Social and Political Environments in International Marketing

Introduction

        Aristotle once said, “Man, when perfected, is the best of animals, but when separated from law and justice, he is the worst of all."  Therefore, man must have laws and regulations to adhere to, for these laws and regulations govern the behavior of man.  Thus, each culture has its own compilation of laws, regulations, and statutes that govern the behavior of its business practices, which must be thoroughly examined before marketing a product or service globally.  Not only do marketers need to know a country’s laws, regulations, and statutes, but also the political risks involved before conducting operations.

Legal Issues in Global Commerce

            There are four categories of law worldwide; these include Common law, Code law, Islamic law, and Socialist law.  Common law has a long history in the United States that is founded on precedence.  Each case is viewed on its own merits, and the rulings become precedent in future cases of similarity.  Code Law is the legal basis in Europe, where judges are more restricted, meaning they can not design innovative solutions when issues arise, and thus, can only match cases with specific laws.  Islamic Law is guided by the Koran, which mandates specifics, such as forbidding usury.  Islamic Law’s bottom line is the need to please God first, even before government.  Finally, Socialist Law’s underlying principle is that government is always just, and they typically own everything, therefore contracts are not used because the development of a framework for them is not developed, thus the government is seen as a dictator.

             Each country has its own unique laws and legal constraints, as explained above, that regulate marketing practices; such laws cover product development, pricing, promotion, channels of distribution, and labeling.  Whether it is media regulations, or advertising and promotion restrictions, the legal framework in emerging markets is often subnormal.  Thus, regulations that control communications may use selective enforcement, meaning negotiations is applicable.  The regulations are correlated with who can relay the advertisement, where the advert can be communicated, the frequency of the advert, how the advert should be communicated, and who the message can be directed to.  

           These types of regulation can also target promotions such as, coupons, contests, discount promotions, and premium offers.  By way of illustration, in Saudi Arabia, religion is the number one priority in business practices.  Such as, in advertising, women can not be depicted on television without veils, children can not be seen disrespecting elders, and during prayer time, which occurs five times a day, products can not be promoted on radio or television, and retail shops even close during these times, thus, no sales transactions can occur.  Therefore, when marketing a product globally, religious practices must be observed in marketing strategies because laws relating to religion can be broken.  Furthermore, the consequences for breaking laws are different as well, depending on which country the business is located, hence, what is not extremely punishable in one country, may be severely punishable in another, thus, businesspeople should keep this in the forefront of their international business practices. 

            Other laws that marketers should familiarize themselves with are intellectual property rights.  Protecting one’s trademark, patents, copyrights, designs, products, and processes are crucial in conducting business internationally.  For example, in the United States it is estimated that companies lose as much as $250 billion annually to pirated copyright works, stolen patents, and counterfeit goods.  In the United States ownership of intellectual property rights may differ from other countries, thus businesses must keep this in mind when conducting business internationally, where registration of intellectual property is conducive. 

              Laws that are considered a grey area are cyber laws, which are very interesting, especially since cyberspace is an international concept, not confined to one specific geographical location, thus, how can laws be created?  For instance, a French court assumed domain over the American company Yahoo, ordering the online provider to remove web pages containing Nazi memorabilia, for this type of material is illegal in France, but not in other jurisdictions.  Another case in the British court is that of a citizen who was held accountable for photographs of a licentious nature, which was placed on an American server, not illegal in America, but is in Britain.  These cases are intriguing, especially since the internet is not restricted to a certain jurisdiction, however, content in one country can be illegal, whereas not in another country. 

               

Sources and Forms of Political Risks

          Another source of great significance in international marketing is political risks.  Political risks are always a factor in international commerce because of ineluctable variances between the customs, laws, and government policies.  Political risks vary by country, but each carry its own potential barriers.  These risks include naturalization of foreign assets, government instability, terrorism, revolution or civil war, price controls, changes in government policies, import restrictions, and exchange controls.  These risks determine the favorability of business operations.  One of the most austere political risks is naturalization of foreign assets, for example in Venezuela; the government seized a United States rice mill, in 2009, and citing United States subsidiary company, Cargill, was not complying with government pricing and quotas.    

             When entering a new market, the relationship a country has with other countries is vital in determining the level of political risks, for political differences can constitute unexpected challenges for businesses, such as consumer boycotts, home-country or global sanctions, or terrorism against the firms or country that conduct business there.  For example, Exxon Mobil had to suspend operations in Indonesia because a group of separatist rebels targeted them.  Thus, violent disturbances can cause a company to be diverted from distributing its products. 

            Selective intervention also plays a huge role in political risks, such as taxation issues, restrictions on operations and cross- border transfer of resources, as well as legal conventions.  Export and tariff restrictions can be exuberant, thus, requiring implementation of a network of local suppliers.  Currency exchange restrictions can make it quite hard to transfer funds, as well as aggregate royalties and profits.  Cross-border transfer of resources can hinder the obtainment of supplies and equipment, as well as assignments and travel of management.  There are different types of restrictions that could damper investments and business operations, such as sectoral restrictions, which protect suppliers domestically, or there may be ownership requirements that dictate local ownership or joint ventures.  For instance, there are certain countries that require government approval before securing a new franchise; in China, before franchisors are able to sale franchises they must pilot two locations, for a minimum of one year.  Moreover, there are numerous political risks that a company may face when starting up or conducting business internationally, and knowing these risks, as well as how to assess these risks will make a difference in the success of business operations. 

Conclusion

         

         Aristotle’s wise words echo throughout global commerce, for it is the laws of each country that dictate business practices, and how business is conducted and operated in each culture.  Along with these laws come political risks that must be assessed, for each country has its own risks that could be a detriment to the success of a business in the global arena.