Chapter 3

POLITICAL AND LEGAL ENVIRONMENT

Prepared by Robin Roberts Griffith University

Learning objectives
After studying this chapter, you should be able to: Describe how the nature and policies of individual governments affect the environment for doing business Discuss how social and cultural pressures and political risk affect the business environment

Learning objectives
Outline international legal agreements and briefly discuss their strengths and limitations Describe how international and local laws, conventions and agreements affect international marketing decisions

Overview
Business needs to consider political and legal environmental forces The economic interests of the country that an international marketer does business in might not necessarily coincide with their own The political and legal environments that impact them

Political environment individual governments

The government at home and abroad will affect the way in which business operates and several issues need to be considered:
home country versus host country structure of government government policies and regulation

Political environment individual governments

Home country versus host country 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

Political environment individual governments

Home country versus host country Host country the country in which the company can do business Marketers must understand the nature of the host countrys political and legal climate
internet growth in China increasing FDI in Vietnam

Political environment individual governments

Structure of government ideology Communism
system with strict regulation of private ownership most enterprises are state owned

Capitalism
system where free enterprise and private ownership is encouraged

Socialism

Political environment individual governments

Structure of government Political parties
Single party system North Korea Dual Party System USA Multi Party System Italy

Political environment individual governments

An important role of government is to promote a countrys national interests
they invest in important industries offer incentives to a variety of industries reason to restrict or block trade are:
national security develop new industries protect declining industries

Political environment individual governments

Government policies and regulation 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

Political environment individual governments

Government policies and regulation 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

Political environment individual governments

Government policies and regulation Investment regulations Ownership controls
Australias Foreign Investment Review Board and the control it exercises when assets are deemed to be in the national interest blocking Kuwaiti ownership of US ports by the US government

Financial controls

Political environment individual governments

Government policies and regulation Macroeconomic policies determine
cost of capital level of economic growth rates of inflation international exchange rates

Managed through:
fiscal policy and monetary policy

Political environment social pressures and political risk

Managing the political environment
national interest
Venezuelas control of national oil interests and ongoing fight with Exxon

government policy areas

legal administrative direct market

Government policy areas and instruments

Table 3.1

Political environment social pressures and political risk

Table 3.1 Country risk assessment

Political environment social pressures and political risk

Table 3.3 Examples of country risk ratings (selected countries ranked by current overall rating)

Political environment social pressures and political risk

Table 3.3 Continued

Terrorism and the world economy

Terrorist attacks are an emerging concern Business and government concerns Post 9/11 inherent changes in the way international business is conducted Contingency planning is at the forefront of business strategy planning

International agreements
Nations developing relationships with one another
Free Trade Agreements
Australia and USA

Global Agreements
World Trade Organisation G7

Comprehensive agreements
Australia and New Zealand
comprehensive and effective free trade

International law and the local legal environment

Managers need to understand the laws of both the country they do work in and the country they come from
international law local legal systems and laws jurisdiction

International law and the local legal environment

International Law Rules and regulations voluntarily adopted by, and binding on states in their dealings with one another
difficult to enforce in some cases
East Timor and Australia over the disputed boundaries of the Timor Sea in 2002

International law and the local legal environment

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

International law and the local legal environment

Table 3.4 Legal issues facing the organisation

International law and the local legal environment

Local legal systems and laws Jurisdiction
Which location to enforce the law? What about transactions on the internet? Should it be the country where the vendor is based or should it be where the customer is?

Issues transcending national boundaries

While there are a number of issues, four stand out:
1. ISO 9000 and 14000 2. Intellectual property protection 3. International treaties for intellectual property protection 4. Corrupt practices

Issues transcending national boundaries

ISO 9000 and 14000 Issues of quality transcending borders Allow businesses to talk with one voice across national boundaries Standards adopted and driven by the EU

Issues transcending national boundaries

Intellectual property protection Patent-Copyright-TrademarkDesign
more enforceable in some countries than others major infringements occurring globally
Bit torrent/DVD and music downloads

Trade secrets
issue of protection against

Issues transcending national boundaries

International treaties for intellectual property protection Paris Convention for the Protection of Industrial Property Patent Law Treaty WTO How enforceable?

Issues transcending national boundaries

Corrupt Practices Often seen from a cultural perspective
is charging interest on loans a corrupt practice?
in some countries it is considered corrupt

Bribery
US citizens can be prosecuted for violations abroad

Summary
You should now have an understanding of: How the nature and policies of individual governments affect the environment for doing business How social and cultural pressures and political risk affect the business environment

Summary
Outline international legal agreements and briefly discuss their strengths and limitations Describe how international and local laws, conventions and agreements affect international marketing decisions