Marketing Latam - 04 Economical, Political and Legal Environments

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Global MarketingDoing Business in Latin America

4. Economical, Political and Legal Environments

This presentation (and extra material) belongs to Natalia Ceruti´s Global Marketing Course, within the Leading the Way to Success in Latin America Program. Should not be copied, nor reproduced, in full or in parts, without Natalia Ceruti´s permission.

Economical Environment


Source: World Bank - http://geo.worldbank.org/

Income Analysis 2010World Economies


Economic Freedom 2010

Source: The Heritage Foundation - http://www.heritage.org/


Economic Freedom 2010

Germany

23

Argentina

135

Chile

10

Finland

17

France

64


Doing Business 2009

Source: World Bank - http://rru.worldbank.org/businessplanet/

• Starting a Business

• Dealing with Licenses

• Employing Workers

• Registering Property

• Getting Credit

• Protecting Investors

• Paying Taxes

• Trading Across Borders

• Enforcing Contracts

• Closing a Business


Argentina - Economical Facts

http://data.worldbank.org/country/argentina


Patterns of Multinational Cooperation

Regional Cooperation Groups: Governments agree to participate jointly to develop basic industries beneficial to

each economy.

Free Trade Area: An agreement between two or more countries to reduce or eliminate customs duties and nontariff trade barriers among partner countries. Members maintain

individual tariff schedules for external countries.

Customs Union: Enjoys free trade area’s reduced or eliminated internal tariffs. Adds a common external tariff on products

imported from countries outside the union.

Common Market: Eliminates all tariffs and other restrictions on internal trade. Adopts a set of common external tariffs.

Removes all restrictions on the free flow of capital and labor among member nations.


• NAFTA• Canada, United States, Mexico• FTA • Promote economic growth through

tariff reductions and expanded trade and investment

• No common external tariffs• Restrictions on labor and other

movements remain

http://www.nafta-sec-alena.org/

North America - NAFTA


Key Provisions of NAFTA


• Sistema de la Integración Centroamericana (SICA) • El Salvador, Honduras,

Guatemala, Nicaragua, Costa Rica, Belize and Panama

• Moving towards a common market

• Common External Tariff of 0 to 15%

• Retains tariffs on goods also produced in importing country

http://www.sica.int/

Central American Integration System (SICA)


CARICOM

http://www.caricom.org/


• Comunidad Andina (CAN)• Bolivia, Colombia, Ecuador, Peru• Customs Union• Abolished foreign exchange,

financial and fiscal incentives, and export subsidies

• Established common external tariffs

http://www.comunidadandina.org/

Andean Community


• MERCOSUR• Argentina, Brazil, Paraguay, Uruguay• Customs union, seeks to become common

market• Internal tariffs eliminated• Established common external tariffs up to 20%• In time, factors of production will move freely

through member countries• Associate members

• Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela

• Participate in free trade area but not in customs union

http://www.mercosur.org.uy/

Mercosur

• UNASUR • Argentina, • Brasil, • Bolivia, • Colombia, • Chile, • Ecuador, • Guyana, • Paraguay, • Perú, • Surinam, • Uruguay, • Venezuela.


UNASUR

http://www.pptunasur.comwww.nataliaceruti.com · [email protected]

Competitive Landscape

• Players (5 Types)1. Large Domestic Firms (FCs)2. State Owned Enterprises (SOEs)3. Multinational Corporations (MNCs) 4. Small and Medium-Sized Enterpises (SMEs)5. Microenterprises

• Informal Economy???


