The Political, Legal, and

Regulatory Environments
of Global Marketing
Political System and Global business Management

 All countries are independent sovereign entities and

each country possesses the right to grant or withhold
permission to foreign companies to do business
within its political boundaries.
 This is guided by political considerations both at
home, and the government’s relations with other
countries.
 Political System is defined as structures and
processes by which a nation-state is governed.
 The Political Environment
 Political cultures provide context
› Governing party’s attitude toward
 Sovereignty
 Political risk
 Taxes
 Threat of equity dilution
 Expropriation
 Types of Political Systems
 Collectivism
 Socialism
- Communism
- Social Democrats
 Individualism
 Democracy
 Collectivism
 Collectivism refers to a system that stresses the
significance of collective goals over individual
goals.
 
 Collectivism emphasizes that needs of a society,
as a whole, are more important than individual
freedom.
 Socialism
 Modern socialism roots back to Karl Marx (1818-
1883), who advocated state ownership of basic
means of production, distribution and exchange.

 Under this system, state ownership of enterprises

would benefit society as a whole, rather than
individual capitalists, who accumulate wealth and
majority of workers are driven down to subsistence
levels.
 Socialism
 In the early 20th century, the socialist ideology split into 2
systems:

 Communism – which advocated that socialism could be

achieved only through violent revolution and totalitarian
dictatorship.
 
 Social democrats – committed themselves to achieving
socialism through democratic means.
 Individualism
 
 Individualism refers to a philosophy that an individual
should have freedom in his economic and political pursuits.
 In contrast to collectivism, individualism stresses the
interests of individuals, in preference to that of the state.
 Individualism is based on two assumptions:
- Importance of guaranteeing individual freedom and self-
expression.
- Welfare of society is best served by letting people pursue
their own economic self-interest.
 Democracy
 Refers to a political system in which the
government is by the people, exercised either
directly or through elected representatives.
 
 The government is run either by citizens directly
or through elected representatives, who are
considered accountable to the electorate.
 Oligarchy
 A government by the few, sometimes a
government in which a small group exercises
control especially for corrupt and selfish
purposes (The citizen has a very limited role.)
 Totalitarianism
 Form of government that subordinates all
aspects of its citizens' lives to the authority of
the state, with a single charismatic leader as
the ultimate authority.
 Theocracy

 A system of government in which priests rule

in the name of God or a god.
 Military Dictatorship
 Form of government different from civilian
dictatorship for a number of reasons: their
motivations for seizing power, the institutions
through which they organize their rule, and
the ways in which they leave power.
 Dictatorship
 A government or a social situation where one
person makes all the rules and decisions
without input from anyone else.
 Autocracy
 A form of government in which one person
possesses unlimited power and the citizen has
little if any role in the government
 Absolute Monarchy
 It is a monarchical form of government in
which the monarch has absolute power
among his or her people.
 Parties and politics
 Political activities in most countries are played out via
political parties, although they are typically restricted to
government-sponsored parties in authoritarian states.
 In democratic societies, parties represent a range of views:
 Conservative (on the ‘right’), socialist (on the ‘left’), nationalist,
religious and rural, among others.
 Centrist parties have greater widespread appeal to electorates.
 In multiparty systems, a coalition government
(formed by two or more parties) is a solution,
but can be unstable.
 Political risk
 Businesses value stability and predictability of government
policy in assessing location strengths and weaknesses.
 Political risk can arise within a country or from external
sources.
 An authoritarian regime may seem to be more stable than a
multiparty democratic one, but appearances can be deceptive.
 Factors which can destabilize a government (to which
authoritarian governments are particularly vulnerable)
include: corruption , personalized power
centres, factional infighting, institutional
power bases (such as the army).
 Categories of Political Risk
BERI PRS Group
EIU Business Environment World Political
Economic Intelligence Unit Risk Intelligence Risk Forecasts
Fractionalization of the political turmoil
War political spectrum probability
Fractionalization by
language, ethnic, and/or Equity
Social unrest religious groups restrictions
Restrictive/coercive
measures required to local operations
Orderly political transfer retain power restrictions
Mentality (xenophobia,
Politically motivated nationalism, corruption, Taxation
violence nepotism) discrimination
International law and business
implications
 Inter-governmental co-operation has led to a growing body of
international law, in the form of conventions and treaties.

 There is a growing consensus internationally that in some

areas, such as human rights and the environment,
international law is setting the standards.

 For firms, compliance with international standards, rather

than weaker national laws, is increasingly expected by
stakeholders, consonant with CSR strategy.
 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 -When no compensation is provided, it is
called confiscation
 Nationalization - a government takes control of some or all of
the enterprises in an entire industry (e.g. Indian banks in
1950s)
› Acceptable according to international law if
 Satisfies public purpose
 Includes compensation
 The role of governments in
economic activities
 Traditional liberal market view is one of minimum intervention,
but recent financial crises have prompted direct financial support
by US and European governments.

 State-owned enterprises, especially in strategic sectors (such as

energy), are limbs of the government.

