4 Political and Regulatory Climate Learning ObjectivesList and explain the political motivations behind government actions that promote or restrict international marketing. Identify pressure groups that affect international marketing. Discuss specific government actions salient to international marketing, such as boycotts and takeovers. List and compare the four basic legal traditions that marketers encounter worldwide. Cite examples illustrating how national laws can vary and change. Differentiate between the steps involved in managing political risk and those involved in planning for regulatory change. Chapter OverviewHost country political climateHost government actionsHome country political forcesLegal environmentsNational regulatory environmentsManaging political riskGlobal marketing and terrorism * Self-preservationSecurityProsperityPrestigeIdeologyCultural identity Political Motivations of Host Countries * Host Country ActionsGovernment subsidiesOwnership restrictionsOperating conditions Work permits Local content requirements * TakeoversTakeovers = Host-government actions that result in a firm’s loss of ownership or direct controlAn expropriation is a formal seizure of an operationA confiscation is an expropriation without compensation * Home Country ActionsGuided by the same six interests as host countries U.S. embargo of Cuba U.S. anti-Arab boycott legislationOften home countries seek multilateral actions to increase their bargaining power * Legal EvolutionProduct liabilityBankruptcyRegulating cyberspace * Human Nature Orientation (HNO)Positive HNO – assume people can be trusted to obey the rules Negative HNO – assume people cannot be trusted to obey the rules * Attitudes Toward RulesAttitudes toward rules are affected by two criteria: Level of power distance Type of human nature orientation * Managing Regulatory Change Alter Bargain to get government to change regulations Avoid Move to bypass the impact of the regulation Accede Comply Ally Avoid some risks by seeking strategic alliances * Political Risk Political risk is the possibility that an unexpected and drastic change due to political forces will result in adverse circumstance for business operations * Regulatory Change Versus Political Risk Regulatory Change More moderate and predictable changes in the business environment Political risk More unexpected and drastic changes * Managing Political RiskFighting the battle on two fronts: Perfect intelligence systems to avoid being caught unaware when changes disrupt operations Develop risk-reducing strategies that help limit their exposure, or the losses they would sustain, should a sudden change occur * Terrorism Affects International MarketingStarbucks pulled out of Israel because they feared a terrorist attackGE criticized by a senator for taking “blood money” from a state that supports terrorism (Iran)Global tourism and education .

1. 4
Political and Regulatory Climate
Learning ObjectivesList and explain the political motivations
behind government actions that promote or restrict international
marketing. Identify pressure groups that affect international
marketing. Discuss specific government actions salient to
international marketing, such as boycotts and takeovers. List
and compare the four basic legal traditions that marketers
encounter worldwide. Cite examples illustrating how national
laws can vary and change. Differentiate between the steps
involved in managing political risk and those involved in
planning for regulatory change.
Chapter OverviewHost country political climateHost
government actionsHome country political forcesLegal
environmentsNational regulatory environmentsManaging
political riskGlobal marketing and terrorism
*

2. Self-preservationSecurityProsperityPrestigeIdeologyCultural
identity
Political Motivations of Host Countries
*
Host Country ActionsGovernment subsidiesOwnership
restrictionsOperating conditions
Work permits
Local content requirements
*
TakeoversTakeovers = Host-government actions that result in a
firm’s loss of ownership or direct controlAn expropriation is a
formal seizure of an operationA confiscation is an expropriation
without compensation
*
Home Country ActionsGuided by the same six interests as host
countries

3. U.S. embargo of Cuba
U.S. anti-Arab boycott legislationOften home countries
seek multilateral actions to increase their bargaining power
*
Legal EvolutionProduct liabilityBankruptcyRegulating
cyberspace
*
Human Nature Orientation (HNO)Positive HNO – assume
people can be trusted to obey the rules
Negative HNO – assume people cannot be trusted to obey the
rules
*
Attitudes Toward RulesAttitudes toward rules are affected by
two criteria:
Level of power distance
Type of human nature orientation

4. *
Managing Regulatory Change
Alter
Bargain to get government to change regulations
Avoid
Move to bypass the impact of the regulation
Accede
Comply
Ally
Avoid some risks by seeking strategic alliances
*
Political Risk
Political risk is the possibility that an unexpected and drastic
change due to political forces will result in adverse
circumstance for business operations
*
Regulatory Change Versus Political Risk Regulatory Change
More moderate and predictable changes in the business
environment Political risk

