Global Political, Legal &

Regulatory Environment
Source: Global Marketing
Management by Keegan &
Bhargava; Lee & Carter

The Political Environment

...includes any national or international
political factors which may affect an
organizations decision making, planning,
implementation and control mechanisms

Political Environment Analysis? Why??

.Politics affecting global business is a common
problem for international companies.
A nations politics affect
Regulatory laws; Resource management; Monetary
policies; geopolitical relationships
Companies must treat each venture into a new
country as a new business.

Helps businesses avoid unexpected operational costs

resulting from national politics.

Political factors to be analyzed

1. Nation-states and sovereignty
2. Political risk
3. Taxes
4. Dilution of Equity Control
5. Expropriation

1. Nation States and sovereignty

Sovereignty supreme and independent
political authority
Criteria for government actions:
A countrys stage of economic development
Play participatory/facilitator role

The political and economic system in place

2. Political risk
Risk of loss to business owing to a countrys political
structure or policies

A country is most likely to attract foreign

investments when:
The perceived level of risk is lower
Perceived level of stability is high
Eg. Internal unrest in Sri Lanka; coalition government in
India, etc.

Types of political risk

Ownership risk (property and life)
Operating risk (ongoing operations interference)
Transfer risk (in shifting funds between countries)

BIPA
To reduce the investment risks of investors to and
from India, the GOI had entered into bilateral
agreements called BIPA (Bilateral Investment
Promotion and Protection Agreement) with a
large number of countries.
These generally help to stimulate business
initiatives and create favorable conditions for the
growth of foreign investments in India.
India has signed BIPAs with 82 countries as of
July, 2012 of which 72 have come into force
(Ministry of Finance, GOI).

3. Taxes
Companies incorporated at one place, do
business in another, and maintain corporate HQ
in a third.
Such companies require special attention to tax laws.

No universal international laws governing the levy

of taxes across national borders.
Bilateral tax treaties are negotiated by
governments to provide fair treatment
India entered into DTAA (double tax avoidance
agreement) treaties with 88 countries (Press
Information Bureau, GOI)

4. Dilution of equity control

Political pressure for national control of foreignowned enterprises
Foremost goal of host government is to protect
national sovereignty (especially in domestic
business activity)
Four forms of action for foreign companies:
Follow the law of the land (Eg. Colgate Palmolive became an
Indian company)
Take preemptive action
Negotiate under the new law (Eg. Ciba Geigy increased its
equity base to local investors)
Leave the country (Eg. IBM, Coca Cola)

5. Expropriation
Refers to government action to dispossess a
company or investor.
Compensation is generally provided.

Creeping expropriation

Control on Repatriation of profits, dividends, royalties etc.

Increased local content requirements
Quotas for hiring local nationals
Price controls

Nationalization
Socialization
Confiscation

Host Country Pressure Groups

Labor unions
Political parties
Environmental groups
Local business community

BERI
Business Environment Risk Index
www.beri.com check the website

Is extremely comprehensive and provides

numerous reports (for a fee).
Rates each country on weighted criteria with
each criterion rated on a scale from best (5)
to worst (0)

Steps to assess political risk

Do not underestimate or overestimate risk.
3 steps to assess risk:
Determine issues relevant to the firm
Determine political events (viz. probability of
occurrence, their impact, willingness of government to
respond, etc.)
Determine probable impacts and responses

Ranking of countries based on

political risk
https://www.prsgroup.com/catego
ry/risk-index

EU forces market trader to pulp thousands of kiwi

fruit because they're ONE MILLIMETRE too small

Greengrocer Tim Down holds a legal kiwi fruit in

his right hand along with an illegal kiwi fruit in
his left hand

A market trader has been banned from selling a

batch of kiwi fruits because they are 1mm
smaller than EU rules allow -27th June 2010

MORE EXAMPLES
Examples over many years include
Sanctions imposed against imports of goods from the former apartheid regime
in South Africa (Eg. Cricket);
UN-backed sanctions against Iran over its suspected policy of developing
nuclear weapons;
Israeli sanctions against the Palestinian Authority in Gaza.

US-based Google had to deal with the Chinese governments restrictions on

the freedom of speech in order to do business in China.
Chinas different set of political and legal guidelines made Google choose to
discontinue its mainland Chinese version of its site and direct mainland
Chinese users to a Hong Kong version.
Our own Indo-Pak political issues impacting a series of business interests
ranging from trade to cricket.

The Legal Environment

Key Aspects of International Legal Environment:
i. Local domestic laws organization's home market laws
are important because they can limit what can be
exported/imported
ii. International law laws on patents, trademarks,
copyrights, tariff reduction etc.

THE MAJOR LEGAL SYSTEMS (1)

COMMON LAW:
derived from English law
Based on tradition and less dependent on statutes
and codes.
found in countries previously part of the English
Commonwealth
Eg. US, UK, AUSTRALIA, INDIA, EGYPT ETC.

CODE LAW
Based on a comprehensive set of written statutes that spell
out legal rules explicitly.
Based on Roman law and Napoleonic code
EG. ITALY, FRANCE, GERMANY, MEXICO, ETC.

THE MAJOR LEGAL SYSTEMS (2)

CIVIL LAW:
found in South East and East Asian nations

THEOCRATIC LAW:
Based on religion.
Eg. Islamic Law based on Shariah found in Middle East
nations, and other Islamic countries.

International law
The supreme body is the International Court of Justice, situated
in The Hague, Holland. Here a number of international disputes
may be taken for ultimate adjudication. However, a series of
other bodies and legislation exists.
a) FCN (Friendship, Commerce and Navigation) and Tax Treaties
a)

primarily US based and concerned with giving protection of trading rights and avoiding
double taxation.

b) IMF and WTO

a)

concerned with international trade restrictions and dumping.

c) UNCITRAL (UN) international trade law commission

a) to provide a uniform commercial code for the whole world, particularly
international sales and payments, commercial arbitration and shipping
legislation.
b) Works with International chambers of commerce and Governments.
d) ISO (International Standards Organization)
often works with ILO, WHO etc. and contains technical committees working
on uniform standards.

International law (contd)

e) Patents and trademarks: detailed in the next slide
f) Air transport is covered mainly by IATA (International Air Transport Authority),
ICAA (International Civil Aviation Authority) and ITU (International
Telecommunication Company).
h) Recourse arbitration is an attempt to reduce disputes by consultation. Some of
the most widely used are the International Chamber of Commerce, the
American Arbitration Association, the London Court of Arbitration and the
Liverpool Cotton Exchange.

Intellectual Property: Patents and

Trademarks
Protected in one country and not protected in
another
Global marketers must ensure that patents and
trademarks are protected
In 1995, WTO members were obliged to adhere
to TRIPS (Trade Related Intellectual Property
Rights)
TRIPS encompass copyrights, trademarks,
industrial designs, integrated circuits, and trade
secrets.

Patent Law in India

Following the Patent Bill in 2005, the Indian
Patent Act transformed into a TRIPS-compliant
product patent system.
Under this system, product patent once granted
will remain in force for 20 years.
In US the patent holder retains all rights for the
life of the patent even if the product is not
produced or sold.
Latest:
US worried over rights of drug patent owners under Indias
compulsory license regime;

Marketing implications
The principle ones are as follows:
Product decisions - physical, chemical, safety, performance,
packaging, labelling, warranty
Pricing decisions - price controls, price freezes, value added
systems and taxation
Distribution - contracts for agents and distribution, physical
distribution, insurance
Promotion - advertising codes of practice, product restriction,
sales promotion and,
Market research - collection, storage and transmission of data.

Thank you