over a century
Laws are now emerging elsewhere e.g., Japan and the
European Union
The European Court of Justice has recently imposed
penalties for activities such as:
Price discrimination
Withholding supply
Other anti-competitive practices
40
Current issues questions
Julian Assange, WikiLeaks Founder
View the news article and answer the following questions:
http://www.telegraph.co.uk/news/worldnews/wikileaks/11681502/W
hy-is-Julian-Assange-still-inside-the-embassy-of-Ecuador.html
1. USA, Sweden and UK share a common extradition
policy. How has this policy been implemented in the
case of Julian Assange?
2. UK has criticised the UN Working Group on Arbitrary
Detentions ruling that Mr Assange
has been subjected to deprivation
as ridiculous. Discuss arguments
from both parties.
41
http://www.smh.com.au/entertainment/movies/ellens-selfie-a-surprise-for-everyone-says-samsung-20140306-348bt.html
http://www.mirror.co.uk/news/world-news/monkey-selfie-officials-rule-nobody-4088663#ixzz3E06TFGxS

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Chapter 2

Avoiding the pitfalls

G7 leaders hold crisis talks on

1. Consider the geographical and historical factors

2. How does the conflict between Russia and Ukraine

International law does not allow one

Employment of unskilled guest

Piracy is common with IP

Listen to Stay With Me and I Wont Back Down and

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