 State-controlled enterprises have varying ownership structures –

some are listed companies, although the state is the majority
shareholder.

 State players are a growing force in the global economy, notably

China and resource-rich Middle Eastern states.
 Business Regulation
 Regulation can be advantageous for businesses, as in government small-
business initiatives, but is generally perceived as burdensome and costly.

 A trend has been reduction in national regulation.

 Businesses may be attracted to countries with little regulation, but the

downside may be weak environmental and safety regimes, as well as weak
protection of property.

 Competition law seeks to control anti-competitive and unfair business

practices:
 EU competition law targets abuse of a dominant position in the relevant
market.
“The Legal System of a country refers to
the rules, or laws, that regulate behavior
along with processes by which the laws
are enforced and through which redress
for grievances is obtained.”
 Legal Environment
The legal environment adds another dimension of
importance since there is no single uniform
international commercial law governing business
transactions. On account of the sovereignty of the
countries, laws vary from country to country, and
in case of international disputes, the marketer is
faced with the problem of which country’s laws
will apply.
 Major areas of concern lie in interpretation of
laws in the following business transactions:

 Rules of competition 
 Retail price maintenance laws
 Cancellation of agreements 
 Product quality laws and controls 
 Packaging and shipping laws 
 Warranty and after-sales exposure 
 Price controls, limitations on mark-ups and mark-downs 
 Property rights 
 Patents, copyrights, trademarks.
 Legal risk internationally
 Legal risk arises when a company needs to launch legal
action (such as to enforce a contract) or when it must defend
itself against legal action.
 In FDI and outsourcing strategies, the MNE is involved in
webs of legal relations in foreign environments:
Contracts with suppliers, customers, subcontractors
Liability under employment law and health & safety
law
Liability under environmental protection law
Liability for dangerous products
Liability for industrial accidents
 Basis for Legal Systems
 Three heritages form the bases for majority of the legal systems:

 Common Law – derived from English law and practiced in U.K., U.S.A.
Canada and other countries under English influence. The basis for
Common law is tradition, past practices, and legal precedents set by
courts of law.
 Code Law – derived from Roman law and found in Germany, Japan,
France and other European countries. Code law is an all-inclusive system
of written laws, divided into separate codes, commercial, civil and
criminal.
 Islamic Law – derived from the interpretation of the Koran and practiced
in Islamic countries.
 Commercial Legal System – prevalent in Marxist-socialistic economies
of Russia, East Europe, China and other countries where policies are
dictated by the State.
 Intellectual Property
 Intellectual property must be registered in each
country where business is conducted
› Patent – gives an inventor exclusive right to make, use,
and sell an invention for a specified period of time e.g.
The Segway transporter
› Trademark – distinctive mark used to distinguish it from
competing products e.g. brand logos
› Copyright – establishes ownership of a written, recorded,
performed, or filmed creative work e.g. music, films, etc.
 Infringement of Intellectual
Property
 Counterfeiting – unauthorized copying and
production of a product
 Associative Counterfeit/Imitation – product name
differs slightly from a well-known brand
 Piracy – unauthorized publication or
reproduction of copyrighted work
 Protecting Intellectual
Property
 Ownership rights over intellectual property are established through
Patents, Copyrights and Trademarks.
 
 A Patent grants the inventor of a new product or process exclusive
rights for a defined period to the manufacture, use, or sale of that
invention.
 
 Copyrights are the exclusive legal rights of authors, composers,
playwrights, artists, and publishers to publish and disperse their work as
they see fit.
 
 Trademarks are designs and names, often officially registered, by
which companies designate and distinguish their products.
 After a trademark, patent, or other intellectual
property right is registered, most countries
require that these rights be worked and properly
policed.
 
 Several common law countries establish
ownership of IPR by prior use vs. registration.
However, code law countries recognize
ownership through registration.
 Licensing and Trade
Secrets
 Contractual agreements in which a licensor allows a
licensee to use patents, trademarks, trade secrets,
technology, and other intangible assets in return for
royalty payments or other forms of compensation
 Important considerations
› What assets may be licensed
› How to price assets
› The rights granted
 Public Action & Corruption
 
 Public Action to violate property rights occurs when public officials extort
income or resources from property holders.
 This can be done by legal or illegal means.
 Legal means – by levying excessive taxation, requiring expensive
licences or permits, or taking assets into state ownership.
 Illegal means – by demanding bribes from businesses in return for rights
to operate in a country, industry or location.
 No society is immune from corruption, but the extent varies from country
to country.
 Economic evidence suggests that high levels of corruption significantly
reduce the level of economic development of a country.
 Conclusions
 In both operations and markets, national political and legal
systems are key aspects of the environment for MNEs.
 Both authoritarian and democratic systems – and many in
between – offer opportunities for international business,
but…
 Political and legal risks arise in countries with
authoritarian regimes and weak rule of law.
 Achieving corporate goals depends on managing these
 Therisks.
growing importance of international law is concentrating
the minds of decision-makers in both governments and
MNEs.