Introduction

The Political, Legal, and R Regulatory l t Environments

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The global marketer must comply with each nations laws and regulations with respect p to the cross-border movement of services, people, money, and know-how Be aware of laws and regulations that change frequently or are ambiguous and can hamper the companys activities
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The Political Environment

Made up of governmental institutions, political parties, parties and organizations that rulers and people use to wield power Each nation nations s political culture reflects the importance of the government and legal system Issues for foreign investors include the governing party partys s view on sovereignty, sovereignty political risk, taxes, equity dilution, and p p expropriation
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Nation-States Nation States & Sovereignty

Every sovereign state is bound to respect
the independence of every other sovereign state, and the courts in one country will not sit in judgment on the acts of government of another done within its territory. territory. US Supreme Court Justice Fuller

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Political Risk
Risk of change in political environment or government policy that y affect a would adversely companys ability to operate effectively and profitably When perceived political risk is high high, a country will have a difficult time g foreign g direct attracting investment
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Political Risk
Some examples of political risk include:

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War Social unrest Politically-motivated y violence Transparency Social conditions (population density and wealth distribution) Corruption, nepotism Ci Crime Labor costs Tax discrimination
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Taxes
Government taxation policies
High taxation can lead to black market growth h and d cross-border b d shopping h i

Seizure of Assets
Expropriation governmental action to dispossess a foreign company or investor Compensation should be provided in a prompt, prompt, effective, and adequate manner Confiscation occurs when no compensation is provided
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Corporate p taxation
Companies attempt to limit tax liability by shifting location of income

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Seizure of Assets
Nationalization a government takes control of some or all of the enterprises in an entire industry y Acceptable according to international law if: satisfies p public purpose p p includes compensation
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Seizure of Assets
Creeping expropriation limits economic activities of foreign firms May include:
Limits Li it on repatriation t i ti of f profits, fit di dividends, id d or royalties lti 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
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International Law
The rules and principles that nationstates 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
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Common Law vs. vs Civil Law

The Napoleonic Code of 1804 drew d on the th Roman legal system and d is i the th basis b i for f continental European l law today; t d code d law l is i also known as civil law US law is rooted in English common law
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Common Law vs. vs Civil Law

Common Law
Disputes are decided by reliance on the authority of past judicial decisions Companies are legally incorporated by state authority Code C d law l is used d in only a few areas; the US Uniform Commercial Code
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Islamic Law
Legal system in many Middle Eastern countries Sharia Sh i a comprehensive h i code d governing i Muslim conduct in all areas of life, including b i business Koran Holy Book; like code law Hadith like common law Based on life, life sayings, sayings and practices of Muhammad Identifies forbidden practices haram haram
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Civil Law
Legal system reflects the structural concepts and principles of the Roman Empire p are formed Companies by contract between two or more parties who are fully liable for the actions of the company
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Sidestepping Legal Issues

Get expert p legal g help p Prevent conflicts Establish jurisdiction Protect intellectual property t Protect licenses and trade secrets Avoid bribery y
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Jurisdiction
Refers to a courts authority to rule on particular types of issues arising outside of a nations borders or to exercise power over individuals or entities from different countries Employees of foreign companies should understand the extent to which they are subject to jurisdiction of host-country courts Courts have jurisdiction if it can be demonstrated that the company is doing business in the state the court sits
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Intellectual Property
Intellectual property must be registered in each h country t where h business b i is i conducted d t d
Patent: gives an inventor exclusive right to make, use, and d sell ll an invention i ti for f a specified ifi d period i d of f time Trademark: distinctive mark mark, motto motto, device device, or emblem used to distinguish it from competing products Copyright: establishes ownership of a written, , performed, p , or filmed creative work recorded,
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Infringement of IP
Counterfeiting g unauthorized copying py g and production of a product Associative Counterfeit/Imitation product name differs slightly from a well-known ll k b brand d Piracy acy u unauthorized aut o ed publication pub cat o or o reproduction of copyrighted work
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Intellectual Property

Protecting IP
In the US, registration is with the Federal Patent Office In I E Europe, applicants li t use the th European E Patent Office or register country-bycountry Soon the Community Patent Convention will cover 27 countries
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Protecting IP
World Intellectual Property Organization
Governed by the Madrid Agreement and the h Madrid M d id Protocol P l Allows trademark owners to seek protection in as many as 74 countries with a single application and fee

Protecting IP
International Convention for the Protection of Industrial Property
Paris Convention Honored by 100 countries Facilitates multi-country patent registration, ensures that once a company p y files, , it has a right g of priority in other countries for one year from that date

Patent P t tC Cooperation ti T Treaty t European Patent Convention

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U.S. Companies Receiving the Most Patents, 2009

Antitrust
Laws are designed to combat restrictive business practices and to encourage p g competition p Enforced by FTC in the US, Fair Trade Commission in Japan, European Commission in European U i Union The Sherman Act of 1890 prohibits certain restrictive business practices including fixing prices prices, limiting production, allocating markets, or any g to limit or avoid other scheme designed competition; law applies to US companies outside US borders and to foreign companies operating in th US the

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Licensing and Trade Secrets

Licensing is a contractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology and other intangible assets in technology, return for royalty payments or other forms of p compensation Important considerations
What at assets may ay be licensed ce sed How to price assets The rights g granted g
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Licensing and Trade Secrets

Trade secrets are confidential information or knowledge that has commercial value and is not in the public domain and for which steps p it secret have been taken to keep To prevent disclosure, use confidentiality contracts The Uniform Trade Secrets Act has been adopted p by y most US states TRIPS, Trade-Related Aspects of Intellectual Property p y Rights g signed g by y members of GATT
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Bribery and Corruption

Foreign Corrupt Practices Act Requires publicly held companies to institute internal l accounting controls l that h would ld record d all ll transactions Makes it a crime for a US corporation to bribe an official of a foreign government or political party to obtain or retain business Prohibits payments to third parties when there is reason to believe it may be channeled to foreign officials Omnibus Trade and Competitiveness Act Allows for grease payments to cut red tape; i.e., getting shipments through customs, customs getting permits 5-27
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2010 Corruption Rankings

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Conflict Resolution
Litigation Formal arbitration
Settle disputes outside of court Groups agree to abide by panels decision

The Regulatory Environment

Agencies, both governmental and non-governmental, that enforce laws or set guidelines for conducting b i business Marketing activities affected by international and regional economic organizations (EU (EU, WTO) Increase in business legislation to protect: 1. Companies - unfair competition (protect home industries) 2. Consumers - unfair business practices 3 Society 3. S i t - unbridled b idl d business b i behavior b h i At what point do costs of regulation exceed the benefits? At
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1958 958 United U ted Nations at o s Co Convention e to o on t the e Recognition and Enforcement of Foreign (New York Convention) ) Arbitral Awards (
Most important treaty regarding international g by y 107 countries arbitration signed
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The Regulatory Environment

Growth of special interest groups: Consumerist movement - strengthen rights and powers of buyers e.g., true t i interest t t cost t of fl loan basic ingredients in product Personal P l data d t - customized t i d products d t - privacy i issues - public policy issue Consumer affairs - policies - consumer complaints
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Ethical Issues
Ethics vary around the world p in one country y may y be considered What is acceptable unethical in another To do the right thing and generate publicity, companies can take t k an active ti approach h on ethical thi l issues i Corruption Asian officials - rife paid - smallest of clearances Bribes p Survey - Chinese most willing to pay bribes Asian governments to clean up LT economic dividends
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