© Laureate International Universities 2016€¦ · International political party systems • Single party dominant system is used by communist countries and dictatorships. Revolutions

© Laureate International Universities 2016

MKT303A International Marketing

TOPIC TWOPOLITICAL, LEGAL, ECONOMIC & FINANCIAL

ISSUES


KEY POINTS FOR THIS SESSION…

• Political environments & types of structure• Political risks and issues• International agreements• International law and legal implications for business• The world economy versus the domestic economy• The monetary system, currency and fiscal issues• Economic and financial instability


Political environments & types of structureThe nature of government may be determined in part by its political ideology:• Capitalism

– Free enterprise, private ownership, many political parties

• Socialism – Government ownership & control of infrastructure

• Communism– One party domination, strict restriction on private ownership,

collectivism, often dictator run

• Dictatorship – Total domination by ruler, anything goes, corruption…


Political partiesThe number of political parties and their interaction influence the level of political stability

• Australia has a mainly dual party system with minor parties and independents having significant influence

• It is also a bi-cameral system with a ‘house of review’ (The Senate) which has to finally approve legislation put through by the ruling party in the ‘house of representatives’

• Australia also has three tiers of government from federal to state to local government. Each plays a role and each can influence business

• This is the most stable structure for international business


International political party systems• Single party dominant system is used by communist

countries and dictatorships. Revolutions may occur if the people reject this. Sometimes they are even successful!– Russia, Myanmar, China– Very high levels of control may adversely affect international

business

• True multi-party systems have no clear majority and government is formed through changing and sometimes quite fluid alliances– Italy, Japan, Taiwan– Control may be erratic and unreliable for business


Political risks and issues• Risk management is very important in assessing whether it is

appropriate to do business with a country.• Political risk may include government stability

– Italy has had more than 40 prime ministers since 1945• Countries run through single party systems may change rules

without notice and can nationalise overseas investment without adequate compensation.– China has taken this action

• Countries may ignore international law– Japan and the international whaling treaty

• Countries may be technically bankrupt and supported by others– Greece has been a problem for the EU for many years


How to measure risk• Political risk consultancies specialise in analysing data

and assessing risk for commercial clients• The number one risk for some years has been the fallout

from the 9/11 era which continues to produce domestic and international terrorism. This varies from country to country.

• While no country is without risk, some countries, like Norway and Sweden, Australia and New Zealand, Canada and Austria, present far lower risks than countries such as Somalia, Venezuela, Myanmar and Brazil


International agreements

• There are political and trade controls between countries• Tariffs tax imports directly and therefore control volume and act as a

source of income• Non-tariff barriers include quotas, subsidies, rules for import• Embargoes are usually politically driven• Sanctions are more narrowly defined trade restrictions, often

imposed for political reasons– Iraq, Iran, North Korea, Syria for example have all been subject

• Import and export licences control product movement• Governments sign ‘free trade agreements’ which usually relax rather

than abandon regulation between the two– Australia with the US and China for example


International law and legal implications for business

• International law is ‘voluntarily binding’ on countries that have relationships with each other

• Much of this is based on mutual trust and there is no real mechanism for enforcement

• Local law usually overrides international law within a country’s own boundaries

• Local laws vary dramatically and are based on different legal systems

• If you are doing business in a foreign country you and your organisation are bound by their local laws

• These may affect pricing, distribution, promotion & communication as well as the actual product or service you are marketing


Types of legal systems• Common law systems

– Based on legal precedent and customs – often very old

• Code law systems– Based on a written code, statutes and codes for law– Hard to ‘interpret’ this style of law and it must be very detailed

• Islamic law systems– Based on the legal interpretation of the Koran and therefore

cannot be questioned. Considered a harsh legal system by some

• Socialist law systems– Mostly represented by the old communist regimes and now only

really existing in countries like North Korea and Cuba


Intellectual property protectionThis is an area of much discussion and activity. International laws do exist to protect intellectual property (IP) but some countries do not take much notice and this results in constant breaches• Patents

– Legal monopoly status on the process or technology• Copyright

– Legal protection of words, images and software code• Trademarks

– Legal protection of brand imagery, however transmitted• Counterfeiting

– Illegal or unauthorised copying of any of the above for sale


IMAGE SOURCED FROM: http://images.bwbx.io/cms/2014-11-05/02-Intro46_map_970c.jpg


http://images.bwbx.io/cms/2014-11-05/02-Intro46_map_970c.jpg

The world economy versus the domestic economy• The global economy is very complex and many countries and

regions are inextricably entwined• The Eurozone represents those countries in the European Union

(EU) that have the Euro as their common currency• This is supposed to flatten the currency issues across the zone, but

this has not happened. The Greek financial crisis of technical bankruptcy has severely damaged the concept

• The Global Financial Crisis (GFC) which started in the US in 2007 led to a collapse of credit and recession across the world

• Domestic economies rely on international trade and stable currency exchange

• Australia, for example, relies on about 34% of its GDP as international trade. New Zealand relies on about 62% (2011 data)


The World Trade Organisation (WTO)

An international organisation that deals with the rules of trade and also overseas the flow of trade between nations with the aim of liberalising and expanding trade for reciprocal benefit. It was formed through the General Agreement on Tariffs and Trade or GATT.

• The WTO has more than 154 member countries

• Most Asia-Pacific countries are members including Australia and New Zealand

• China has been a member since 2001


The monetary system, currency and fiscal issues• The monetary system is the way a country manages its national

finances through the control of monetary instruments such as the Reserve Bank of Australia cash rate

• Recent global and national events have proved that monetary policy does not always work to control economic growth and stability

• Fiscal policy is the tax regime in a country and how it taxes within its borders and how it taxes imports and potentially exports

• Many countries have a ‘value added’ tax like the Australian GST which is added to the sales prices and collected nationally. This will affect sales prices of exports or internationally generated products and services

• Currency exchange is controlled largely by speculators in an open market and by governments using monetary policy as a lever


Economic and financial instability• The International Monetary Fund (IMF) was established in 1944 to

oversee the post-war international monetary system.• It has a role in managing stability It also has a role in preventing global

financial disaster!• The World Bank was originally created to assist and fund post-war

reconstruction and now has a role with the IMF as the ‘lender of last resort’ to struggling nations

• The Asian Crisis of the 1990s was the biggest problem since the oil crisis of the 1970s and this was followed by the GFC in 2007

• Europe continues to struggle with problems as Germany remains the power house of financial strength with Greece, Portugal and Spain particularly weak

• The United Kingdom has remained outside the Eurozone while working within the EU

• The reality is that the world still does not have financial stability in 2015


Summary

International marketing clearly relies on the ability of an organisation to transcend its national boundaries and produce or sell products and services to customers in other jurisdictions.

The reality is that political and legal frameworks must be considered along with economic and financial situations in those territories.

There are many traps and unknowns and successful international marketing requires diligent research and analysis, excellent judgement and a degree of commercial bravery.

It is not for the faint-hearted or the under-resourced.


Documents

© Laureate International Universities 2016€¦ · International political party systems • Single party dominant system is used by communist countries and dictatorships. Revolutions