Chapter 5 Copyright (c) 2007 John Wiley & Sons, Inc. 1 Global Marketing Management, 4e Chapter 5 Political and Legal Environments

Chapter 5Chapter 5 Copyright (c) 2007 John Wiley & Sons, Inc.Copyright (c) 2007 John Wiley & Sons, Inc. 11

Global Marketing Management, 4eGlobal Marketing Management, 4e

Chapter 5

Political and Legal Political and Legal EnvironmentsEnvironments


Chapter OverviewChapter Overview

1. Political Environment---Individual 1. Political Environment---Individual GovernmentsGovernments

2. Political Environment---Social 2. Political Environment---Social Pressures and Political RiskPressures and Political Risk

3. Terrorism and the World Economy3. Terrorism and the World Economy4. International Agreements4. International Agreements5. International Law and Local Legal 5. International Law and Local Legal

EnvironmentEnvironment6. Issues Transcending National 6. Issues Transcending National

BoundariesBoundaries


IntroductionIntroduction

International marketers should be aware that the International marketers should be aware that the economic interests of their companies can differ economic interests of their companies can differ widely from those of the countries in which they do widely from those of the countries in which they do business.business.

International marketers must abide by various International marketers must abide by various international agreements, treaties and laws.international agreements, treaties and laws.

Political and legal climates are inherently related Political and legal climates are inherently related and inseparable because laws are generally a and inseparable because laws are generally a manifestation of a country’s political processes.manifestation of a country’s political processes.


1. 1. Political Environment - Individual Political Environment - Individual GovernmentsGovernments

Government affects almost every aspect of Government affects almost every aspect of business life in a country.business life in a country.

National politics affect business National politics affect business environment directly, through changes in environment directly, through changes in policies, regulations, and laws.policies, regulations, and laws.

The political stability and mood in a country The political stability and mood in a country affect the actions a government will take.affect the actions a government will take.

Home Country vs. Host Country.Home Country vs. Host Country.


1. Political Environment - Individual 1. Political Environment - Individual GovernmentsGovernments

Structure of GovernmentStructure of Government::– Ideology Ideology – CommunismCommunism– CapitalismCapitalism– SocialismSocialism– Political PartiesPolitical Parties

Single-party-dominant countrySingle-party-dominant country Dual-party systemDual-party system Multi-party systemMulti-party system

Government Policies and Regulations: It is the role of Government Policies and Regulations: It is the role of government to promote a country’s interests in the government to promote a country’s interests in the international arena for various reasons and objectives such international arena for various reasons and objectives such as: national security, developing new industries, and as: national security, developing new industries, and protecting declining industries.protecting declining industries.


1. Political Environment - Individual 1. Political Environment - Individual GovernmentsGovernments

Incentives and Government ProgramsIncentives and Government Programs Government ProcurementGovernment Procurement Trade LawsTrade Laws Tariff and Nontariff Barriers (see Exhibit 5-1)Tariff and Nontariff Barriers (see Exhibit 5-1) Embargoes and SanctionsEmbargoes and Sanctions Export License RequirementsExport License Requirements Investment Regulations (ownership & financial controls)Investment Regulations (ownership & financial controls) Macroeconomic Policies (governments’ monetary & fiscal Macroeconomic Policies (governments’ monetary & fiscal

policies such as the cost of capital, level of economic policies such as the cost of capital, level of economic growth, rates of inflation & international exchange rates)growth, rates of inflation & international exchange rates)


1. Political Environment - Individual Governments1. Political Environment - Individual Governments


2. Political Environment - Social 2. Political Environment - Social Pressures and Political RiskPressures and Political Risk

Social Pressures and Special Interests- foreign Social Pressures and Special Interests- foreign companies also have to consider social factors as companies also have to consider social factors as part of the political environment of host countries, part of the political environment of host countries, e.g., feelings of nationalistic sentiment.e.g., feelings of nationalistic sentiment.

Managing the Political EnvironmentManaging the Political Environment::– ExpropriationExpropriation– ConfiscationConfiscation– NationalizationNationalization– Domestication Policy/Phase-Out PolicyDomestication Policy/Phase-Out Policy– CountertradeCountertrade


2. Political Environment - Social 2. Political Environment - Social Pressures and Political RiskPressures and Political Risk


2. Political Environment - Social Pressures and Political Risk2. Political Environment - Social Pressures and Political Risk


3. Terrorism and the World Economy3. Terrorism and the World Economy

According to an IMF study, the September 11, According to an IMF study, the September 11, 2001 terrorist attacks in New York and 2001 terrorist attacks in New York and Washington D.C. resulted in major losses for the Washington D.C. resulted in major losses for the U.S. economy. U.S. economy.

The short-term lost economic output was The short-term lost economic output was estimated as estimated as $47 billion$47 billion..

The stock market lost The stock market lost $1.7 trillion$1.7 trillion.. In addition, In addition, 125,000 workers125,000 workers were laid off for 30 days. were laid off for 30 days.

Terrorist activities disrupt international movement Terrorist activities disrupt international movement of supplies and merchandise and financial flows.of supplies and merchandise and financial flows.