5. More unexpected and drastic changes
*
Managing Political RiskFighting the battle on two fronts:
Perfect intelligence systems to avoid being caught unaware
when changes disrupt operations
Develop risk-reducing strategies that help limit their exposure,
or the losses they would sustain, should a sudden change occur
*
Terrorism Affects
International MarketingStarbucks pulled out of Israel because
they feared a terrorist attackGE criticized by a senator for
taking “blood money” from a state that supports terrorism
(Iran)Global tourism and education are affected
Americans spend more on domestic and nearby tourism; less
spent on overseas tourism. Fewer Middle Easterners are
visiting America.
Tighter visa controls in America have created an opportunity for
non-U.S. countries to increase their share of international
studentsGovernments and companies spend lots of money to
protect infrastructure, plant, equipment, and people

6. *
3
Cultural and Social Forces
Learning ObjectivesDefine what culture is and demonstrate how
various components of culture affect marketing.Explain how
different world religions affect marketing.Describe how family
structure can vary and explain its impact on marketing.Illustrate
ways in which the educational system of a country can affect
marketers.Differentiate between monochronic and polychronic
cultures and explain the three temporal orientations.List and
describe Hofstede’s dimensions of culture.Explain why
language can be important in gaining true understanding of a
culture.Identify ways of adapting to cultural differences.
*
Chapter Overview
Defining cultureReligionThe familyEducationAttitudes toward
timeThe Hofstede measures of cultureLanguage and
communicationSocial RelationshipsOvercoming the language

7. barrierAdapting to cultural differences
*
Culture Defined
Culture is the collective programming of the mind that
distinguishes the members of one category of people from
another.
--Geert Hofstede
*
Religion and MarketingWestern religions
Gift-giving and Christmas
December 25 or December 6?
Kosher in Israel
Elite chocolate targets the Orthodox
Buying matzo: tradition versus price?
*

8. Christmas as a Global PhenomenonChina
Bars charge $25 for entrance on Christmas Eve, hotels charge
$180 for a Christmas functionTurkey
Children stand in line in shopping centers, waiting to sit on
Santa’s lap and ask him for gifts
Stores sell Santa suits and statues
*
Marketing and IslamAn important cultural force in the Middle
East, Asia, and AfricaIslam
Forbids interest
Encourages modest dress
Requires food to be halal
*
Marketing and Eastern ReligionsHinduism and Buddhism
VegetariansShinto
Prayers open the first Starbucks abroad (Tokyo)
*

9. The FamilyNuclear families
Household sizes down in U.S. and EuropeExtended families
More important in developing world
The importance of the Chinese clanMale-female roles
House cleaning in Japan
*
Attitudes toward TimeMonochronic versus polychronicCultures
and temporal orientationWork and leisure time
Hofstede Measures of Culture Power distanceIndividualism-
collectivismMasculinity-feminityUncertainty avoidance
*
Language and CommunicationForms of addressThe context of
language
Low-context cultures
High-context culturesBody languageShowing emotions
Overcoming Language BarriersTranslating and
translatorsTranslation problemsWhich language to learn?

10. Dealing with Culture ShockBe culturally preparedBe aware of
local communication complexitiesMix with host nationalsBe
creative and experimentalBe culturally sensitive
*
Dealing with Culture Shock (cont)Recognize complexities in
host culturesSee yourself as a culture bearerBe patient,
understanding, and accepting of yourself and your hostsBe
realistic in your expectationsAccept the challenge of
intercultural experiences
*
2
The Global Economy
Learning ObjectivesDistinguish among the basic theories of
world trade: absolute advantage, comparative advantage, and

11. competitive advantage.Discuss the pros and cons of global
outsourcing.List and explain the principal parts of the balance-
of-payments statement. Describe how and why exchange rates
fluctuate.List and describe the major agencies that promote
world trade, as well as those that promote economic and
monetary stability.Describe common trade restrictions and
explain their impact on international marketers.Compare the
four different forms of economic integration.
*
Chapter OverviewInternational trade overviewBasic theories of
world tradeBalance of paymentsExchange ratesInternational
agencies for promoting economic and monetary
stabilityProtectionism and trade restrictionEconomic integration
as a means of promoting tradeThe globalization controversy
Basic Theories of World Trade
Absolute advantage
Trade is based on each country selling what it is best at
producing
Comparative advantage
Trade can occur between two countries even if one of the
countries has no absolute advantage in any product
Competitive Advantage
Michael Porter argues that the theory of comparative advantage
is limited by its focus on the elements of production:

