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MKTG 3361 - Legal and Political Environments

International Marketing chapters 6 and 7

Mario V. Gonzalez-Fuentes

on 22 September 2016

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Transcript of MKTG 3361 - Legal and Political Environments

International Marketing
The Sovereignty
of Nations

A sovereign state is independent and free from all external control
Nations can and do abridge specific aspects of their sovereign rights in order to coexist with other nations:

NAFTA – North America Free Trade Agreement
NATO – North Atlantic Treaty Organization
WTO – World Trade Organization
Government Types
Stability of Government Policies
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
Animosity targeted toward specific countries
Trade disputes themselves
Political Parties
It is important to know the direction each party is likely to take
Great Britain: the Labour Party (restrictive trade policies) vs. the Conservative Party (liberal trade policies)
Unpredictable and drastic shifts in government policies deter investments
Three attitudes to look for in political parties
Targeted fear and/or animosity
Trade disputes
An intense feeling of national pride and unity
National interest and security are more important than international relations
Countries use nationalism to protect themselves against intrusions (Latin America, India)
Nationalism comes and goes...
Targeted Fear and/or Animosity
Marketers should not confuse nationalism with a widespread fear or animosity directed at a particular country
- Toyota in the U.S. (1980s) – “fear of Japan”
- Animosity toward the United States in France
- The unhappiness of citizens and politicians in many other countries concerning the war in Iraq
No nation-state, however secure, will tolerate penetration by a foreign company into its market and economy if it perceives a social, cultural, economic, or political threat to its well-being
Trade Disputes
The Banana war between the European Union (EU) and the U.S. is a great example of trade disputes
Undervalued Chinese currency (making Chinese exports cheaper)
Chinese subsidies in apparent violation of WTO rules (making it hard to compete against Chinese firms who receive subsidies)
Farm subsidies in developed countries (protecting the farming industry in that country thus making it hard to compete against them)
Political Risks of
Global Business

the seizing of a company’s assets without payment
where the government seizes an investment but makes some reimbursement for the assets
when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees
Example: Air-India
Economic Risks
Exchange controls
Stem from shortages of foreign exchange held by a country
Local-content laws
Import restrictions
Countries often require a portion of any product sold within the country to have local content
Selective 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
Tax controls
A political risk when used as a means of controlling foreign investments
Price controls
Essential products that command considerable public interest (Pharmaceuticals, Food and Gasoline)
Labor problems
Labor unions have strong government support that they use effectively in obtaining special concessions from business
Political Sanctions
One or a group of nations may boycott another nation:

Stopping all trade between the countries

Issuing sanctions against trade of specific products (U.S. boycotts of trade with Cuba and Iran and sanctions against North Korea)
Political and Social Activists (PSAs)
Range from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect change
Not usually government sanctioned
Can interrupt the normal flow of trade
The Internet has become an effective tool to spread the word
Iraq war
Nongovernmental Organizations (NGOs)
(Red Cross and the Red Crescent, Amnesty International, Oxfam, UNICEF)
(Protests, Lobbying, Collaborations)
NGOs are increasingly affecting policy decisions made by governments

Many also are involved in mitigating much of the human misery plaguing parts of the planet
Violence and Terrorism
In the past 30 years, 80% of terrorist attacks against the U.S. have been aimed at American businesses

Tourism and International education are two industries that have been affected by terrorism.
Cyberterrorism and Cybercrime
attacks to inflict damage on a company with little chance of being caught
Each wave of viruses
Gets more damaging
Spreads so rapidly that considerable harm is done before it can be stopped
Tools for cyberterrorism - can be developed to do considerable damage
To a company,
An entire industry
A country’s infrastructure
Mounting concern over the rash of attacks
Business leaders and government officials addressed a Group of Eight conference
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
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
Top 20 States in Danger of Failing (Ranked)
Lessening Political

Strategies that MNCs use to minimize political vulnerability and risk
Joint ventures
Expanding the investment base
Planned domestication
Political bargaining
Political payoffs
The politiCal and legal environment
Playing by the rules
Bases for
Legal Systems

