International Marketing

Sixth Edition
International Student Version

Masaaki Kotabe • Kristiaan Helsen

Chapter 5
Political and Legal Environment

Copyright © 2013 John Wiley & Sons, Inc.

 Chapter Overview

1. Political Environment--Individual
Governments
2. Political Environment--Social Pressures and
Political Risk
3. Terrorism and the World Economy
4. International Agreements
5. International Law and Local Legal
Environment
6. Issues Transcending National Boundaries

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 Introduction

• International marketers should be aware that

the economic interests of their companies can
differ widely from those of the countries in
which they do business.
• International marketers must abide by various
international agreements, treaties and laws.
• Political and legal climates are inherently
related and inseparable because laws are
generally a manifestation of a country’s
political processes.

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 1. Political Environment - Individual
Governments
• Government affects almost every aspect of
business life in a country.
• National politics affect business environment
directly, through changes in policies,
regulations, and laws.
• The political stability and mood in a country
affect the actions a government will take.
• Home Country versus Host Country.

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 1. Political Environment - Individual
Governments
• Structure of Government
– Ideology
– Communism
– Capitalism
– Socialism
– Political Parties
• Single-party-dominant country
• Dual-party system
• Multi-party system
• Government Policies and Regulations
It is the role of government to promote a country’s interests
in the international arena for various reasons and objectives
such as: national security, developing new industries, and
protecting declining industries.

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 1. Political Environment - Individual
Governments
• Incentives and Government Programs
• Government Procurement
• Trade Laws
• Tariff and Nontariff Barriers (Exhibit 5-1)
• Embargoes and Sanctions
• Export License Requirements
• Investment Regulations (ownership and financial
controls)
• Macroeconomic Policies (governments’ monetary and
fiscal policies such as the cost of capital, level of
economic growth, rates of inflation and international
exchange rates)
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Exhibit 5-1: Tariff
and Nontariff
Barriers

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 2. Political Environment - Social
Pressures
and Political Risk
• Social Pressures and Special Interests
Foreign companies also have to consider social
factors as part of the political environment of
host countries, e.g., feelings of nationalistic
sentiment.
• Managing the Political Environment
– Expropriation
– Confiscation
– Nationalization
– Domestication Policy/Phase-Out Policy
– Countertrade (See Exhibits 5-2 and 5-3.)
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Exhibit 5-2: Government Policy Areas

and Instruments

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Exhibit 5-3: Country Risk Assessment
Criteria

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 Exhibit 5-4: Examples of Country
Risk Ratings

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 Exhibit 5-4: Examples of Country
Risk Ratings
(continued)

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 Exhibit 5-4: Examples of Country
Risk Ratings
(continued)

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 3. Terrorism and the World Economy

• According to an IMF study, the September 11,

2001 terrorist attacks in New York and
Washington D.C. resulted in major losses for the
U.S. economy.
• The short-term lost economic output was
estimated as $47 billion.
• The stock market lost $1.7 trillion. In addition,
125,000 workers were laid off for 30 days.
• Terrorist activities disrupt international
movement of supplies and merchandise and
financial flows.
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 4. International Agreements

• G7 (Group of Seven) is an economic policy

coordination group made up of political leaders
from Canada, England, France, Germany, Italy,
Japan, and the United States.
• G8 (Group of Eight) consists of G7 and Russia.
• COCOM (The Coordinating Committee for
Multilateral Controls) was founded in 1949 to
stop the flow of Western technology to the
former Soviet Union; members countries include
Australia, Japan and the NATO countries except
Iceland.
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 5. International Law and
Local Legal Environments
• International Law (the law of nations) comes
from three main sources:
– Customs
– International treaties
– Court decisions

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 5. International Law and
Local Legal Environments
• Local Legal Systems and Laws
– Business Practices and the Legal Systems

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 5. International Law and
Local Legal Environments
– Regulations on e-Commerce - privacy issues
– Types of Legal Systems
• Common Law
• Code (written) Law
• Islamic Law
• Socialist Laws
• Civil Law
• Commercial Law

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 5. International Law and
Local Legal Environments
• Cultural Values and Legal Systems
– Japan’s population of lawyers is low.
– In the U.S., emphasis is on explicit contracts
and a reliance on the legal system is high.
– In China, relationships (guanxi) and verbal
contracts are important.
– In Brazil, Jeitinho is used to find solutions
outside the legal system.
• Planning Ahead
• Arbitration and Enforcement

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 Exhibit 5-6: The Number of Lawyers
per 100,000 Residents

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 6. Issues Transcending National
Boundaries
• ISO 9000 certification has become an
essential marketing tool for firms.
• ISO 14000 is based on the principle of self –
regulation, thereby minimizing surveillance
and sanctions.
• Intellectual Property Protection
– TRIPs (Trade-Related Aspects of Intellectual
Property Rights)
– Patent (first-to-file & first-to-invent principles)

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 6. Issues Transcending National
Boundaries
– Copyright
– The Digital Millennium Copyright Act (DMCA)
– Trademark (prior-use, first-to-use & first-to-file
principles)
– Trade Secret
– Paris Convention
– Patent Cooperation Treaty
– Patent Law Treaty
(See Exhibit 5-7.)

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 Exhibit 5-7: Ratings for the Level of
Intellectual Property Protection in
Various Countries

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 6. Issues Transcending National
Boundaries
– European Patent Convention
– Berne Convention
– WIPO Copyright Treaty
– Anti-Counterfeiting Trade Agreement
• Antitrust Laws of the United States
– The Sherman Act
– The Clayton Act
– Extraterritorial application of U.S. antitrust laws
– Export Trading Company (ETC) Act of 1982

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 6. Issues Transcending National
Boundaries
• Antitrust Laws of the European Union
• Foreign Corrupt Practices Act (FCPA) of
1977
– The FCPA was designed to prohibit the
payment of any money or anything of value to
a foreign official, foreign political party, or any
candidate for foreign political office for
purposes of obtaining, retaining, or directing
business.

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 6. Issues Transcending National
Boundaries
– The FCPA does not prohibit so-called facilitating
or grease payments.
– Small payments to lower level officials are
allowed to expedite the process.
– FCPA does not prohibit bribery payments to
nongovernmental personnel.

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