12. Land
Labor
Natural resources
Capital
Theory of Competitive AdvantageElements of productionNature
of domestic demandPresence of appropriate suppliers or related
industriesThe conditions in the country that govern how
companies are created, organized, and managedNature of
domestic rivalry
Global OutsourcingTechnology has created a global market for
skilled workersNo national winners or losersLosses and benefits
accrue differently to different groups
Balance of Payments(BOP): an accounting record of the
transactions between the residents of one country and the
residents of the rest of the world over a given period of time
Exchange Rates
An exchange rate measures the value of one currency in terms
of another currency
US $ = 0.5 £
One currency can appreciate
or depreciate against another

13. US $ = 0.75 £
US $ = 0.30 £
Determined by Supply and DemandImports/exportsInflation
rateInvestors and speculatorsGovernment actions
Soft CurrenciesCurrencies of smaller, less developed
countriesRates can be determined by the governments of these
countriesGovernments must eventually respect supply and
demand; currencies often face significant devaluations
Currency Fluctuations: Impact on Export Markets
When the currency of a foreign market devalues against an
exporter’s home currency, marketers must consider 2 options:
Raise prices in the export market in order to preserve margins -
Can your brand command a higher price? Keep prices steady in
hopes of sustaining or increasing market share
- Cost containment might help to maintain margins
somewhat
The devaluation of a foreign market currency against the home
currency will translate into lower earnings in the home
currencySimilarly, licensing and franchising fees from that
export market will translate into lower amounts when translated
into the home currency
Currency Fluctuations: Impact on Foreign Earnings

14. Currency Fluctuations: Reevaluating Market
ParticipationSometimes exporters decide to leave markets if a
devaluation causes their products to be priced out of that
marketHowever, such a currency devaluation makes buying
foreign-market assets cheaper in the home currency
Agencies Promoting Economic and Monetary
StabilityInternational Monetary Fund
Prevention of economic instability in emerging marketsWorld
Bank
Long-term loans to developing countriesGroup of 7(8)
Finance ministers/Central Bank governors of USA, Japan,
Germany, France, Britain, Italy, Canada (Russia)
Protectionism and Trade RestrictionsTariffsQuotasOrderly
marketing arrangements (voluntary export restrictions)Non-
tariff barriers
*
General Agreement on Tariffs
and Trade (GATT)Formed in 1947 by 23 nationsOffers
Reciprocity and reduction or elimination of duties between
members.Non discrimination
Most favored nation (MFN) statusHelped simplify trade

15. documentationReplaced in 1996 by the World Trade
Organization
World Trade OrganizationCreated as final act of GATTBased in
Geneva with 153 member countriesMembers agree to a set of
rules to improve world tradeWTO is forum to resolve trade
disputesUnlike GATT, WTO decisions can only be overturned
by consensus and not by veto
The website is: http://www.wto.org
*
World BankProvides financial and technical assistance to
developing countriesFounded in 1944 in Washington, D.C.Main
mission to fight povertyProvides low interest loans, no interest
loans, and guarantees local government bonds.Contributes to
global sustainability and care for the environment
*
Different Types of Regional
Economic IntegrationFree Trade AreaCustoms UnionCommon
MarketComplete Economic Integration

16. Free Trade AreaTwo or more countries agree to eliminate trade
barriers and tariffs between their countriesCountries continue to
have individual agreements with other countriesThe North
American Free Trade Agreement is between Mexico, Canada,
and the U.S. The website: www.naftanow.org
Customs UnionA trade agreement between 2 or more countries
Elimination of the internal barriers and tariffsEstablishment of
common external barriers and tariffs to other
countriesMercosur, referred to as the Southern Common Market,
includes the countries of Argentina, Brazil, Paraguay and
Uruguay
Common MarketElimination of the internal barriers and tariffs
between 2 or more countriesEstablishment of common external
barriers to tradeFree movement of the factors of production,
including labor, capital and informationThe European Union is
a common market