Legal and Political Factors

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Legal and Political Factors
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Session Outline

• Home legal and political factors
• Inter-State political factors
• State political factors
• State legislative factors
• Implications
• Strategies to lessen legal and political risk
• Case
• Chiquita Brands International

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What aspects of the home markets legal and
political environment can facilitate
internationalisation?
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Home Legal/Political Factors

• Government promotional activities
• Government organisations to promote exporting
• Regulatory supporting activities (export
  subsidies)
• Export Market Development Grants
• Financial activities
• Membership of international financial
  organisations
• Government as international banker
• Information services
• Source of marketing information
• Specific export opportunities
• Export procedures and techniques

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Home Legal/Political Factors

• Export-facilitating activities
• Trade development offices
• Government-sponsored trade fairs and missions
• Permanent trade centres in foreign countries
• Promotion by private organisations
• Industry and trade associations
• Chambers of commerce

Australian New Zealand Chamber of Commerce in
Japan
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Inter-State Political Factors

• Combinations of nations that form unifying
  agreements for the purpose of regulating trade
• European Union
• North American Free Trade Agreement
• Association of South East Asian Nations
• Australia, New Zealand, Singapore Closer Economic
  Partnership
• Asia-Pacific Economic Cooperation
• World Trade Organisation
• United Nations

Impact on International Marketing?
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State Political Factors

• Government stability
• An assessment of both the governments ability to
  carry out its declared programs and its ability
  to stay in office
• Government unity
• Legislative strength
• Popular support
• Internal conflict
• An assessment of political violence in the
  country and its actual or potential impact on
  governance
• Civil war
• Terrorism/political violence
• Civil disorder

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State Political Factors

• External conflict
• An assessment of the risk to the incumbent
  government from foreign action, including both
  non-violent and violent external pressure
• War
• Cross-border conflict
• Foreign pressures
• Corruption
• An assessment of corruption within the political
  system
• Excessive patronage
• Secret party funding
• Suspiciously close ties between politics and
  business

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State Political Factors

• Military in politics
• An assessment of the degree of military
  involvement in politics
• Military involvement in government due to an
  internal/external threat
• Threat of military take-over
• Full-scale military regime
• Religious tensions
• An assessment of the extent to which a single
  religious group seeks to
• Replace civil law by religious law
• Dominate governance
• Suppress religious freedom

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State Legislative Factors

• Restrictions on potential for economies of scope
• Legislation regarding the size of the business
• Japans Large Stores Law
• Legislation regarding products and packaging
• German packaging law
• Restrictions on the potential for economies of
  scale
• Legislation regarding
• Negotiating power
• Number and location of stores or factories
• Price competition
• Opening hours
• Employment
• Foreign ownership

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Implications
Actions/Strategies to lessen legal and political
risk?
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Implications

• Strategies to lessen legal and political risk?
• Good corporate citizenship
• A company is advised to remember
• It is a guest in the country and should act
  accordingly
• It is not wise to try to win over new customers
  by completely Westernising them
• Although English is an acceptable language
  overseas, a fluency in the local language goes
  far in cementing good public relations
• It should try to contribute to the countrys
  economy and culture with worthwhile public
  projects
• It should train its executives and their families
  to act appropriately in their foreign environment

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Implications

• Entry Strategy
• Joint Ventures
• With local firm - helps minimise anti-MNC
  feelings
• With another MNC - provides the additional
  bargaining power of a third country
• Less susceptible to political harassment
• Limited financial exposure
• Licensing
• Eliminates almost all risks
• Effective in situations where the technology is
  unique and the risk is high

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Implications

• Marketing and Distribution
• Controlling distribution in world markets can be
  used effectively if an investment should be
  expropriated
• Expanding the investment base
• Including several investors and banks in
  financing an investment in the host country
• Advantage of engaging the power of the banks
  whenever any kind of government takeover or
  harassment is threatened
• Especially powerful if the banks have made loans
  to the host country

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Case Chiquita Brands International
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Summary Key Points

• Political risk
• The second most important issue for international
  firms
• Legislation and government policy
• Impediment to international growth
• Entry Strategy
• Strong relationship between uncertainty/risk and
  investment
• Marketing Strategy
• Difference between discretionary and obligatory
  adaptation