1. Large Domestic Firms

• Family Conglomerates (FCs)• Large, privately-owned companies, highly diversified, that

control economic activity and employment in emerging markets

• Grandes Grupos Económicos (GGE)

• Origin:• Early 1900, ISI period after WWII, 1990s• Expansion based on development of Natural Resources• Growth based on Diversification (Vertical Int)• Acquisition of businesses in their industries


2. SOEs

• Govenment owns them because of:• Ideology (nationalism & populism) (Venezuela?)• Income (profit generation)• Finance (foreign financial institutions)• Employment (employers of least resort, political patronage)

• Pattern of Poor Perfomance:• State ownership is abstract (Profit Claims?)• Managers are shield from stock market effects• Managers have to satisfy objectives set by politicians• Government subsides protect internal inefficiencies


3. SMEs

• Nearly 90% of Private-Sector Activity

• Main activities:• Agriculture• Manufacturing (Textile)• Retailing• Services• Transportation

• Principal Market: Domestic


3. SMEs: Microenterprises

• Owner-operated

• ! 10 employees

• Financed out of personal savings

• Fixed assets ! U$S 20.000

• 30% to 60% female owners

• Members of the family are workers


4. Multi National Companies

• MNCs are positioning themselves to maintain and expand their competitive advantages through the development of networks, technology and management savy

• MNCs need to concentrate on• Design of Organizational Structure• Management Processes• Culture, values and behaviour


Microenterprises

• Owner-operated

• ! 10 employees

• Financed out of personal savings

• Fixed assets ! U$S 20.000

• 30% to 60% female owners

• Members of the family are workers

• Limited access to financing


Informal Economy

• Nearly 60% of Latin American workers are empoyed in the Informal Sector

• Street vendors, Home workers, Electricians, Carpenters, Plumbers, Beauticians, Mechanics, Maids, etc.

• Underground Activities: those that have legal ends but employ illicit means

• Informal activities: those involved in them, as well as society in general, benefit more if the law is violated than if it is not. (Why???)

• Movement of people from formal to informal sector

• Poorly educated people´s first paid job


La Salada

http://ferialasalada.com.ar/


Economic Risks

Exchange controlsStem from shortages of foreign exchange held by a country.

Local-content lawsCountries often require a portion of any product sold within

the country to have local content.

Import restrictionsSelective restrictions on the import of raw materials to force foreign industry to purchase more supplies within the host

country and thereby create markets for local industry.


Economic Risks

Tax controlsA political risk when used as a means of controlling foreign

investments.

Price controlsEssential products that command considerable public interest.

Pharmaceuticals, Food, Gasoline.

Labor problemsLabor unions have strong government support that they use effectively in obtaining special concessions from business.

Political Environment


Stability of Government Policies

• Issues that can affect the stability of a government• Radical shifts in government philosophy when an opposing political

party ascends to power• Pressure from nationalist and self-interest groups• Weakened economic conditions• Bias against foreign investment• Conflicts between governments

• Five main political causes of international market instability • Some forms of government seem to be inherently unstable• Changes in political parties during elections can have major effects

on trade conditions• Nationalism• Animosity targeted toward specific countries• Trade disputes themselves


A Sampling of Government Types


Political Parties

• In countries where two strong political parties typically succeed one another, it is important to know the direction each party is likely to take• Great Britain: The Labour Party vs. the Conservative Party

• Unpredictable and drastic shifts in government policies deter investments, whatever the cause of the shift

• A current assessment of a country’s political philosophy and attitudes is important in gauging their stability and attractiveness in terms of market potential


Political Parties


Nationalism

• An intense feeling of national pride and unity• An awakening of a nation’s people to pride in their country

• National interest and security are more important than international relations

• Countries use nationalism to protect themselves against intrusions • Threats from outside forces • Declines in the domestic economy

• Nationalism comes and goes • As conditions and attitudes change• Foreign companies welcomed today may be harassed

tomorrow and vice versa


Risk

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.

http://www.euromoney.com


Political Risks of Global Business

Confiscation: the seizing of a company’s assets without payment.

Expropriation: where the government seizes an investment but makes some reimbursement for the

assets.

Domestication: when host countries gradually cause the transfer of foreign investments to national control

and ownership through a series of government decrees. Mandating local ownership. Greater national

involvement in a company’s management.


