Ch2 - Politics Legal v3

Chapter 2
Avoiding the pitfalls

of the international
political
and legal
environment
Different types of national
governments
Parliamentary governments
• Citizens interact via voting
• Industrialised nations - parliamentary democracies
Absolutist governments
• Dictate government policy without considering
citizens opinions
Other governments
• Most governments fall between the two extremes
• Some monarchies and dictatorships have
parliamentary elections
Copyright ©2014 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –9781442560833/Fletcher/International Marketing/6e
2
Role of government in economy:
Participator
• Most extreme form of involvement is state
trading company (STC), a feature of
communist governments Chongqing Iron & Steel Co. Ltd.
• Businesses need to establish degree of

government involvement
• Protection of strategic industry and
bilateral agreements
• Potential areas of commercial activity
undertaken by government include:
• State-owned enterprises
• Statutory marketing authorities
• The pace of privatisation
3
Facilitator
• Macro level via national industry policies:
• National economic plan
• Harnessing resources
of the private sector
• The public sector
• External sources via
bilateral and multinational aid
• Micro level via economic policies:
• Tax incentives
• Subsidies
• Concessional loans or grants
4
Regulator
• Governments’ regulatory activities involve:
• Taxes in the domestic market
• Payroll tax
• Road and haulage taxes
• Inspection fees
• Embargoes or boycotts on dealing with other
countries
• Sometimes these are approved by the UN
• Some are imposed by one country alone
• They can be detrimental to all countries involved
5
Think about
Political instability
Ongoing conflict between Russia and Ukraine has
impacted on the stability of the region. View the video
and answer the following questions:
https://www.youtube.com/watch?v=HGIdeHnx7M8
1. Consider the geographical and historical factors

that have intertwined the politics and economics of
both countries.
2. How does the conflict between Russia and Ukraine

impact on the rest of the world?
6
Risk and product-related factors
• What is the effect of adequate supply on the
country’s security or welfare?
• Is the product a critical input for other industries?
• Is the product socially or politically sensitive, as with
food and drugs?
• Does the product have national defence significance,
as with uranium?
7
Risk and external factors
• State of relations between government of home
country and government of other country
• Size of international firm – the larger it is, the more
threatening it may appear to be
• Extent to which firm has visibility as a foreign business
– the larger its visibility, the greater its vulnerability
8
Risk and company factors
• The general reputation of the firm internationally as
a good corporate citizen
• The extent of past contributions by the firm to the
welfare and development of the host country
• The extent to which operations in the country have
been localised
9
Think about
Risk and opportunities
While there are investment opportunities, there is also
risk in developing markets and assessing them. View
the video and answer the following questions:
https://www.youtube.com/watch?v=c9ghC-djc6Q
1. Identify the macro risk (overall business
environment, potential market) and their implications
in doing business in China.
2. Then, identify the micro risk (who doing business
with) and their implications in doing business in
China.
10
Managing the overseas
political environment
• Localisation of operations: the greater the
local ownership of an operation the less
likely it is to be subjected to political risk
• When a foreign country demands that a firm
reduce its ownership, a firm can:
• Leave the country altogether
• Totally indigenise the company
• Negotiate an arrangement under the new laws
• Take pre-emptive action
11
Differences between common law
and code law
12
Differing legal systems
and jurisdictions (1)
• Islamic law
• Is based on the Koran and is applied to varying degrees by
Islamic countries
• It defines a complete system of social and economic
behaviour, with the overriding objective of social justice
• Other legal codes
• Included in this group are tribal or indigenous laws e.g.,
Aboriginal or Maori law
• Also included are socialist laws based on the tenets of
Marxism
13
International law
• International law grows out of the agreement of two or
more nations and implies a desire to lessen
differences in the way countries treat legal problems
• Generally, international law minimises the range of
differences between national laws, particularly in
connection with political and military issues
• Coverage has become much broader encompassing:
• International trade
• Investments
• Taxation
• Labour relations
• Intellectual property
• The environment
14
International law example
“International law does not allow one