4. International Agreements4. International Agreements

G7 (Group of Seven)G7 (Group of Seven) is an economic policy is an economic policy coordination group made up of political leaders coordination group made up of political leaders from Canada, England, France, Germany, Italy, from Canada, England, France, Germany, Italy, Japan, and the United States.Japan, and the United States.

G8 (Group of Eight)G8 (Group of Eight) consists of G7 and Russia. consists of G7 and Russia. COCOMCOCOM (The Coordinating Committee for (The Coordinating Committee for

Multilateral Controls) was founded in 1949 to stop Multilateral Controls) was founded in 1949 to stop the flow of Western technology to the former the flow of Western technology to the former Soviet Union; members countries include Soviet Union; members countries include Australia, Japan and the NATO countries except Australia, Japan and the NATO countries except Iceland.Iceland.


5. International Law and 5. International Law and Local Legal Environment Local Legal Environment

International Law (the law of nations) comes from International Law (the law of nations) comes from three main sources:three main sources:– CustomsCustoms– International treatiesInternational treaties– Court decisionsCourt decisions


5. International Law and 5. International Law and Local Legal EnvironmentsLocal Legal Environments

Local Legal Systems and LawsLocal Legal Systems and Laws– Business Practices and the Legal SystemsBusiness Practices and the Legal Systems

Issues of green marketingIssues of green marketing– Regulations on E-Commerce- privacy issuesRegulations on E-Commerce- privacy issues– Types of Legal Systems:Types of Legal Systems:

Common LawCommon Law Code (written) LawCode (written) Law Islamic LawIslamic Law Socialist LawsSocialist Laws Civil LawCivil Law Commercial LawCommercial Law


5. International Law and 5. International Law and Local Legal EnvironmentLocal Legal Environment

Cultural Values and Legal Systems:Cultural Values and Legal Systems:– Japan’s population of lawyers is low.Japan’s population of lawyers is low.– In the U.S., emphasis is on explicit contracts and a In the U.S., emphasis is on explicit contracts and a

reliance on the legal system is high.reliance on the legal system is high.– In China, relationships In China, relationships ((guanxiguanxi)) and verbal contracts are and verbal contracts are

important.important.– In Brazil, In Brazil, JeitinhoJeitinho is used to find solutions outside the is used to find solutions outside the

legal system.legal system. Planning AheadPlanning Ahead Arbitration and EnforcementArbitration and Enforcement


6. Issues Transcending National 6. Issues Transcending National BoundariesBoundaries

ISO 9000 certification has become an essential ISO 9000 certification has become an essential marketing tool for firms.marketing tool for firms.

ISO 14000 is based on the principle of self –ISO 14000 is based on the principle of self –regulation, thereby minimizing surveillance and regulation, thereby minimizing surveillance and sanctions.sanctions.

Intellectual Property Protection:Intellectual Property Protection:– TRIPs (Trade-Related Aspects of Intellectual TRIPs (Trade-Related Aspects of Intellectual

Property Rights)Property Rights)– Patent (first-to-file & first-to-invent principles)Patent (first-to-file & first-to-invent principles)



– Copyright Copyright – The Digital Millennium Copyright Act (DMCA)The Digital Millennium Copyright Act (DMCA)

– Trademark (prior-use, first-to-use & first-to-file Trademark (prior-use, first-to-use & first-to-file principles)principles)

– Trade SecretTrade Secret– Paris ConventionParis Convention– Patent Cooperation TreatyPatent Cooperation Treaty– Patent Law TreatyPatent Law Treaty



– European Patent ConventionEuropean Patent Convention– Berne ConventionBerne Convention

Antitrust Laws of the United States:Antitrust Laws of the United States:– The Sherman ActThe Sherman Act– The Clayton ActThe Clayton Act– Extraterritorial application of U.S. antitrust lawsExtraterritorial application of U.S. antitrust laws– Export Trading Company (ETC) Act of 1982Export Trading Company (ETC) Act of 1982



Antitrust Laws of the European Union:Antitrust Laws of the European Union: Foreign Corrupt Practices Act (FCPA) of 1977Foreign Corrupt Practices Act (FCPA) of 1977::

– The FCPA was designed to prohibit the The FCPA was designed to prohibit the payment of any money or anything of value to a payment of any money or anything of value to a foreign official, foreign political party, or any foreign official, foreign political party, or any candidate for foreign political office for purposes candidate for foreign political office for purposes of obtaining, retaining, or directing business.of obtaining, retaining, or directing business.



– The FCPA does not prohibit so called The FCPA does not prohibit so called facilitatingfacilitating or or grease paymentsgrease payments..

– Small payments to lower level officials are Small payments to lower level officials are allowed to expedite the process.allowed to expedite the process.

– FCPA does not prohibit bribery payments to FCPA does not prohibit bribery payments to nongovernmental personnel.nongovernmental personnel.



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Chapter 5 Copyright (c) 2007 John Wiley & Sons, Inc. 1 Global Marketing Management, 4e Chapter 5 Political and Legal Environments