4Political and Regulatory Climate

Learning Objectives

• List and explain the political motivations behind government actions that promote or restrict international marketing. Identify pressure groups that affect international marketing.

• Discuss specific government actions salient to international marketing, such as boycotts and takeovers.

• List and compare the four basic legal traditions that marketers encounter worldwide.

• Cite examples illustrating how national laws can vary and change.

• Differentiate between the steps involved in managing political risk and those involved in planning for regulatory change.

Chapter Overview

• Host country political climate

• Host government actions

• Home country political forces

• Legal environments

• National regulatory environments

• Managing political risk

• Global marketing and terrorism

• Self-preservation

• Security

• Prosperity

• Prestige

• Ideology

• Cultural identity

Political Motivations of Host Countries

Host Country Actions

• Government subsidies

• Ownership restrictions

• Operating conditions– Work permits– Local content requirements

Takeovers

• Takeovers = Host-government actions that result in a firm’s loss of ownership or direct control

• An expropriation is a formal seizure of an operation

• A confiscation is an expropriation without compensation

Home Country Actions

• Guided by the same six interests as host countries– U.S. embargo of Cuba– U.S. anti-Arab boycott legislation

• Often home countries seek multilateral actions to increase their bargaining power

Legal Evolution

• Product liability

• Bankruptcy

• Regulating cyberspace

Human Nature Orientation (HNO)

• Positive HNO – assume people can be trusted to obey the rules

• Negative HNO – assume people cannot be trusted to obey the rules

Attitudes Toward Rules

• Attitudes toward rules are affected by two criteria:1. Level of power distance

2. Type of human nature orientation

Managing Regulatory Change

• AlterBargain to get government to change regulations

• AvoidMove to bypass the impact of the regulation

• AccedeComply

• AllyAvoid some risks by seeking strategic alliances

Political Risk

Political risk is the possibility that an unexpected and drastic change due to political forces will result in adverse circumstance for business operations

Regulatory Change Versus Political Risk

• Regulatory Change– More moderate and predictable changes in

the business environment

• Political risk– More unexpected and drastic changes

Managing Political Risk

• Fighting the battle on two fronts:1. Perfect intelligence systems to avoid being

caught unaware when changes disrupt operations

2. Develop risk-reducing strategies that help limit their exposure, or the losses they would sustain, should a sudden change occur

Terrorism Affects International Marketing

• Starbucks pulled out of Israel because they feared a terrorist attack

• GE criticized by a senator for taking “blood money” from a state that supports terrorism (Iran)

• Global tourism and education are affected

– Americans spend more on domestic and nearby tourism; less spent on overseas tourism. Fewer Middle Easterners are visiting America.

– Tighter visa controls in America have created an opportunity for non-U.S. countries to increase their share of international students

• Governments and companies spend lots of money to protect infrastructure, plant, equipment, and people