International Marketing: Chapter 5

Embargoes and Sanctions

Government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes.

Export license

written authorization to send a product abroad

Tariffs

Taxes imposed on imports, which subsequently increase the price of the imported product in the domestic market.

Voluntary Restraint Agreements

Nontariff trade barriers in the form of self-imposed restrictions and cutbacks. Aimed at avoiding punitive trade actions from the host country.

Quota Systems

Reduce the volume of imports accepted by a country.

Political Risk

Risk of loss when investing in a given country caused by changes in a country's political structure or policies.

Government policies to combat political risks include:

Expropriation.
Confiscation.
Domestication.

Expropriation

Seizure of foreign assets by a government with payment of compensation to owners. (usually very nominal payment)

Confiscation

Transfer of ownership from a foreign firm to the host country without compensation for the firm.

Domestication

When the host government demands partial transfer of ownership and management.
Imposes regulations to ensure that a large share of the product is locally produced and major profit is retained in the country.

Chill effect

A phenomenon where there is uncertainty about the state of a nation's economy. Leads to a sharp reduction in demand for both consumer and industrial goods.

Corporate governance

Relationships among stakeholders that determine and control the strategic direction and performance of an organization.

Intellectual property

Legal entitlement of exclusive rights to use an idea, piece of knowledge, or invention.

While deciding upon a firm's international marketing activities the manager needs to concentrate on 3 areas:

The political and legal circumstances of the home country.
The political and legal circumstances of the host country.
The bilateral and multilateral agreements, treaties, and laws governing relations between host and home countries.

Gray market goods are

products that enter markets in ways not desired by their manufacturers.

Areas of governmental activities which are of major concern to the international marketer are:

Embargoes and trade sanctions.
Export controls.
Import controls.
Regulation of international business behavior.

Embargoes

an official ban on trade or other commercial activity with a particular country.

Sanctions

Punitive or restrictive measures taken, usually by several countries in concert, to pressure a country to change its certain policies.

Export control

Designed to deny or delay the acquisition of strategically important goods by the adversaries.

The legal basis for export controls

varies across nations.

Dual use items

which are goods useful for both military and civilian purposes are controlled by the Joint List of the European Union.

The US export control system is based on the:

Export Administration Act. (Department of Commerce)
Arms Export Control Act. (Department of State)

Problems faced while administering import controls:

They exact a huge price from domestic consumers.
The social cost of these controls may be damaging to the economy.
They bring about downstream change in import composition.

Major types of Political Risk:

Ownership Risk.
Operation Risk.
Transfer Risk.

Ownership Risk

Exposes property and life.

Operating Risk

Interference with the ongoing operations of a firm.

Transfer Risk

Encountered when shifting funds between countries.

Effects of Domestication:

Poor cooperation and communication from managers.
Increased costs, inefficiency, and lower-quality products.
Disruption of international distribution plans.
Inefficiencies due to a lack of market discipline.

Common risks faced by most businesses operation abroad:

Shortage of foreign currency.
Difficulty dealing with exchange controls.
Prolonged negotiations with government officials.
Increase in tax rates, or stricter application of the host country's tax codes.
Government control on the prices of imported product

Legal Difference and Restraints

Countries differ in their laws as well as in their implementation of these laws.

Two major legal systems popular worldwide are:

Common law and code law.

Common law

based on tradition and depends less on written statutes and codes than on precedent and custom.

Code law

Based on a comprehensive set of written statutes that spell out legal rules explicitly.

Anti-dumping laws

Prohibit below-cost sales of products. Require export and import licensing.

Very specific legislation may

exist to regulate advertising.

The enforcement of laws may

have a different effect on national and foreign marketers.

Develop coalitions or constituencies to motivate legislators and politicians to consider and implement change through:

Recasting or redefining issues.
Highlighting direct linkages and their benefits to legislators.
Lobbying.

Political relations and conflicts between countries can

have a profound impact on firms trying to do business internationally.

If bilateral political relations between countries improve,

businesses can benefit.

Apart from being aware of political currents worldwide,

an international market must anticipate changes and plan strategies accordingly.

International law

No enforceable body of international law exists.

Treaties and agreements respected by a number of countries

influence international business operations.

Firms are restricted by

both home- and host-country laws.

Terrorism

The systematic use (or threat) of violence aimed at attaining a political goal and conveying a political message.

Indirect effect of terrorism on business activities:

Real or perceived decline in per capita income, purchasing power, and stock market values.

The ethical obligations faced by multinational enterprises include:

Corporate governance and responsibility.
Intellectual property rights.
Corruption.

The Key Elements of Corporate Governance

Transparency of a firm's operation.
Financial results.
Principles by which it measures sales, expenses, assets, and liabilities.

FCPA

Foreign Corrupt Practices Act

FCPA was passed in 1977 to

disallow US firms to bribe foreign officials for business purposes.