Chapter 6 & 7 International Marketing

global perspective

• a crucial reality of international business

  • both host and home governments are integral partners

• a government controls and restricts a company’s activities

  • by encouraging and offering support

  • by discouraging and banning or restricting its activities

• international law recognizes the sovereign right of a nation

  • to a grant or withhold permission to do business within its political boundaries

  • to control where its citizens conduct business

the sovereignty of nations

• a sovereign state

  • indeoendent

  • free from all external control

• sovereignty

  • powers exercised by a state in relation to other countries

  • supreme powers exercised over its own members

five main political causes of international market instability

• some forms of goverment seem to be inherently unstable

• changes in political parties during elections can have major effect on trade conditions

• nationalism

• animosity targeted toward specific countries

• trade disuputes themselves

forms of government

• ancient greek critized three fundamental forms of government 

  • rule by one (monarchy)

  • rule by a few (aristocracy)

  • rule by many (democracy)

• circa 1990 — collapse of communism

  • free-enterprise democracy considered the best solution

examples of government types by country

china, cuba, vietnam; communist state

saudi arabia; a monarchy

myanmar; military junta

political parties

• in countries where two strong political parties typically succeed one another, it is imporant to know the direction each party is likely to take

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

nationalism

• an intense feeling of national pride and unity 

  • an awakeking 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 tehmselves against instrusions

  • threats from outside forces

  • declines in the domestic economy

• nationalism comes and goes

targeted fear/animosity

• marketers should not confuse nationalism with a widespread fear of animosity directed at a particular country

  • toyota in the US (1980s)

• no nation-state, however secure, will tolerate penetration by a foreign copany into its market and economy 

  • if it perceives a social, cultural, economic, or political threat to its well-being

• tarde disputes

political risks of global business

• confiscation 

• expropriation

• domestication

confiscation

the seizing of a company’s assets withouth payment

expropriation

where the government seizes an investment but makes some reimbursement for the assets

domesticaton

when host countries gradually cause the transfer of foreign investments to national control and owenership through a series of government decrees

• mandating local ownership

• greater national involvement in a compan’y management

economic risks

• exchange controls

• local-content laws

• import restrictions

• tax controls

• price controls

• labor problems

exchange controls

stem from shortages of foreign exchange held by a country

local-content laws

countries often require a portion of any product sold within the country to have local content

import restrictions

selective restrictions on the import of raw materials to force foeign industry to purchase more supplies within the host country and thereby create markets for local indsutry

tax control

a political risk when used as a means of controlling foreing investments

price controls

essential products that command considerable public interest

• food 

• gasoline

labor problems

labor unions have strong government support that they use effectively in obtaining special concessions from business 

reducing political vulnerability

• relations between governments and MNCs are generally positive if the investment 

  • improves the balance of payments by increasing exports and reducing imports through import substitution

  • create jobs

  • use locally produced resources

strategies that MNCs use to minimize political vulnerability and risk

• joint ventures

• expanding the investment base

• liscending

• planned domestication

• political bargaining

• political payoffs (not recommended)

bases for legal systems

• common law

• civil/code law

• islamic law

• marxist-socialist law

common law

is tradition, past practices, and legal precedents set by courts through interpretations of statutes, legal legislation, and past rulings

• recognized as not being all-inclusive

• owenership is established by use

code law

 based on an all-inclusive system of written rules (codes) of law. Ownership is established by registration. Under code law, the legal system is generally divided into three separate codes: 

• commercial

• civil

• criminal

islamic law

• the basis for the islamic law is interpretation of the Koran

• it defines a complete system that prescribes specific patterns of social and economi behavior for all individuals

  • property rights

  • economic decision making

  • types of economic freedom

• among the unique aspects of this law is the prohibition against the payment of interest

• places emphasis on the ethical, moral, social, and religious dimensions to enhance equality and fairness for the good of the society

marxist-socialist tenets

• revolves around the key areas of economic, political, and socialist policies of the state

jurisdiction in international legal disputes

• no confirmed judicial body exists to address legal commercial problems arising between citizens of different countries

legal disputes can arise in three situations

• between governments 

• between a company and a government 

• between two companies

jusrisdiction is generally determine in one of three ways

• on the basis of jurisdictional clauses included in contracts

• on the basis of where a contract was entered into

• on the basis of where the provisions of the contract were performed

the most clear-cut decisions can be made when the contracts or legal documents supporting a business transactio indluce a jurisdictional clause

international dispute resolution conciliation

• conciliation is a nonbinding agreement between parties to resolve disputes by asking a third party to mediate difference

• conciliation sessions are private and all conferences between parties and the mediator are confidential

• although it may be a friendly route, it is not legally binding; thus an arbitration clause should be included in all conciliation agreements

international dispute resolution arbitration

the procedure is for the parties involved to select a disinterested and informed party of parties as referees to determine the merits of the case and make a judgment that both parties agree to honor 

international dispute resolution litigation

the process in which a dispute between parties is contested in a formal judicial setting; commonly instigated by a lawsuit assert one party's version of the facts 

• the best advice is to seek settlement

• problems to litigation:

  • fear of creating a poor image and damaging public relations

  • loss of confidentiality

  • the relatively high cost and time required when bringing legal action