Global

Marketing
Warren J. Keegan Mark C. Green

Political, Legal
and Regulatory
Environments
Chapter 5
 Learning Objectives
• Understand how a political environment impacts
marketing
• Know how international law differs over the world
• Which business issues lead to legal problems
• How conflicts can be resolved in the EU
 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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 Political Risk
• 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

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 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

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 Seizure of Assets
• 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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 Seizure of Assets
• Creeping expropriation–limits economic activities of
foreign firms
• 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

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 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

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 International Court of Justice
• Judicial arm of the United Nations founded in 1947
• Settles disputes between nations
– International conventions
– International custom
– General principles of law
 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.

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 Common Law vs. Civil Law

• Common Law • Civil Law

• Disputes are decided • Legal system reflects the
structural concepts and
by reliance on the
principles of the Roman
authority of past Empire
judicial decisions • Companies are formed by
• Companies are legally contract between two or
incorporated by state more parties who are fully
authority liable for the actions of the
• Code law is used in company
only a few areas; the
U.S. Uniform
Commercial Code
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 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; like code law
– Hadith–like common law
• Based on life, sayings, and practices of
Muhammad
• Identifies forbidden practices “haram”

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 Sidestepping Legal Issues

• Get expert legal help

• Prevent conflicts
– Establish jurisdiction
– Protect intellectual property
– Protect licenses and trade secrets
– Avoid bribery

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 Jurisdiction
• Refers to a court’s authority to rule on particular
types of issues arising outside of a nation’s 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 the
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
country where business is conducted
– Patent–gives an inventor exclusive right to make, use, and
sell an invention for a specified period of time
– Trademark–distinctive mark, motto, device, or emblem
used to distinguish it from competing products
– Copyright–establishes ownership of a written, recorded,
performed, or filmed creative work

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 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
• In the U.S., registration is with the Federal
Patent Office
• In Europe, applicants use the European Patent
Office or register country-by-country
• Soon the Community Patent Convention will
cover 27 countries

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 Protecting Intellectual Property
• World Intellectual Property Organization
– Governed by the Madrid Agreement and the
Madrid Protocol
– Allows trademark owners to seek protection in as
many as 74 countries with a single application and
fee

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 Protecting Intellectual Property
• International Convention for the Protection of
Industrial Property
– Paris Convention
– Honored by 100 countries
– Facilitates multi-country patent registration, ensures that
once a company files, it has a “right of priority” in other
countries for one year from that date
• Patent Cooperation Treaty
• European Patent Convention

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U.S. Companies Receiving the
Most Patents, 2009

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 Antitrust

• Laws are designed to combat restrictive business practices

and to encourage competition
– Enforced by FTC in the U.S., Fair Trade Commission in
Japan, European Commission in European Union
– The Sherman Act of 1890 prohibits certain restrictive business
practices including fixing prices, limiting production, allocating
markets, or any other scheme designed to limit or avoid
competition. Law applies to U.S. companies outside U.S. borders
and to foreign companies operating in the U.S.

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Antitrust Rulings
 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 return for royalty payments or other forms of
compensation
• Important considerations
– What assets may be licensed
– How to price assets
– The rights granted
 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 have been
taken to keep it secret
• To prevent disclosure, use confidentiality contracts
• The Uniform Trade Secrets Act has been adopted by
most U.S. states
• TRIPS, Trade-Related Aspects of Intellectual
Property Rights signed by members of GATT

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 Bribery and Corruption
• Foreign Corrupt Practices Act
– Requires publicly held companies to institute internal
accounting controls that would record all transactions
– Makes it a crime for a U.S. 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 trough customs, getting permits

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2010 Corruption Rankings

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 Conflict Resolution
• Litigation
• Formal arbitration
– Settles disputes outside of court
– Groups agree to abide by panel’s decision
• 1958 United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (New
York Convention)
– Most important treaty regarding international arbitration
signed by 107 countries

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 The Regulatory Environment
• Agencies, both governmental and non-
governmental, that enforce laws or set
guidelines for conducting business
• Marketing activities affected by international
and regional economic organizations
– EU
– WTO

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 Looking Ahead to Chapter 6
• Global Information Systems and Market
Research

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