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.