Chapter – Analyzing Political and Legal Environments “Let every individual and institution… think and act as a responsible trustee of Earth, seeking choices in ecology, economics and ethics that will provide a sustainable future, eliminate pollution, poverty and violence, awaken the wonder of life and foster peaceful progress in the human adventure.” John McConnell, founder of International Earth Day McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved Outline World Legal Systems Legal Issues for Global Marketing • Intellectual Property Issues • Trade Regulations • Arbitration & Mediation • Marketing Mix Regulation Political Risk • Terrorism • Managing political risk Summary 4-2 While there are five legal systems in the world, Civil , Common and Muslim Law are dominant Civil Law Common Law Found in Europe, Asia, Court adjudications are Central and South America Consists of codified legislation interpreted by judges the primary source of law, although governments pass statutes and legislation Muslim Law Proceeds by way of example rather than principle The many resultant inconsistencies make global business matters difficult to adjudicate Only about 30 percent of the world's gross domestic product is generated in countries governed by civil and common law systems 4-3 World Legal Systems Figure 4-1 4-4 Legal Issues for Global Marketing Global marketers must understand the legal systems in which they operate Common legal scenarios include: • sales agencies • distributorship agreements • customs and international trade regulation • export incentives and controls • arbitration • intellectual property rights • international technology transfer 4-5 Intellectual Property Issues: Territoriality All intellectual property law is based on the principle of territoriality Each state or country determines for its own territory, what is to be protected, who should benefit from such protection and for how long, and how the protection should be enforced 4-6 Intellectual Property Issues: Trademarks Trademarks protect words, names, symbols, sounds, or colors that distinguish goods™ and services • • • SM Trademarks are highly valuable assets Can be renewed forever as long as they are being used Gained by registration in most countries, “first to file”, or “first to use”, depending on local legislation Agreements such as Madrid offer protection in multiple countries Disputes arise due to different brand perceptions between countries, assumptions regarding protection of multiple products and changing global relations 4-7 Intellectual Property Issues: Patents Patent is a form of protection that provides a person or legal entity with exclusive rights for making, using or selling a concept or invention and excludes others from doing the same for its duration • • • Patents can be maintained for a maximum of twenty years Decision to grant or reject a patent rests with each country authority Patent treaties provide the option of submitting one patent for protection in several nations 4-8 Patents as Measure of Innovation Of all countries, the United States granted the most patents followed by Japan and Germany Yet when viewed by number of patents per million people, which takes the size of country into consideration, the US was in third place after Japan and South Korea 4-9 Intellectual Property Issues: Copyrights Copyrights give ownership to "original works of authorship," such as literary works, paintings and video games • In U.S and EU, copyrights registered for the life of the author, plus 70 years • Copyrights extend to other countries if they are part of an international copyright treaty, convention or organization 4-10 Intellectual Property Issues: Trade Secrets Trade secrets are information that companies keep secret to give them an advantage over their competitors; • Not protected in the same way as trademarks or patents • Must be guarded by non-disclosure and confidentiality agreements initiated by the global marketer • Unfortunately, lack of formal protection means that a third party can duplicate and use secret information if revealed 4-11 Trade Regulations 1947-1994 • GATT codified rules for trade liberalization 1995 • Formation of the World Trade Organization (WTO) a forum for governments to negotiate trade agreements and to settle trade disputes Approximately 150 nations are members of the WTO 75 % are developing countries 4-12 GATT Trade Rounds 4-13 Resolution of Trade Disputes Arbitration and Mediation Disputes can arise between private parties such as businesses, between two countries or between an individual and a country ways to settle a dispute • Litigation through a court • • Arbitration Mediation Litigation can be costly and time consuming, arbitration/mediation are preferable 4-14 Arbitration Dispute is submitted by the parties to one or more arbitrators whose decision is binding Advantages • enforceability, confidentiality, technical expertise of the arbitrators, and usually less expensive than litigation 4-15 Mediation A non-binding process where two parties agree on a mediator who tries to guide them to a satisfactory settlement of the dispute Advantages • Use when parties hope to preserve or renew their commercial relationship • takes less time 4-16 Marketing Mix Regulations: Product Standards A key concern for global marketers is the presence of different product regulations and standards on global, and national levels • Multinational manufacturers must adapt product strategy when ISO – The International necessary to meet standards Organization for Standardization, develop international product standards Product Planning Products must meet standards in each How does a company efficiently and target country cost-effectively accomplish this task? Do the standards represent an achievable goal, or will conformance cause undue hardship to manufacturers and customers? 4-17 Regulation of Communication Advertising regulations are nationally and locally determined Cyber Law • Difficulties in the regulation of cyberspace A single transmission may involve regulations in three countries: regulations of the country in which the recipient resides, regulations of the country where the server is located regulations of the country in which the transaction takes place 4-18 Political Risk The probability that a set of unwanted events may occur • • • "Unwanted events" are those that can impact upon a firm's performance to the extent that they threaten the firm's value Firm-specific risks are directed at a particular company (micro) Country-specific risks impact all firms in a given industry (macro) Assessing political risk is important if the company has • • • • • High ratios of international to domestic revenues Significant amounts of capital invested abroad Dependence on a global supply chain Significant concentration of assets or operations in a single region or country Dependence on international growth The major issues that concern political risk are its measurement and management 4-19 Categories of Political Risk 4-20 Measuring Political Risk: Country Risk Measures Figure 4-3 4-21 Terrorism Direct and indirect threats to the firm • Market imperfection increases transaction costs • Creates barriers to the free flow of goods • Generates negative perceptions of the country market to potential trading partners and consumers • Consequently, reduces the total volume of trade Three components of terrorism risk Threat to a target Target’s vulnerability Consequences of successful attack 4-22 Public Perception Is the world becoming safer or more dangerous for the American people? Figure 4-4 4-23 Managing Political Risk While political risk cannot be eliminated, it can, in some cases, be reduced • Insurance against some political risks is offered by both governmental and private agencies • Share ownership with host country nationals • Participating in community projects such as promoting social welfare and rural development projects 4-24 Summary Common and civil law countries account for about 30 percent of the world’s gross national product Global marketers must be aware of the problems centering on marketing issues such as the “4Ps”, product, place, price and promotion Intellectual property is an integral part of international trade, and its importance is increasing as the effective use of knowledge contributes ever more to national and international economic prosperity. The major agency dealing with trade disputes involving two or more countries is the World Trade Organization There are two types of political risk:: macro, or country risk that threatens an entire economic sector and micro, or firm risk that threatens individual companies 4-25 ... 4-3 World Legal Systems Figure 4-1 4-4 Legal Issues for Global Marketing Global marketers must understand the legal systems in which they operate Common legal scenarios include: • sales agencies... Marketing Mix Regulations: Product Standards A key concern for global marketers is the presence of different product regulations and standards on global, and national levels • Multinational... strategy when ISO – The International necessary to meet standards Organization for Standardization, develop international product standards Product Planning Products must meet standards in each