The International Political and
Legal Environment
Politics Defined
• Politics can be seen as the process through
which power is exercised in society.
• It refers to decisions which effect society as a
whole, the process through which these
decisions are made, who makes them, how they
are agreed upon, made official and
implemented.
• Government – this refers to those individuals
who are able to make political decisions and the
institutions through which power is formally and
legitimately exercised.
Different Political System
• Two types of systems
1. Authoritarian systems – Power is held by a
single authority. This may be an individual or
group of people.
2. Democratic systems – Power is held by the
people who elect individuals to represent them.
• Both systems can vary according to the degree
of popular involvement and transparency they
engender.
Types of Democracy
• Democracy may vary between a Central
System and a Federal System.
• Democracies can also be divided between
Anglo-Saxon, Continental and Oriental.
These have different traditions and
emphases.
• Within democracies one must also
distinguish between positive and negative
freedom.
Pressure Groups
• These are organisations which represent the views and
interests of individuals and groups to government and try
to influence its decisions and policies.
• They are an important part of Civil Society.
• Pressure groups either represent ‘someone’ – e.g. a
trade union or ‘something’ – e.g. protecting the
environment.
• Pressure groups can be professional or voluntary.
• They provide vital information to governments
concerning groups within society, provide important
ideas, are valued for their expertise and provide
important links between the government and the people.
Electorate
Parliament
(the legislature)
Political parties
4
Electoral system
GOVERNMENT
Pressure
groups
Key
Flow of representation
Flow of responsibility
Pressure group influence
Figure 3.3 The elected government at Westminster
The Political Environment
• Made up of governmental institutions, political
parties, and organizations that rulers and people
use to wield power
• Each nation’s political culture reflects the
importance of the government and legal system
• Issues for foreign investors include the
governing party’s view on sovereignty, political
risk, taxes, equity dilution, and expropriation
5-7
The Importance of the Political
Environment
• Understanding the political environment is a central task
of the international marketer. Political environments vary
greatly and contain many unknowable uncontrollables.
• Politics has a influences on:
– Permission to do business in a country
– Regulation of the economy
– Regulation of foreign business
– Control of permits and licenses
– Taxation and fiscal measures
– Intellectual property
– Execution of the law
– Issues management
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
5-9
Political Risks
• Confiscation
• Expropriation
• Domestication
• Economic risks (Exchange controls, Local-
content laws, Import restrictions, Tax controls,
Price controls, Labour problems)
• Political sanctions
• Violence
• Political reprisals
• War
Labour Dispites
The Multinational Companies:
social groups with whom they may
have to deal
• Workforce
• Suppliers
• Customers
• Competitors
• Pressure groups
• Shareholders
• Religious groups
• Academia
• General public
• Minority groups
• Public media
• Government &
agencies
• Conservationists
• Financial community
The Multinational Companies:
issues with which they may have
to deal
• Nationalism
• Industrial democracy
• Environment protection
• Energy & raw materials
• Taxes
• Incentives & restrictions
• Investment approvals &
permits
• Personal relations
• Attracting personnel Mergers & acquisitions
• Money & credit
• Legitimacy
• Prices & profits
• Company & product
image
• Consumerism
• Gender issues
• Union relations
• Equal opportunities
Global Risk Rating
Strategies to Lessen Political
Risk
• Joint ventures
• Expansion of investment base
• Marketing and distribution
• Licensing
• Planned demonstration
• Other
Trade Barriers
• Trade barriers are erected by domestic governments to
inhibit the inward flow of goods and services.
• They are usually erected to protect domestic producers
or to generate revenue.
