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Global Political, Legal &

Regulatory Environment

Source: “Global Marketing

Management” by Keegan &Bhargava; Lee & Carter

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The Political Environment

• ...includes any national or international

political factors which may affect an

organization’s decision making, planning,

implementation and control mechanisms

http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiIrobuts_KAhUUkI4KHVxFBeYQjRwIBw&url=http://www.socialsciences.manchester.ac.uk/postgraduate-taught-courses/international-politics-international-relations-pathway-research-route-ma/&psig=AFQjCNFkIHqm8kKa5Vew4-IzjurRB6KdNA&ust=1454170890073852

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Political Environment Analysis? Why??

•….Politics affecting global business is a commonproblem for international companies.

• A nation’s politics affect

 –Regulatory laws; Resource management; Monetarypolicies; geopolitical relationships

• Companies must treat each venture into a new

country as a new business.

• Helps businesses avoid unexpected operational costsresulting from national politics.

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Political factors to be analyzed…

1. Nation-states and sovereignty

2. Political risk

3. Taxes4. Dilution of Equity Control

5. Expropriation

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1. Nation States and sovereignty

• Sovereignty – “supreme and independent

political authority”

• Criteria for government actions:

• A country’s stage of economic development

 – Play participatory/facilitator role

• The political and economic system in place

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2. Political risk

• Risk of loss to business owing to a country’s political

structure or policies

• A country is most likely to attract foreign

investments when:• The perceived level of risk is lower

• Perceived level of stability is high

•

Eg. Internal unrest in Sri Lanka; coalition government inIndia, etc.

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Types of political risk

 – Ownership risk (property and life)

 – Operating risk (ongoing operations interference)

 – Transfer risk (in shifting funds between countries)

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BIPA

•

To reduce the investment risks of investors to andfrom India, the GOI had entered into bilateralagreements called BIPA (Bilateral InvestmentPromotion and Protection Agreement) with a

large number of countries.• These generally help to stimulate business

initiatives and create favorable conditions for thegrowth of foreign investments in India.

• India has signed BIPAs with 82 countries as ofJuly, 2012 of which 72 have come into force(Ministry of Finance, GOI).

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3. Taxes

• Companies incorporated at one place, dobusiness in another, and maintain corporate HQin a third. – Such companies require special attention to tax laws.

• No universal international laws governing the levyof taxes across national borders.

• Bilateral tax treaties are negotiated bygovernments to provide fair treatment

• India entered into DTAA (double tax avoidanceagreement) treaties with 88 countries (PressInformation Bureau, GOI)

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4. Dilution of equity control

• Political pressure for national control of foreign-owned enterprises

• Foremost goal of host government is to protectnational sovereignty (especially in domesticbusiness activity)

• Four forms of action for foreign companies:• Follow the law of the land (Eg. Colgate Palmolive became an

Indian company)

• Take preemptive action• Negotiate under the new law (Eg. Ciba Geigy increased its

equity base to local investors)

• Leave the country (Eg. IBM, Coca Cola)

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5. Expropriation

• Refers to government action to dispossess acompany or investor.

 – Compensation is generally provided.

• Creeping expropriation• Control on Repatriation of profits, dividends, royalties etc.

• Increased local content requirements

• Quotas for hiring local nationals

• Price controls

• Nationalization

• Socialization

• Confiscation

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Host Country Pressure Groups

• Labor unions

• Political parties

•

Environmental groups• Local business community

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BERI

• Business Environment Risk Index

• www.beri.com check the website

• Is extremely comprehensive and provides

numerous reports (for a fee).

• Rates each country on weighted criteria with

each criterion rated on a scale from ‘best’ (5)

to ‘worst’ (0)

http://www.beri.com/http://www.beri.com/

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Steps to assess political risk

• Do not underestimate or overestimate risk.

• 3 steps to assess risk:

• Determine issues relevant to the firm

• Determine political events (viz. probability of

occurrence, their impact, willingness of government to

respond, etc.)

