INTERNATIONAL LEGAL ENVIRONMENT

An integral part of a country’s culture are the laws governing business

activities. Therefore, a Marketer faces as many different legal
environments as there are countries where he or she tries to penetrate.

For instance, an Indian company having an American agent, doing

business in France has to contend with three legal jurisdictions, three
legal systems, three tax systems, and in addition, the supranational
European Community laws and regulations, each of which could be
potentially contradicting the others.

Therefore, it is very important to understand the nuances of the

different systems so that the business transaction is done in the
correct environment, or at least in an environment clearly understood
by the Marketer.
INTERNATIONAL LEGAL ENVIRONMENT

The Four Heritages of today’s Legal Systems

Islamic Law:

Pakistan, Iran, Arab Countries, and other Islamic States follow this System, also
called the Shari’ah Law. It is based on interpretation of the Koran. It encompasses
religious duties as well as secular aspects of Law. It prescribes specific patterns of
social and economic behaviour of all individuals.

How do individuals tackle “interest” on loans given out – such

interest is forbidden by Koran!
INTERNATIONAL LEGAL ENVIRONMENT

The Four Heritages of today’s Legal Systems

Socialist Law:

This is based on the fundamental tenets of the Marxist – Socialist State, and cluster
around the core concept of Social, Political, and Economic Policies of the State.
Property, Contract, Arbitration denote different realities to Common Law.

Common Law:

Derived from English Law, and prevalent in the USA, UK, Canada, and the British
Commonwealth, this is based on Tradition, Past Practices, and Legal Precedences
set by courts through interpretation of Statutes, Legislations and Past Rulings.
INTERNATIONAL LEGAL ENVIRONMENT

The Four Heritages of today’s Legal Systems

Code Law:

Code Law, where the Legal System is generally divided into three separate Codes -
Commercial, Civil, and Criminal, is based on an all inclusive system of written rules
(Codes) of Law.
INTERNATIONAL LEGAL ENVIRONMENT

Legal Disputes

Jurisdictions of Legal Disputes

International Legal Disputes can arise in three ways:

– Between two Governments

– Between a Company and a Government, and
– Between two Companies

In International Commercial Disputes, therefore, the question of paramount

importance is, Which Law Governs in the dispute?
INTERNATIONAL LEGAL ENVIRONMENT

Legal Disputes

Jurisdictions of Legal Disputes

The jurisdiction of the case is generally determined by:

– Jurisdiction clauses set in the contract

– Where the Contract was entered into
– Where the provisions of the Contract were performed
INTERNATIONAL LEGAL ENVIRONMENT

Legal Recourse in resolving International Disputes

Conciliation: Sorting out the problem is the best option. If need be, use the
offices of the Chambers of Commerce, or the Commercial Attache of the
local embassies.

Arbitration: There are various arbitration bodies, like the inter American
Commercial Arbitration Commission, London Court of Arbitration, International
Chamber of Commerce, etc.

Typical Arbitration Clause: All disputes arising in connection with this present contract shall
be finally settled under the rules of conciliation and arbitration of the ICC, by one or
more arbitrators appointed in accordance with the said rules.
INTERNATIONAL LEGAL ENVIRONMENT

Legal Recourse in resolving International Disputes

Litigation:A Lawsuit should be avoided unless it is absolutely necessary.

Possible consequences of a Lawsuit in a foreign country,
irrespective of the outcome, are:

» Creation of a poor image and damaged PR, both very difficult to rebuild
» Face unfair treatment in a foreign court
» Difficult to obtain a judgement that would otherwise be obtained by
arbitration
» Very high cost and very long time taken in international legal action
» Total loss of confidentiality of business strategy and practices
 BRIBES IN INTERNATIONAL MARKETING

Factors Responsible for Bribes

Home Country Factors

• It is the cost of doing business in certain countries

• It is an established practice in certain countries, which one cannot avoid
• Encouragement by the Government to “buy influence” in certain political situations
• The importance of hiring middlemen services in certain countries, to “bridge gap”
between medieval aristocracies and modern corporations
• Increasing competition in international markets
• Pressure from top management to achieve results
• Opportunities to protect undercover operations via Swiss Banks
 BRIBES IN INTERNATIONAL MARKETING

Factors Responsible for Bribes

Host Country Factors

• Lure of easy money

• Political involvement in Decision Making
• Token of “Appreciation”
• Friendly gesture
• Fair “Business Deal”
• Pressure from Vendors
 BRIBES IN INTERNATIONAL MARKETING
Major Types of Bribes