Confiscation


Expropriation


Political and Social Activists

• Not usually government sanctioned

• Can interrupt the normal flow of trade

• Range from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect change

• The Internet has become an effective tool of PSAs to spread the word


Piqueteros


Politically Sensitive Products and Issues

• Politically sensitive products• Perceived to have an effect on the environment, exchange

rates, national and economic security, and the welfare of people

• Are publicly visible or subject to public debate

• Health is often the subject of public debate, and products that affect or are affected by health issues can be sensitive to political concern

• The European Union has banned hormone-treated beef for more than a decade


Forecasting Political Risk

• Political risk assessment • An attempt to forecast political instability • To help management identify and evaluate political events • To predict their potential influence on current and future

international business decisions

• Government failure is greatest risk to international marketers • Causing chaos in the streets and markets

• Risk assessment of investments• Used to estimate the level of a risk a company is assuming• Helps determine the amount of risk a firm is prepared to

accept


Lessening Political Vulnerability

• Relations between governments and MNCs are generally positive if the investment• Improves the balance of payments by increasing exports or

reducing imports through import substitution• Uses locally produced resources• Transfers capital, technology, and/or skills• Creates jobs• Makes tax contributions

• Political parties often focus public opinion on the negative aspects of MNCs whether true or false• As scapegoats for their own failure • To serve their own interests


Lessening Political Vulnerability

• Strategies that MNCs use to minimize political vulnerability and risk• Joint ventures• Expanding the investment base• Licensing • Planned domestication• Political bargaining• Political payoffs


Summary

• The foreign firm must strive to make its activities politically acceptable or it may be subjected to a variety of politically condoned harassment

• The foreign marketer frequently faces the problem of uncertainty of continuity in government policy

• Marketing firms accepted under one administration might find its activities undesirable under another • As governments change political philosophies

• Unfamiliar or hostile political environment does not necessarily preclude success for foreign marketers• If the company becomes a local economic asset and responds

creatively to the issues raised by political and social activities• If a company is considered vital to achieving national economic

goals, the host country often provides an umbrella of protection

Legal Environment


Protection of Intellectual Property Rights

• Companies spend millions of dollars establishing brand names or trademarks• To symbolize quality and design• To entice customers

• Millions are spent on research • To develop products, processes, designs, and formulas

• Intellectual or industrial properties are among the most valuable assets

• New technologies developed to prevent piracy


Property Rights

http://www.inpi.gov.ar


Property Rights


Inadequate Protection

• Failing to adequately protect intellectual property rights can lead to the legal loss of rights in potentially profitable markets

• There have been many cases where companies have legally lost the rights to trademarks and have had to buy back these rights or pay royalties for their use

• Many businesses fail to take proper steps to legally protect their intellectual property


Prior Use Versus Registration

• A company that believes it can always establish ownership in another country by proving it used the trademark or brand name first is wrong and risks the loss of these assets

• It is best to protect intellectual property rights through registration

Prior UseWhoever can establish first use is typically considered the

rightful owner.

RegistrationThe first to register a trademark or other property right is

considered the rightful owner.


Marketing Laws

• All countries have laws regulating marketing activities• Promotion• Product development• Labeling• Pricing• Channels of distribution

• Discrepancies across markets cause problems for trade negotiators – particularly for managers and their firms• Some countries only have a few marketing laws with lax

enforcement• Others have detailed, complicated rules that are stringently

enforced


Law Enforcement - Football & TV Rights



Sources

• Cateora, P., Gilly, M. and Graham, J. (2009). International Marketing, 14th ed. New York: MacGraw-Hill.

• Czinkota, M. and Ronkainen, I. (2010). International Marketing, 9th ed. New York: Cengage Learning.

• Keegan, W. and Green, M. (2011). Global Marketing, 6th ed. New Jersey: Pearson Education.

• Kerin, R., Hartley, S. and Rudelius, W. (2007). Marketing The Core, 2nd ed. New York: MacGraw-Hill Irwin.

• Kotler, P. and Armstrong, G. (2006). Principles of Marketing, 11th ed. New Jersey: Pearson Education.

• Kotler, P. and Keller, K. L. (2009). Marketing Management, 13th ed. New Jersey: Pearson Education.