state to steal the territory of another
on the basis of a referendum”
(Julie Bishop, 2014)
Legal jurisdiction
• A common problem in international
business is determining which
country’s law applies
• Jurisdiction can become the
subject of dispute where:
• Practice of international law conflicts
with national law
• A nation tries to impose its laws on
another
• Business people operating overseas
are required to conform to the laws of
their home country
16
Legal risk
• Legal risk is the likelihood of unfavourable outcomes
due to legal uncertainties. It can arise from:
• Non-compliance with laws and regulations
• Changes in laws and regulations
• Failure to protect the firm’s legal rights and interests
• Contractual and non-contractual liabilities
• Disputes and litigation
17
Law and the marketing mix
• Laws governing each element of the
marketing mix may vary between countries
• Product-related laws apply to:
• The physical and chemical aspects of a product
• Packaging and labelling requirements
• Price
• Many countries do not operate a free-market
system which impacts on price due to
government price control, anti-dumping laws
and laws related to transfer pricing
18
Law and the marketing mix (1)
• Distribution is affected by regulations
covering physical distribution of
goods/carriers, the nature of channels
and intermediaries/resellers
• Promotion is highly regulated in some
countries and includes:
• Trade descriptions
• Prohibitions on advertising certain products
• Prohibitions on using certain words
Limitations on promotional expenditure
• Content and style of advertising
• Other promotional elements
19
Impact of law: Environment
• Increasing move towards global
environmental standards
• Environmental laws relate to:
• Packaging, including material used
• Recycling
• Pollution
• Energy consumption
20
Impact of law: Human resources
$58
million
• Need to conform to local labour
laws, including:
• Local laws regarding employment of
expatriate staff
• Employment of unskilled guest

workers
21
Impact of law: Intellectual property
• Differs between countries depending on legal systems
(common law versus code law)
• Protection of intellectual property through:
• Patents – provide legal monopoly for specific period
• Copyright – protects original literary, musical, artistic and
dramatic works
• Trademarks – distinguish one product/service from another
and prevent others offering the product/service with a similar
mark
• Different rules apply in different countries
• Firms can apply for registrations in other countries
but often the cost outweighs the benefits
• WTO Trade in Intellectual Property (TRIPS) contains
new rules to protect intellectual property (IP)
22
Impact of law: Intellectual property (1)
• Piracy is common with IP

• Piracy refers to the unauthorised copying or use of
someone else’s intellectual property
• Brand piracy can involve taking a global brand or logo
and applying it to a product with which it has no
connection or by modifying existing global brand
names
• The degree to which this is considered an important
issue varies between countries
23
Intellectual property issues
Counterfeit examples
Think about
Legal versus ethics
View the video of the mashup for Stay with Me and I

Won’t Back Down and answer the following questions:
https://www.youtube.com/watch?v=w4nivY09Z04
1. Do you think that Stay with Me has violated

copyright?
2. Even if you find no legal implications, what about

ethical ones?
Impact of law on international
operations: Anti-trust
• Firms moving to overseas markets need to be aware
of anti-trust legislation
• Laws with regard to anti-trust have been in existence in the
US for over a century
• Laws are now emerging elsewhere e.g., Japan and the
European Union
• The European Court of Justice has recently imposed
penalties for activities such as:
• Price discrimination
• Withholding supply
• Other anti-competitive practices
26
Contracts and dispute resolution
• Conciliation: a third party mediates between
the parties; aim is to maintain an ongoing
relationship
• Arbitration: a third party acts as a referee
on the merits of the case and makes a
determination that both parties agree to
accept
• Litigation: legal ruling on the merits of the
case
27
http://www.smh.com.au/entertainment/movies/ellens-selfie-a-surprise-for-everyone-says-samsung-20140306-348bt.html
http://www.mirror.co.uk/news/world-news/monkey-selfie-officials-rule-nobody-4088663#ixzz3E06TFGxS

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Chapter 2

Avoiding the pitfalls

• Businesses need to establish degree of

1. Consider the geographical and historical factors

2. How does the conflict between Russia and Ukraine

“International law does not allow one

• Employment of unskilled guest

• Piracy is common with IP

View the video of the mashup for Stay with Me and I

1. Do you think that Stay with Me has violated

2. Even if you find no legal implications, what about

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