• Facilitating Payments: Disbursement of small amounts of payments in cash or kind, such as

tips or gifts to Government Officers to expedite clearance of shipments, documents, or other
routine transactions.
• Middlemen Commissions: Appointment of in-between people as middlemen (agents or
consultants) to facilitate sales in a non-routine manner, and payment of excessive
allowances and commissions (not commensurate to the services they perform) to them.
• Political Contributions: Contributions that take the form of extortion, since they are in violation
of the law and custom of the land. Moreover, these payments, while not illegal, are
specifically made with the intention of winning favours directly or indirectly.
• Cash Disbursements: Cash payments are made to important people through slush funds or
in some other way, usually in a third country, such as deposits made into numbered Swiss
Bank Accounts.
 DEVELOPING MARKETS - MARKET BEHAVIOUR
Stages of a Country’s Economic Development

1. The Traditional Society: Countries at this stage of development lack the capability of
significantly increasing the level of Productivity. A country in this stage of development
lacks a systematic application of scientific application of scientific and technological
methods, and is burdened by low levels of literacy and the resultant social overheads.
2. The Preconditions of Takeoff: Societies on the verge of Economic and Technological
Takeoff fall into this Transitional Stage. It is marked by advanced technologies and
scientific applications in agriculture and production, and the development of
transportation, health care, education, power and other public undertakings.
3. The Take Off: Here, the country achieves a growth pattern that becomes “normal”.
Human Resources and Social Overheads have reached a point of steady development.
Agriculture and Industrial Modernization lead to rapid expansion at this stage.
4. The Drive to Maturity: Sustained progress is maintained and the economy seeks to
extend modern technology on all economic activity fronts. Here the economy
demonstrates that it has the technological and entrepreneurial skills to produce anything it
chooses to produce.
5. The Age of High Mass Consumption: This is the “final frontier” where a very large number
of people have significant amounts of discretionary income, and turns the society towards
durable consumer goods and services.
DEVELOPING MARKETS - MARKET BEHAVIOUR
Objectives of Developing Countries

An International Marketer must be able to answer the following questions to be able to

adjust to foreign economic development:

– What are the objectives of developing nations?

– What role, if any, is marketing assigned in economic growth plans?
– What contribution must marketing make, for a country to grow successfully?
– Which of the prevailing attitudes might hamper marketing strategies, development
and growth?
– How can the present and future market potential be assessed?
DEVELOPING MARKETS - MARKET BEHAVIOUR
Marketing in a Developed Country

In making a market appraisal, the economic level of a country must be reviewed to

determine which marketplace limitations must be accounted for and adjusted to in market
plans and strategies.
One such marketing review found that with increasing economic development:

– More developed countries have more levels of distribution, more specialty stores and
supermarkets, more departmental stores, and more stores in rural areas
– The influence of the foreign import agent declines
– Manufacturer - Wholesaler – Retailer functions become separated
– Wholesaler functions approximate those in fully developed nations
– The financing function of Wholesalers declines and wholesale markup increases
– The number of small stores declines and the size of the average store increases
– The role of the peddler and the “Haat” type of trade decline
– Retail margins improve
DEVELOPING MARKETS - MARKET BEHAVIOUR
Less Developed Countries – Long Term potential

– The price paid for entering a market in the early stages of its
development may be lower initial returns on investment but the price
paid for waiting until the market becomes profitable may be a blocked
market with no or very limited opportunity for entry.

– India and China with their huge populations, are the largest potential
markets of the future – a truth that has dawned on most marketers
world, some sooner than others!
STRATEGY AND MARKET ENTRY METHODS
Empirical Research confirms that the following observations are true:

– The higher the per capita GDP, the more attractive the country to foreign investors

– Higher tax levels deter foreign investments

– The export to import ratio first increases with foreign investment, leading eventually to
a decline in the ratio. This cycle is commensurate with direct foreign investment in
manufacturing

– Urbanized Less Developed Countries (LDCs) attract more foreign investment than
agrarian LDCs

– The greater the infrastructure of a country as a percentage of the GDP, the more
attractive is the country to foreign investors
STRATEGY AND MARKET ENTRY METHODS
International Marketing Stages and Methods

1. Domestic firm with no exports.

2. Firm with marginal exports.

3. Exports through Agents in a few markets.

4. Exports through Agents and Representatives in many markets.

5. Exporting through Marketing facilities abroad.

6. Foreign Production for foreign markets.