IM/U1 Topic 6 Political and Legal Environments on International Marketing Information
The political and legal environment of the company’s home country, its host country and the general international environment also has important effects on the marketing activities of international companies.
The politics and regulations of the company’s home country can determine its opportunities outside national borders. One of the main types of regulation that international marketers need to be aware of are embargoes and sanctions which are used to distort the free flow of trade. They need to know where they are applicable and take them into account when planning marketing activities so that they do not breach them and face subsequent sanctions. Governments also employ export and import control systems. Export controls prevent or delay companies from selling their products in certain countries whilst import controls are used to protect and stimulate the domestic market. Marketers need to take them into account so they know where the company can do business and where it can obtain its supply from. Finally, governments may induct special measures to ensure that their companies behave in a correct manner in the international business environment. One of the major areas concerned is boycott, which is when companies reject to conduct business with someone. The government’s control in this area can force companies to decide whether to stop transactions and lose profit or to continue trading and pay charges. The Arab nations, for example, have blacklisted a number of companies who conduct business with Israel. In response, the United States imposed several laws to prevent U.S. companies from complying with the Arab boycott as it has political ties with Israel. Companies may lose out to firms whose home country does not employ such measures. Nonetheless, according to Czinkota and Ronkainen (2007), it is best to avoid adopting inappropriate behaviour as it may lead to damages to the company’s reputation, boycotts by consumers and cancellation of transactions. This might cost the company more money than it gained through adopting such behavior.
Companies are also affected by the legal and political environment of the host country. Marketers firstly need to determine the level of political risk, i.e. the likelihood of political changes that could adversely affect the company, by looking at the host country’s government, its political actions and its stability. U.S. companies, for example, who are a major target for terrorist attacks because of their home country’s actions and capitalistic image, need to particularly take into account the stability of the host country. Marketers also need to be aware of the actions of the host country’s government. Price controls, for example, which are used by the government to respond to inflation, can put international companies into a difficult situation where it has to decide whether to stop their operations or to carry on in the hope that the controls will be changed and they can regain the sacrificed profits. Companies also need to be familiar with the laws of the host country and the restraints they place on their operations. In France, Canada, Brazil, and Indonesia, for example, there are laws that restrict imports of U.S. entertainment to protect and preserve their cultural industries. However there are also laws that are aimed at assisting companies with their international operations, e.g. subsidies. Shortages of regulations can also create problems for companies, e.g. the lack of intellectual property rights in China. Therefore, companies need to attain a good understanding of how the country’s legal and political systems work to reduce the impact of the problems they cause. By undertaking in-depth research on the country’s history, culture and political setting before entering it allows companies to avoid making investments that could have disastrous outcomes. An in-depth knowledge of the country would also allow the company to anticipate, plan and adapt into the local community. Hiring locally, undertaking local charity work and joint ventures with local businesses show the government that the company cares about the local community and does not just see it as an object it can exploit. This reduces the amount of interference by the government giving the company more freedom in its operations.
Marketers must also consider the overall international business environment. Relations between countries and governments have important effects on the operations of international companies. The U.S. government’s differences with South Africa, for example, forced U.S. companies to leave their operations in the country. Relations between home and host countries are governed by bilateral agreements, as well as by multilateral ones between sets of countries. Marketers need to continuously monitor the international political environment keeping up to date with political affairs so that they can anticipate changes and plan and modify their marketing strategy accordingly. In terms of the legal environment, managers need to be aware of certain laws and treaties which because of the respect they receive from many countries have a strong influence on the way companies operate. The World Trade Organization, for example, gives an outline on the behaviour that it finds acceptable from its member states (WTO, 2010).
International marketers are faced with quite many and quite a range of factors in the international business environment that can have profound effects on their marketing activities. They need to be aware of the main sources of culture, such as religion, language, education, values and attitudes, aesthetics, and customs and manners. Given that they are embedded into societies and individuals it is necessary for companies to adapt their marketing activities to the market and not force a different standpoint on the consumer. International marketers also need to consider economical factors, such as population, income, inflation, economic integrations and infrastructure. They allow them to assess the attractiveness of the market and identify the segments and the geographical areas they should target. This reduces the risk of investing money in marketing activities in markets that are unprofitable. Finally, companies need to take into account the legal and political factors affecting the home country, the host country, as well as the overall international business environment. They need to be aware of the different governments, their political actions, their stability, and their relation with other countries, and constantly monitor them by keeping up to date with economic affairs around the world. This allows them to determine the level of political risk so that they can anticipate and plan for threats and take advantage of opportunities political changes offer them.