Four heritages form the basis for the majority of the legal systems of the world

Common law
Civil or code law
Islamic law
Marxist-socialist tenets
Individual interpretation may vary significantly
Common and
Code Law
Common law
Seeks interpretation through the past decisions of higher courts which interpret the same statues
Applies established and customary law principles to a similar set of facts
Are recognized as not being all-inclusive
Ownership is established by use
Code law
Legal system is generally divided into three separate codes
- Commercial
- Civil
- Criminal
Ownership is determined by registration
Considered complete as a result of catchall provisions found in most code-law systems
Islamic Law
prohibition against the payment of interest
Marxist-Socialist Tenets
Socialist countries are now more directly involved in trade with non-Marxist countries
Necessitated the development of a commercial legal system that allowed engagement in active international commerce (Pattern for development varies among countries)
Fundamental propositions as private ownership, contracts, due process, and other legal mechanisms have had to be developed
The basis for Islamic law is interpretation of the Shari'a
Islamic law defines a complete system that prescribes specific patterns of social and economic behavior for all individuals
Property rights
Economic decision making
Types of economic freedom
Emphasis on the ethical, moral, social and religious dimensions to enhance equality and fairness for the good of society
Jurisdiction in International Legal Disputes
No judicial body exists to deal with legal commercial problems arising between citizens of different countries
Jurisdiction is generally determined on the basis of:
Jurisdictional clauses included in contracts
Where a contract was entered into
Where the provisions of the contract were performed
Three ways to deal with international disputes:



buyer refuses to pay
product is of inferior quality
shipment arrives late
A nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences
All conferences between parties and the mediator are private and confidential
It is a friendly route to resolving disputes, but:
It is not legally binding
An arbitration clause should be included in all conciliation agreements
Conducted under the auspices of one or more arbitration groups organized specifically to facilitate the resolution of commercial disputes
To arbitrate in the case of a dispute according to the rules and procedures of some arbitration tribunal
To abide by the awards resulting from the arbitration
Contracts and other legal documents should include clauses specifying agreement on two counts:
Arbitral centers:
Inter-American Commercial Arbitration Commission
Canadian-American Commercial Arbitration Commission (for disputes between Canadian and U.S. businesses)
London Court of Arbitration (decisions are enforceable under English law and English courts)
American Arbitration Association
International Chamber of Commerce (select Arbitration)
The best advice is to seek settlement
Deterrents to litigation:
Fear of creating a poor image and damaging public relations
Fear of unfair treatment in a foreign court
Difficulty in collecting a judgment that may otherwise have been collected in a mutually agreed settlement through arbitration
The relatively high cost and time required when bringing legal action
Loss of confidentiality
Protection of Intellectual Property Rights
What is intellectual property?
Millions of dollars in brand names or trademarks

Millions to develop products, processes, designs, and formulas
Lost sales from the unauthorized use of U.S. patents, trademarks, and copyrights: more than $100 billion annually

Counterfeit pharmaceuticals:
2% of the $327 billion worth of drugs sold each year
Intellectual property
Counterfeiting and Piracy
Prior Use
whoever can establish first use is typically considered the rightful owner
the first to register a trademark or other property right is considered the rightful owner
Three major international conventions
- Paris Convention for the Protection of Industrial Property
- Inter-American Convention
- Madrid Arrangement
World Intellectual Property Organization (WIPO): Responsible for the promotion of the protection of intellectual property and for the administration of the various multilateral treaties through cooperation among its member states
Patent Cooperation Treaty (PCT)
European Patent Convention (EPC)
The Trade-Related Aspects of Intellectual Property Rights (TRIPs)
International Conventions
Marketing Laws
Regulated activities:
Product development
Channels of distribution
Discrepancies across markets
Differences in enforcement and interpretation
Green Marketing Legislation
Focus on:
Environmentally friendly products and
Product packaging and its effect on solid waste management

In the past, a company was deemed to have a taxable presence in a country if it had a permanent establishment there

The EU Commission: Proposes value-added tax (VAT)
The EU Commission has adopted an e-commerce directive that will permit online retailers to trade by the rules of their home country unless the seller had enticed or approached the consumer by way of advertising
Jurisdiction of disputes and validity of contracts
Full transcript