Global Marketing ch5
Political Environment
Marketing activities take place within the macroenvironmental context (the external broad environment) that includes the
Political Environment: governmental institutions, political parties, and organizations through which a country’s people and rulers exercise power
Firms function within the culture of the market, but there is also a political culture which reflects the importance of the government and legal system and is the setting within which individuals and organizations so business
Political issues include: sovereignty, political risk, tax policies, threat of equity dilution, risk of expropriation
Sovereignty
Sovereignty: supreme and independent political authority
Some believe that the integration of global markets is eroding national economic sovereignty
Ex. in the EU, individual countries gave up their rights to a national currency, product standards in exchange for better market access
The textbook says “if countries can increase their share of world trade and increase national income, perhaps they will be willing to cede some sovereignty.” Said another way, “countries may be willing to give up sovereignty in return for something of value”
This is a macro-micro dilemma: what is goods for some, may not be good for all
Which countries might be winners? Which countries might be losers?
Even within a nation there are ‘have lots’ and ‘have nots’ and there are some separatist and secessionist movements that are undermining the sovereignty of the nation as the ‘have lots’ don’t want to support the ‘have nots’ with their taxes
Political Risk
Risk of change in political environment or in 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
Managers needs to track political trends through a continual collection of market information
Organizations may purchase insurance as a hedge against political instability
Political Risk Examples
War
Social unrest involving demonstrations, strikes, and street violence
Politically motivated violence
International disputes
Change in government/pro-business orientation
Corruption, nepotism
Tax discrimination
Exchange controls, tariff barriers
Dependence on and/or importance to a major hostile power
Taxes
Government tax revenues fund social services, the military, and other expenditures. Tax policy can motivate companies and individuals to avoid paying taxes
High taxation can lead to black market growth and cross-border shopping
High import duties in China leads to smuggling of oil, cigarettes, PCs, film
In Great Britain, cars returning from France bring in an average 80 bottles of wine
Companies like Amazon, Google, and Apple attempt to limit tax liability by shifting location of income
Seizure of Assets
Expropriation- governmental action to dispossess (take away) a foreign company or investor of their assets-- basically imminent domain
Compensation should be provided in a “prompt, effective, and adequate manner”
It is confiscation when no compensation is provided which is generally forbidden by international law-- it still happens even
Nationalization- a government takes control of some or all of the enterprises in an entire industry
Acceptable according to international law if:
Satisfies public purpose
Includes “adequate payment”
Seizure of Assets
Seems unethical, but remember, countries are sovereign. Is this the risk an organization takes by locating there?
Creeping Expropriation occurs when the government doesn’t outright take the asset but limits the economic activities of foreign firms
US courts will not get involved. Companies must seek recourse through World Bank’s International Centre for Settlement of Investment Disputes (ICSID) or purchase expropriation insurance
International Law
Global firms must know the rules and principles that nations consider binding among themselves
Pertains to property, trade, immigration, and other areas that have traditionally been under the jurisdiction of individual nations
Disputes between nations are issues of public international law
World Court or International Court of Justice (ICJ);
Judicial arm of the United Nations located in The Hague in the Netherlands
Settles disputes between nations
Offers advice on legal issues submitted by various international agencies - they all need to “agree to agree”
Common Law vs Civil Law
Private International Law is the body of law that applies to disputes arising from commercial transactions between companies based on different nations
There is conflict as to whether laws governing commerce should be rooted in common law, or civil law
Common Law:
Disputes are decided by reliance on the authority of past judicial decisions (case law)
When no statute to follow, the precedent is followed
Common law is used in only a few areas; the US Uniform Commercial Code fully adopted by 49 states US, Canada
Civil Law:
Legal system reflects the structural concepts and principles of the Roman Empire based on private-law codes (code law)
Codes are considered the all inclusive source of authority by references to which every disputed case must be referred for decision
Continental Europe & majority of countries
Islamic Law
