Global Marketing Summary Chapter 5-10

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CHAPTER 5- The Political, Legal, and Regulatory Environments of Global Marketing

Introduction
• The global marketer must attempt to comply with each nation’s laws and regulations with respect to the cross-border movement of services, people, money, and know-how. Laws and regulations that change frequently or are ambiguous can hamper the company’s activities.

The Political Environment
• Made up of governmental institutions, political parties, and organizations that rulers and people use to wield power • Each nation’s political culture reflects the importance of the government and legal system. • Issues for foreign investors include the governing party’s view on sovereignty, political risk, taxes, equity dilution, and expropriation. Political Risk

• Risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably

• Some examples of political risk include
• War
• Social unrest
• Politically motivated violence
• Transparency
• Social conditions (population density and wealth distribution) • Corruption, nepotism
• Crime
• Labor costs
• Tax discrimination

Taxes
• Government taxation policies
• High taxation can lead to black market growth and cross-border shopping • Corporate taxation
• Companies attempt to limit tax liability by shifting location of income

Seizure of Assets
• Expropriation—governmental action to dispossess a foreign company or investor • Compensation should be provided in a “prompt, effective, and adequate manner” • Confiscation occurs when no compensation is provided • 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
• Creeping expropriation—limits economic activities of foreign firms may include May include
• Limits on repatriation of profits, dividends, or royalties • Technical assistance fees
• Increased local content laws
• Quotas for hiring local nationals
• Price controls
• Discriminatory tariff and nontariff barriers
• Discriminatory laws on patents and trademarks

International Law
• The rules and principles that nation-states consider binding among themselves • Disputes between nations are issues of public international law • World Court or International Court of Justice (ICJ) • Judicial arm of the United Nations

Common Law vs. Civil Law
• The Napoleonic Code of 1804 drew on the Roman legal system and is the basis for continental European law today. Code law is also known as civil law. • U.S. law is rooted in English common law.

Common law country
• Disputes are decided by reliance on the authority of past judicial decisions • Companies are legally incorporated by state authority • Code law is used in few areas; the U.S. Uniform Commercial Code Civil law country

• Legal system reflects the structural concepts and principles of the Roman Empire • Companies are formed by contract between two or more parties who are fully liable for the actions of the company

Islamic Law
• Legal system in many Middle Eastern countries
• Sharia—a comprehensive code governing Muslim conduct in all areas of life, including business • Koran—holy book
• Hadith
• Based on life, sayings, and practices of Muhammad • Identifies forbidden practices, “haram”

Sidestepping Legal Issues
• Get expert legal help
• Prevent conflicts
• Establish jurisdiction
• Protect intellectual property
• Avoid...
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