The Political, Legal, and Regulatory Environments of Global Marketing Chapter 4 Global Marketing

The Political, Legal, and Regulatory Environments of

Global Marketing

Chapter 4

Global Marketing

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Political Environment

• Political cultures provide context– Governing party’s attitude toward

• Sovereignty• Political risk• Taxes• Threat of equity dilution• Expropriation

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Sovereignty

• Supreme and independent political authority

“Every sovereign state is bound to respect the independence of every other

sovereign state, and the courts in one country will not sit in judgment on the acts of government of another

done within its territory” Chief Justice Fuller

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Current Trends

• Privatization– Moves an economy

toward free-market direction

– Evidence that governments are changing how they exercise sovereign power

• Global Integration– Countries in

advanced preferential trade agreements sacrifice many sovereign rights to improve economy

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Political Risk

• Risk of change in political environment or 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

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Taxes

• Government taxation policies– High taxation can lead to growth in a black

market

• Corporate taxation – Companies attempt to limit tax liability by

shifting location of income

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Seizure of Assets

• Expropriation – governmental action to dispossess a foreign company or investor

– Compensation should be provided in a “prompt, effective, and adequate manner”

– When no compensation is provided, it is called confiscation

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Seizure of Assets (cont.)

• 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 compensation

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International Law

• The rules and principles that nation-states consider binding among themselves

• Disputes between nations are issues of public international law– Judicial arm of the United Nations– World Court or International Court of Justice

(ICJ)

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Common Law versus Civil Law

• Common Law country– Disputes are decided

by reliance on the authority of past judicial decisions

– Companies are legally incorporated by state authority

• Civil Law country– Legal system reflects

the structural concepts and principles of the Roman Empire

– Companies are formed by contract between two ore more parties who are fully liable for the actions of the company

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Islamic Law

• Legal system in many Middle Eastern countries• Based on the sharia - a comprehensive code

governing Muslim conduct in all areas of life– Koran–- Holy Book– Hadith

• Based on life, sayings, and practices of Muhammad

• Identifies forbidden practices “haram”

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Bribery and Corruption

• Top 7 Rankings• 1. Nigeria• 2. Pakistan• 3. Kenya• 4. Bangladesh• 5. China• 6. Cameroon• 7. Venezuela

• Bottom 7 Rankings• 45. Australia• 46. Netherlands• 47. Switzerland• 48. Singapore• 49. Norway• 50. Canada• 51. Finland

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Countries Most Likely to Bribe• Home Country of

Bribing Company• 1. Belgium/ Lux• 2. France• 3. Italy• 4. Netherlands• 5. South Korea• 6. UK• 7. Spain• 8. China

• Country in which Bribes were Accepted

• 1. Nigeria• 2. Bolivia• 3. Colombia• 4. Russia• 5. Pakistan• 6. Mexico• 7. Indonesia• 8. India