The Political, Legal,
and Regulatory
Environments
Chapter 5
Global Marketing
How International Law Affects Marketing:
Examples
Product: ISO standards, different environmental rules and
safety related legislation across countries
Price: anti-dumping legislation
Place: country specific distribution systems / rules
Promotion: topics of ads and commercials, limitation on
product samples
The Golden Rule: there is always an opportunity for
negotiations with governments or their agencies
Political Dimensions
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The political environment provides a highly influential
context for business operations
Political Risk
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Risk of change in political environment or government
policy that would adversely affect a company’s ability to
operate effectively and profitably
Businesses seek political stability
When perceived political risk is high, a country will have
a difficult time attracting foreign direct investment (FDI)
Causes of Political Risk

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Tension between aspirations and reality
Primarily occurs in lower and lower-middle income
countries
 Indonesia:
 Malaysia:
Political risk in high income countries: it is generally due
to a long-standing conflict
 Northern Ireland
Taxation Policies

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Government taxation policies
 High taxation can lead to growth in a black market
Corporate taxation
 Companies attempt to limit tax liability by shifting location
of income
 Transfer Pricing is a widely used technique by
multinationals to counter high taxes
Trade Interventions 1.
Subsidies: Some form of payment to domestic producers:
cash grants; low-interest loans; tax breaks; or
government equity participation in the company
Trade Interventions 2.
Quotas: restrictions on the quantity of a product imported
into a country
Consequences of Intervention
Expropriation - Risk
A governmental action to dispossess a foreign company or
investor
Compensation should be provided in a “prompt,
effective, and adequate manner”
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
Acceptable according to international law if it satisfies a
public purpose, and includes compensation
Legal Systems: Common Law
Disputes are decided by reliance on the authority of past
judicial decisions
Companies are legally incorporated by state authority
Legal Systems: Civil Law
Legal system reflects the structural concepts and principles
of the Roman Empire
Companies are formed by contracts and founders are fully
liable for the actions of the company
International Law

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
The rules and principles that nation-states consider
binding among themselves
Disputes between nations are issues of public
international law
 Judicial arm of the United Nations: International Court
of Justice (ICJ or World Court) in The Hague,
Netherlands
 Court applies international conventions, customs, and
general principles of law “as recognized by civilized
nations”
 EU, NAFTA, WTO
Consistency and enforcement are big question marks
Jurisdiction
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Employees of foreign companies should understand the
extent to which they are subject to jurisdiction of hostcountry courts (training)
Courts have jurisdiction if it can be demonstrated that the
company is doing business in the state the court sits
Firms are subject to both home and host-country laws
Industrial Espionage
Secretly collecting trade secrets or proprietary information about a
competitor
Industrial espionage is most prevalent in high-tech industries:
electronics, chemicals, aerospace, and pharmaceuticals
Technical know-how and trade secrets may separate industry leaders
from followers
Ex:
Intellectual Property Rights:
International Law: Paris Convention
Intellectual property must be registered in each country
where its business is conducted
Antitrust Legislation
Against restrictive business practices and encourage
competition
Enforced by FTC in the USA
Competition Bureau in Canada
European Commission in European Union
Example: The Sherman Act (USA) of 1890 prohibits price
fixing, limiting production, allocating markets, or any
other scheme designed to limit or avoid competition.
The law applies to foreign companies operating in the US
EU and the USA vs. Microsoft
Canada: The Corruption of Foreign
Public Officials Act (1999)
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Against bribery, money laundering, and illegal
possession of foreign properties & assets
Penalties: max. 5-year prison term
Defence negotiations: accused must show that the
loan, reward, advantage or benefit was:
 a reasonable expense that is directly related to the
promotion, demonstration or explanation of the
person's products and services