The Political, Legal, and
Regulatory Environments of
Global Marketing
Chapter 4
Global Marketing
Political Environment
• Political cultures provide context
– Governing party’s attitude toward
• Sovereignty
• Political risk
• Taxes
• Threat of equity dilution
• Expropriation
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Sovereignty
• Supreme and independent political authority
“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”
Chief Justice Fuller
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3
Current Trends
• Privatization
– Moves an economy
toward free-market
direction
– Evidence that
governments are
changing how they
exercise sovereign
power
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• Global Integration
– Countries in
advanced
preferential trade
agreements
sacrifice many
sovereign rights to
improve economy
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Political Risk
• Risk of change in political environment or
government policy that would adversely
affect a company’s ability to operate
effectively and profitably
• When perceived political risk is high, a
country will have a difficult time attracting
foreign direct investment
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Taxes
• 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
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Seizure of Assets
• Expropriation – 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
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Seizure of Assets (cont.)
• 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
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8
International Law
• 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
– World Court or International Court of Justice
(ICJ)
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9
Common Law versus Civil Law
• Common Law country
– Disputes are decided
by reliance on the
authority of past
judicial decisions
– Companies are legally
incorporated by state
authority
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• Civil Law country
– Legal system reflects
the structural concepts
and principles of the
Roman Empire
– Companies are formed
by contract between
two ore more parties
who are fully liable for
the actions of the
company
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Islamic Law
• Legal system in many Middle Eastern countries
• Based on the sharia - a comprehensive code
governing Muslim conduct in all areas of life
– Koran–- Holy Book
– Hadith
• Based on life, sayings, and practices of
Muhammad
• Identifies forbidden practices “haram”
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Bribery and Corruption
•
•
•
•
•
•
•
•
Top 7 Rankings
1. Nigeria
2. Pakistan
3. Kenya
4. Bangladesh
5. China
6. Cameroon
7. Venezuela
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•
•
•
•
•
•
•
•
Bottom 7 Rankings
45. Australia
46. Netherlands
47. Switzerland
48. Singapore
49. Norway
50. Canada
51. Finland
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Countries Most Likely to Bribe
• Home Country of
Bribing Company
• 1. Belgium/ Lux
• 2. France
• 3. Italy
• 4. Netherlands
• 5. South Korea
• 6. UK
• 7. Spain
• 8. China
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• Country in which
Bribes were Accepted
• 1. Nigeria
• 2. Bolivia
• 3. Colombia
• 4. Russia
• 5. Pakistan
• 6. Mexico
• 7. Indonesia
• 8. India
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