• Determine probable impacts and responses

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Ranking of countries based onpolitical risk

https://www.prsgroup.com/category/risk-index

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EU forces market trader to pulp thousands of kiwi

fruit because they're ONE MILLIMETRE too small

A market trader has been banned from selling a

batch of kiwi fruits because they are 1mm

smaller than EU rules allow -27th June 2010

Greengrocer Tim Down holds a legal kiwi fruit in

his right hand along with an illegal kiwi fruit in

his left hand

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MORE EXAMPLES

•

Examples over many years include – Sanctions imposed against imports of goods from the former apartheid regime

in South Africa (Eg. Cricket);

 – UN-backed sanctions against Iran over its suspected policy of developingnuclear weapons;

 – Israeli sanctions against the Palestinian Authority in Gaza.

 – US-based Google had to deal with the Chinese government’s restrictions onthe freedom of speech in order to do business in China.

 – China’s different set of political and legal guidelines made Google choose to

discontinue its mainland Chinese version of its site and direct mainlandChinese users to a Hong Kong version.

 – Our own Indo-Pak political issues impacting a series of business interestsranging from trade to cricket.

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The Legal Environment

• Key Aspects of International Legal Environment: i. Local domestic laws – organization's home market laws

are important because they can limit what can beexported/imported

ii. International law – laws on patents, trademarks,

copyrights, tariff reduction etc.

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THE MAJOR LEGAL SYSTEMS (1)

COMMON LAW: – derived from English law – Based on tradition and less dependent on statutes

and codes.

 – found in countries previously part of the English

Commonwealth•Eg. US, UK, AUSTRALIA, INDIA, EGYPT ETC.

CODE LAW• Based on a comprehensive set of written statutes that spell

out legal rules explicitly.•Based on Roman law and Napoleonic code

• EG. ITALY, FRANCE, GERMANY, MEXICO, ETC.

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THE MAJOR LEGAL SYSTEMS (2)

CIVIL LAW:

• found in South East and East Asian nations

THEOCRATIC LAW:

•Based on religion.

•Eg. Islamic Law based on Shariah found in Middle Eastnations, and other Islamic countries.

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International law

• The supreme body is the International Court of Justice, situatedin The Hague, Holland. Here a number of international disputes

may be taken for ultimate adjudication. However, a series ofother bodies and legislation exists.

a) FCN (Friendship, Commerce and Navigation) and Tax Treatiesa) primarily US based and concerned with giving protection of trading rights and avoiding

double taxation.

b) IMF and WTOa) concerned with international trade restrictions and dumping.

c) UNCITRAL (UN) international trade law commission

a) to provide a uniform commercial code for the whole world, particularlyinternational sales and payments, commercial arbitration and shippinglegislation.

b) Works with International chambers of commerce and Governments.

d) ISO (International Standards Organization)

often works with ILO, WHO etc. and contains technical committees workingon uniform standards.

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International law (contd…)

e) Patents and trademarks: detailed in the next slide

f) Air transport is covered mainly by IATA (International Air Transport Authority),ICAA (International Civil Aviation Authority) and ITU (InternationalTelecommunication Company).

h) Recourse arbitration is an attempt to reduce disputes by consultation. Some ofthe most widely used are the International Chamber of Commerce, the

American Arbitration Association, the London Court of Arbitration and theLiverpool Cotton Exchange.

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Intellectual Property: Patents and

Trademarks

• Protected in one country and not protected inanother

• Global marketers must ensure that patents and

trademarks are protected• In 1995, WTO members were obliged to adhere

to TRIPS (Trade Related Intellectual PropertyRights)

• TRIPS encompass copyrights, trademarks,industrial designs, integrated circuits, and tradesecrets.

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Patent Law in India

• Following the Patent Bill in 2005, the IndianPatent Act transformed into a TRIPS-compliantproduct patent system.

• Under this system, product patent once grantedwill remain in force for 20 years.

• In US the patent holder retains all rights for thelife of the patent even if the product is notproduced or sold.

• Latest:• US worried over rights of drug patent owners under India’s

compulsory license regime;

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Marketing implications

• The principle ones are as follows:

• Product decisions - physical, chemical, safety, performance,packaging, labelling, warranty ·

• Pricing decisions - price controls, price freezes, value addedsystems and taxation

• Distribution - contracts for agents and distribution, physicaldistribution, insurance

• Promotion - advertising codes of practice, product restriction,sales promotion and,

• Market research - collection, storage and transmission of data.

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Thank you