Getting acquainted with how politics and law affect business activities around the world is a critical concern of today’s successful global organizations. Especially in the past ten years, there have been substantial political changes around the world that have shaped business operations. New markets have opened, old ones have closed, and the level of uncertainty that exists presents many marketing challenges. Below I will discuss some of most important political and legal issues that are faced when doing business across borders.
Stability of Government Policies: Although the preferred political climate for a global firm is stable and friendly, organizations may still profit and succeed in traditionally unfavorable conditions. The most important idea is that the government is stable and the set of rules or codes of behavior that affect business are predictable and adaptable. If the potential for profit exists and is permitted by government policies, a global firm can still function.
There are 5 main political causes of instability that affect the international markets:
- Some forms of government seem to be inherently unstable
- Changes in ruling political parties
- Extreme nationalism
- Animosity targeted toward specific countries
- Trade disputes
Political Risks: Below is a brief list of the kinds of political risks a company faces when doing business internationally.
- Confiscation, Expropriation and Domestication
- Economic risks associated with the political environment (exchange controls, local-content laws, import restrictions, tax controls, price controls, labor problems)
- Political Sanctions (boycotting trade altogether or on specific products by one country to another)
- Political and Social Activist and Nongovenrmental Organizations
- Violence, Terrorism and War
- Cyberterrorism and Cybercrime
To decrease how vulnerable your business is to political conditions, it is especially important for the marketer to forecast risk and engage in business ventures that may benefit them. Some examples of these practices include forming joint-ventures, expanding your investment base, licensing your products/services, or political bargaining through lobbying.
It’s important to know the rules you must play by. There are four major bases for legal systems:
- Common law: found in the UK, the US, Canada and other countries under English influence
- Islamic Law: Derived from the Koran and found in Islamic States
- Commercial legal system: Found in Marxist-socialist economies and states like China, and the former Soviet Union
- Civil or Code law: found in Germany, France, Japan and non-Islamic and non-Marxist countries
Juridsiction in International Legal Disputes:
There are three different types of international legal disputes; those between governments, between a company and a government and between two companies. There is no absolute international law system, so there are many ways to handle conflict. The question most commonly asked in these instances are “Whose law governs?”
In order to resolve legal issues, there are three general ways to determine jurisdiction.
- On the basis of jurisdictional clauses in contracts
- On the basis of where a contract was entered into
- On the basis of where the provisions of the contract were performed
Some laws that are essential to focus on that are involved with global marketing are: intellectual property rights laws, commercial laws within countries (such as marketing laws), environmental laws, foreign countries’ antitrust laws, and cyber laws.
Government policies and laws vary from country to country, and doing business abroad means that government may have a greater level of involvement than what you are used to in domestic business. Overall, the primary marketing objective is to develop a plan that will be enhanced or at least not negatively affected by the political and legal environments.
Cateora, Philip R., Mary C. Gilly, and John L. Graham. International marketing. 14th ed. New York: Mcgraw-Hill Irwin, 2009. Print.
Kotabe, Masaaki, and Kristiaan Helsen. Global marketing management. Hoboken, NJ: J. Wiley, 1998. Print.