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hapter 4 Political, Legal & egulatory Environment

Chapter 4 Political, Legal & Regulatory Environment

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Chapter 4 Political, Legal & Regulatory Environment Slide 2 Keegan: Global Marketing Management Chapter 4/ 2 Slide 3 Keegan: Global Marketing Management Chapter 4/ 3 The Political Environment zGlobal marketing activities influenced by governmental institutions, political parties & organizations zEnvironment determines attitude towards: ySovereignty yPolitical risk yTaxes yDilution of equity control yExpropriation Slide 4 Keegan: Global Marketing Management Chapter 4/ 4 1.Nation-States & Sovereignty (p.92) zSovereignty = supreme & independent political authority zImplies that the nation-state yIs decision making authority of last resort in its territory yIs independent from other nation-states zNation-state activities governed by yStage of development yPolitical and economic system zGlobal market integration is eroding national economic sovereignty Slide 5 Keegan: Global Marketing Management Chapter 4/ 5 2.Political Risk (p.93) zThe risk that a governmental policy adversely affects a companys activities zA lower level of political risk tends to attract higher investments zLevel of political risk is inversely proportional to a countrys state of economic development Slide 6 Keegan: Global Marketing Management Chapter 4/ 6 3.Taxes (p.94) zMany companies minimize tax liability by shifting locations of income z earnings stripping yForeign company reduces earnings by making loans to U.S. affiliates rather than using direct investment to finance U.S. activities yU.S. subsidiary deducts the interest paid on these loans, thereby reducing its tax burden zMany companies have negotiated bilateral tax treaties to provide tax credits for taxes paid abroad Slide 7 Keegan: Global Marketing Management Chapter 4/ 7 4.Dilution of Equity Control (p.94) zIn lower-income countries, often political pressure for national control of foreign-owned companies zGoal of national governance: protect the right of national sovereignty zIn underdeveloped countries, political pressure often causes companies to take local partners (strategic alliances, joint-ventures) Slide 8 Keegan: Global Marketing Management Chapter 4/ 8 5.Expropriation (p.96) zExpropriation = governmental action to dispossess a company or investor Nationalization = ownership of property & assets is transferred to the host government Confiscation = nationalization without compensation zCreeping expropriation = severe limitations on economic activities. (limitations on repatriation of profits, local content requirements, quotas for hiring local nationals, price controls) Slide 9 Keegan: Global Marketing Management Chapter 4/ 9 Sidestepping Legal Problems (1) (p.98) zEstablishment yCitizens of one country be treated fairly in another country zJurisdiction ySpecify which nations laws apply, when a transaction crosses boundaries zIntellectual Property yEnsure that patents & trademarks are registered in each country business is conducted yInternational treaties Slide 10 Keegan: Global Marketing Management Chapter 4/ 10 Sidestepping Legal Problems (cont.) zAntitrust yAntitrust laws designed to combat restrictive business practices & to encourage competition yThe Sherman Act of 1890 prohibits certain restrictive business practices, including fixing prices, limiting production, allocating marketsand so on. yEuropean Commission prohibits agreements & practices that prevent, restrict & distort competition Slide 11 Keegan: Global Marketing Management Chapter 4/ 11 Sidestepping Legal Problems (cont.) zLicensing yContractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology or other intangible assets in return for royalty payments zTrade Secrets yConfidential information or knowledge that has commercial value zEnforcement is the key issue : risks are always associated with lax enforcement Slide 12 Keegan: Global Marketing Management Chapter 4/ 12 Sidestepping Legal Problems (cont.) zBribery & Corruption: legal & ethical yA crime for US companies to bribe an official of a foreign government to obtain or retain business yLaws & rules try to regulate international business ethics on different levels yU.S. Foreign Corrupt Practices Act (FCPA) of 1977 yPublicly held companies must institute internal accounting controls that record all transactions Slide 13 Keegan: Global Marketing Management Chapter 4/ 13 Conflict Resolution, Dispute Settlement & Litigation (p.107~109) zInternational lawsuits can be very complex, time & cost-consuming zExtrajudicial, alternative approaches often provide faster, easier & less expensive ways to resolve commercial disputes zInstitutions such as the International Chamber of Commerce (ICC) have established Courts of Arbitration that can be employed by global companies Slide 14 Keegan: Global Marketing Management Chapter 4/ 14 Summary zPolitical environment is the set of governmental institutions, political parties & organizations. The political environment varies from country to country & risk assessment is crucial. zLegal environment consists of laws, courts, attorneys, & legal customs & practices. Countries follow either common-law system or code-law system.