1. Copyright © 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777. INTERNATIONAL MARKETING 6e The International Political and Legal Environment Chapter 6

2. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-2 The Political and Legal Environment u Home country political and legal environment The Environmental SuperfundThe Environmental Superfund Intellectual property rightsIntellectual property rights Gray marketsGray markets u Embargoes and sanctions “…government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes”“…government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes”

3. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-3 Export Controls u U.S. export control systems Export Administration Act (Commerce Department)Export Administration Act (Commerce Department) Munitions Control Act (State Department)Munitions Control Act (State Department) Determinants for export controlsDeterminants for export controls –National security, foreign policy, short supply, nuclear nonproliferation u Critical commodities list Sensitive to national securitySensitive to national security Controlled for other purposesControlled for other purposes u No License Required (NLR) u Export license

4. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-4 Should a Given Product be Exported? To a Given Country? To a Given End User? Decision Steps in the Export Licensing Process U.S. Export Control System For A Particular End Use?

5. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-5 Major Changes Altering Export Controls u Collapse of the Iron Curtain u Export controls have moved from a “strategic balance” to a ‘tactical balance” approach u Major focus of export controls rest on the Third World u Loosening of mutual bonds between allied nations u Increased foreign availability of high technology u Increase in the speed and dissemination of information and innovation u Difficulty in monitoring the transfer of miniaturized high technology.

6. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-6 Export Control Problems and Conflicts u Determining what constitutes military-use, civilian-use, and dual-use products. u Implementing controls on physical goods and knowledge and technology transfers. u Monitoring access to deemed exports by foreign nationals. u Recognizing nationalistic desires to protect economic interests.

7. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-7 Import Controls u Tariffs u Voluntary restraint agreements u Quota systems u Administrative problems Monetary and social costs to consumers while benefiting protected groups.Monetary and social costs to consumers while benefiting protected groups. Downstream change in the composition of imports to circumvent narrowly defined protectionist measures.Downstream change in the composition of imports to circumvent narrowly defined protectionist measures. The failure of protected firms become more efficient and competitive.The failure of protected firms become more efficient and competitive.

8. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-8 International Business Behavior Regulation u Regulating international business behavior Home countries may implement special laws and regulations to ensure that the international business behavior of firms headquartered within them is conducted within moral and ethical boundaries considered appropriate.Home countries may implement special laws and regulations to ensure that the international business behavior of firms headquartered within them is conducted within moral and ethical boundaries considered appropriate. u Boycotts Instances where a firm or person refuses to do business with another firm or person for social, economic or political reasons.Instances where a firm or person refuses to do business with another firm or person for social, economic or political reasons.

9. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-9 International Business Behavior Regulation u Antitrust Laws Focus on firms engaged in competitive activities that restrict or impede competition.Focus on firms engaged in competitive activities that restrict or impede competition. u Corruption Where firms have obtained contracts or other competitive benefits through bribes and illegal payments and not through performance.Where firms have obtained contracts or other competitive benefits through bribes and illegal payments and not through performance. The Foreign Corrupt Practices Act in 1977The Foreign Corrupt Practices Act in 1977 In 1995 the Organization of American States (OAS) condemned bribery.In 1995 the Organization of American States (OAS) condemned bribery. The 1998 Trade ActThe 1998 Trade Act The WTO put bribery rules on its agendaThe WTO put bribery rules on its agenda

10. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-10 Political Action and Risk u Political risk A lack of consistency and stability in governmental and social institutionsA lack of consistency and stability in governmental and social institutions u Types of political risk Ownership risk (property and life)Ownership risk (property and life) Operating risk (ongoing operations interference)Operating risk (ongoing operations interference) Transfer Risk (in shifting funds between countries)Transfer Risk (in shifting funds between countries) Go Home Foreigners

11. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-11 Typical Forms of Host Country Controls u Expropriation Taking of private property with compensationTaking of private property with compensation u Confiscation Taking of private property without compensationTaking of private property without compensation u More subtle forms of control DomesticationDomestication Local-contentLocal-content Exchange controlsExchange controls “Overinvestment”“Overinvestment” Tax policiesTax policies Price controlsPrice controls

12. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-12 u See Albaum file for slide on Political Risk!

13. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-13 Coping with Political Risk and Controls u Minimizing Risk Insure against riskInsure against risk Create a structured operating environmentCreate a structured operating environment Develop an “Early Warning” risk-monitoring system.Develop an “Early Warning” risk-monitoring system.

14. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-14 Legal Differences and Restraints u The two major legal systems Common lawCommon law –Based on tradition and less dependent on statutes and codes than on precedent and custom. Code lawCode law –Based on a comprehensive set of written statutes that spell out legal rules explicitly. u Antidumping laws Laws which prohibit below-cost sales of imported goods in local markets.Laws which prohibit below-cost sales of imported goods in local markets.

15. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-15 The Influencing of Politics and Laws u Options for dealing with politics and laws Ignore prevailing rules and expect to get away with it.Ignore prevailing rules and expect to get away with it. Provide input and resolve problem areas through multilateral negotiations.Provide input and resolve problem areas through multilateral negotiations. Develop linkages and lobby contacts to get the laws changed.Develop linkages and lobby contacts to get the laws changed.

16. Copyright © 2001 by Harcourt, Inc. All rights reserved. 6-16 The International Environment u International Politics Political relations and conflicts between countries can have a profound impact on firms trying to do business internationally.Political relations and conflicts between countries can have a profound impact on firms trying to do business internationally. If relations between countries improve, business can benefit.If relations between countries improve, business can benefit. u International Law No enforceable body of international law exists. Firms are subject to home and host-country laws.No enforceable body of international law exists. Firms are subject to home and host-country laws. Areas of cooperation among nationsAreas of cooperation among nations –bilateral treaties guaranteeing fair treatment –patent and trademark protection