• The most common type of trade barriers are tariffs which
are taxes imposed on imports, thus making them more
expensive and less competitive compared to locally
produced goods. There are, however, other types of
non-tariff barriers:
– Quotas
– Embargoes
– Administrative delays
– Local-content requirements
Barriers to world trade
The development of world trading groups
FIGURE 2.s Regional trading areas of the word
APEC
Australia United States Taiwan, China Peru
Brunei Malaysia China Russia
Canada New Zealand Mexico Vietnam
Indonesia Philippines Chile
Japan Singapore Hong Kong, China
Thailand Rep. of Korea Papua New Guinea
NAFTA
Canada
iik• Mexico
United States
MERCOSUR Argentina Brazil Paraguay Uruguay Venezuela associate members Peru
Bolivia
Chile
Equador
Columbia
EU
Austria
Belguim
Britain
Bulgaria
Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary
Ireland
Italy
Latvia
Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden
ASEAN FTA Brunei Cambodia China Indonesia Laos Matasyia Myanmar Philippines Singapore Thailand Vietnam
TRADE AREAS
• NAFTA: free trade area
– US, Canada, Mexico
– World’s richest single market
• Mercosur: customs union
– Brazil, Paraguay, Uruguay, Venezuela and
Argentina
• APEC: forum of 21 countries bordering the
Pacific
• ASEAN: free trade area
-Thailand, Indonesia, Singapore, Brunei, Malaysia,
Philippines, Vietnam, Myanmar, Cambodia and Laos
MAJOR CHANGES IN THE
SINGLE EUROPEAN MARKET
• Removal of tariff
barriers
• Removal of technical
barriers
• Public procurement
• Free movement of
labour and workers’
rights
• Opening up of
professions Financial services
• Transport, haulage
and coastal carriage
• Company law
• Fiscal barriers
• The environment
The Legal Environment
• The legal environment consists of the laws,
judicial system and legal structures of a given
country.
• No single, uniform international commercial legal
system exists governing foreign business
transactions. There are no international legal
courts, for example.
• Negotiating the legal environment consequently
means not only having a knowledge of a
country’s laws and legal system but also
determining which laws/system should be used
in the case of a dispute.
Bases for Legal Systems
• Common law
• Civil or code law
• Islamic law
• Marxist-socialist law
Cateora & Ghauri, International Marketing, European Edition, © 1999 McGraw-Hill 4-1
Legal Recourse
• Conciliation
• Arbitration
– Tribunals of arbitration
– Arbitration clauses
– Enforcement of arbitration
• Litigation
Cateora & Ghauri, International Marketing, European Edition, © 1999 McGraw-Hill 4-2
Protection of Intellectual
Property Rights – A Special
Problem
• Prior use versus registration
• International conventions
The Law of Contact – Another
Problem
• Contact Law governs agreements between two or more
parties and the performance of these agreements.
• Under Common Law impossibility of performance does
not excuse compliance with the provisions of the
contract unless it is impossible to comply for reasons of
an act of God (an extraordinary happening) such as a
natural disaster
• Under Contract Law impossibility of performance is
excusable under certain conditions.
• This clearly has implications for two contracting parties
operating under different legal systems
Commercial Law within
Countries
• Marketing laws
• Green marketing legislation
• Antitrust
Cateora & Ghauri, International Marketing, European Edition, © 1999 McGraw-Hill 4-3
Legal environment of the
European Union
• Decision-making process
– State aids
– Mergers & Acquisitions
• Competition policy
Conclusion
• Political, legal and economic environments offer challenges to
international marketers. While experts can be hired a basic
knowledge is fundamental.
• In relation to political environments it is highly important to
emphasise instability. Marketing is strategic and long term while
political change can be rapid. Marketers need to carefully analyse
their political environments
• Legal environments offer problems due to differences, variety and
lack of an international system. However key issues for the future
such as the environments, intellectual property and anti-trust issues
are covered by the law.
• Economic environments offer problems in relation to variability of
infrastructure, growth, inflation and currency exchange rates. Global
businesses need to hedge against these variations, accommodate
marketing strategies and keep a careful eye on global growth and
cost of living rates
Essay
• Description of the Assessment
•
• Answer one of the below three questions. This should be written as a single essay though with two parts reflecting Part A and Part B. Use examples and do not write a
single case study answer. The essay should be 3,000 words in length not including references. At least ten academic references should be used.
•
• Market Entry and Environment
• Part A
• What are the different methods of entry into oversea markets? What are the advantages and disadvantages of each of these methods?
• Part B
• How does the environment affect market entry? Provide an example of a company that adopts different entry methods in two different markets due to environmental
factors.
•
• Integrated Marketing Communication and Culture
•
• Part A
•
• What is Integrated Marketing Communication (IMC)? Discuss this answer in relation to communication tools and channels and the Buyer Readiness Stage/Hierarchy of
Affects Model. Why is marketing communication important to international marketing?
•
• Part B
•
• Why is culture such an important factor when developing communication strategies in overseas markets? Select a global company and two countries which are culturally
different. Show how the company uses different marketing communication in both countries due to culture.
•
• Segmentation, Targeting and Positioning and Adaptation
•
• Part A
•
• What is segmentation, targeting and positioning (STP)? Why is STP so important to the marketing process?
•
• Part B
•
• Why do brands sometimes change aspects of their STP in overseas markets. Provide an example of a brand which has adapted its STP in an international market and explain why adaptation has taken place.