Legal system in many Middle Eastern countries such as Malaysia, Egypt, Iraq, Syria, Afghanistan and others
In Islamic Law the Sharia is a comprehensive code governing Muslim conduct in all areas of life, including business
Two sources:
Koran-Holy Book; like code law
Hadith-like common law
Based on life, sayings, and practices of Muhammad
Identifies forbidden practices “haram”
Sidestepping Legal Issues
How to avoid legal issues? Get expert legal help and
Prevent conflicts by doing the following:
Establish jurisdiction
Protect intellectual property
Protect licenses and trade secrets
Avoid bribery
Comply with advertising & promotion regulations
Jurisdiction
Refers to a court’s authority to rule on particular types of issues arising outside of a nation’s borders or to exercise power over individuals or entities from different countries
Employees of foreign companies should understand the extent to which they are subject to the jurisdiction of host-country courts
Courts have jurisdiction if it can be demonstrated that the company is doing business in the state in which the court sits
Intellectual Property
Intellectual property must be registered in each country where business is conducted
Patent- gives an inventor exclusive right to make, use, and sell an invention for a specified period of time
Trademark- distinctive mark, motto, device, or emblem used to distinguish it from competing products
Copyright- establishes ownership of a written, recorded, performed, or filmed creative work
Infringement of Intellectual Property includes:
Counterfeiting- unauthorized copying and production of a product
Associative Counterfeit/Imitation- product name differs slightly from a well-known brand
Piracy- unauthorized publication or reproduction of copyrighted work
Protecting Intellectual Property
In the US, registration is with the Federal Patent and Trademark Office
In Europe, applicants use the European Patent Office or register country by country
Madrid Protocol trademark owners are protected in 74 countries with 1 application
Firms may file for patent protection before entering the market
Starbucks did this in Russia but didn’t open any cafes. A Russian attorney established the trademark and Starbucks had to buy the name back for $600,000
Antitrust
Antitrust Laws are designed to combat restrictive business practices including fixing prices, limiting production, allocating markets, or any other scheme designed to limit or avoid competition
Applies to US companies outside US borders and to foreign companies operating in the US
In 2017 Margrethe Vestager fined Alphabet Inc’s Google unit ($2.72) for abusing its dominance in search
Licensing and Trade Secrets
Licensing is a contractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology, and other intangible assets in return for royalty payments or other forms of compensation
The duration of the agreement and amount of royalties are considered a matter of commercial negotiation between the parties
Trade Secrets are confidential information or knowledge that has commercial value and is not in the public domain and for which steps have been taken it secret
To prevent disclosure, use Confidentiality Contracts
Bribery and Corruption
Bribery is the corrupt business practice of demanding or offering some type of consideration- typically in the form of cash payments- when negotiating business deals
Foreign Corrupt Practices Act: Makes it a crime for a US corporation to bribe an official of a foreign government or political party to obtain or retain business
Prohibits payments to third parties when there is reason to believe it may be channeled to foreign officials
Omnibus Trade and Competitiveness Act: Allows for “grease” payments to cut red tape; ex. Getting shipments through customs, getting permits
When conflict arises, how to resolve? Litigation or Arbitration: a negotiation process that the two parties have, by prior agreement, committed themselves to using. Arbitration settles disputes outside of court
Recall
What does it mean for a nation to be “sovereign.” As international marketers, why do we care?
A sovereign nation has full control over its own laws, policies, and governance without external influence. International marketers must confide sovereignty because it affects trade regulations, market entry strategies, legal compliance, and government intervention in business operations
Political issues discussed include all of the following EXCEPT:
Sovereignty
Political Risk
Standardization of laws
Tax Policies
Risk of Expropriation
_____ is when a government takes control of some or all of the enterprises in an entire industry
Taxation
Confiscation
Expropriation
Social Absorption
Nationalization
The International Court of Justice (ICJ) is located:
In The Hague (Netherlands)
It no longer exists
In the US
In Asia
Online
The Nike swoosh is a/an ______
Trademark
Unprotected mark
Patent
Artistic rendering
Copyright
Amazon makes senior managers and low-level employees sign documents that they will not tell anyone Amazon’s trade secrets. Amazon is using ______ to protect trade secrets
Disclosure Restrictions
Privacy Agreements
Confidentiality contracts
Gag orders
The courts