Global Marketing SEVENTH EDITIONWarren J. Keegan • Mark..docx

Global Marketing
SEVENTH EDITION
Warren J. Keegan • Mark. C. Green
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Global Marketing refl ects current marketing issues and events
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strategy. Keegan
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analytical tools
that will help students apply the 4Ps to global marketing.
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CHAPTER 5 • THE POLITICAL, LEGAL, AND
REGULATORY ENVIRONMENTS 177

and exports, trade practices, labeling, food and drug
regulations, employment conditions, collective
bargaining, advertising content, and competitive practices. As
noted in The Wall Street Journal:
Each nation’s regulations reflect and reinforce its brand of
capitalism—predatory in the
U.S., paternal in Germany, and protected in Japan—and its
social values. It’s easier to open
a business in the U.S. than in Germany because Germans value
social consensus above risk-
taking, but it’s harder to hire people because Americans worry
more about discrimination
lawsuits. It’s easier to import children’s clothes in the U.S. than
Japan because Japanese
bureaucrats defend a jumble of import restrictions, but it’s
harder to open bank branches
across the U.S. because Americans strongly defend state
prerogatives.46
In most countries, the influence of regulatory agencies is
pervasive, and an understanding of
how they operate is essential to protect business interests and
advance new programs. Executives
at many global companies are realizing the need to hire
lobbyists to represent their interests and
to influence the direction of the regulatory process. For
example, in the early 1990s McDonald’s,
Nike, and Toyota didn’t have a single representative in
Brussels. Today, each of the companies
has several people representing its interests to the European
Commission. U.S. law firms and
consulting firms also have sharply increased their presence in
Brussels; in an effort to gain
insight into EU politics and access to its policymakers, some
have hired EU officials. In all, there

are currently approximately 15,000 lobbyists in Brussels
representing about 1,400 companies
and nonprofit organizations from around the world.47
Regional Economic Organizations: The EU Example
The overall importance of regional organizations such as the
WTO and the EU was discussed in
Chapter 3. The legal dimensions are important, however, and
will be briefly mentioned here. The
Treaty of Rome established the European Community (EC), the
precursor to the EU. The treaty
created an institutional framework in which a council (the
Council of Ministers) serves as the
main decision-making body, with each country member having
direct representation. The other
three main institutions of the community are the European
Commission, the EU’s executive arm;
the European Parliament, the legislative body; and the European
Court of Justice.
The 1987 Single European Act amended the Treaty of Rome and
provided strong impetus
for the creation of a single market beginning January 1, 1993.
Although technically the target
was not completely met, approximately 85 percent of the new
recommendations were imple-
mented into national law by most member states by the target
date, resulting in substantial
harmonization. A relatively new body known as the European
Council (a distinct entity from
the Council of Ministers) was formally incorporated into the EC
institutional structure by
Article 2 of the 1987 act. Composed of heads of member states
plus the president of the
commission, the European Council’s role is to define general
political guidelines for the union

and provide direction on integration-related issues such as
monetary union.48 Governments in
Central and Eastern European countries that hope to join are
currently getting their laws in line
with those of the EU.
The Treaty of Rome contains hundreds of articles, several of
which are directly applicable to
global companies and global marketers. Articles 30 through 36
establish the general policy
referred to as “Free Flow of Goods, People, Capital and
Technology” among the member states.
Articles 85 through 86 contain competition rules, as amended by
various directives of the
20-member EU Commission. The commission is the
administrative arm of the EU; from its base
in Brussels, the commission proposes laws and policies,
monitors the observance of EU laws,
administers and implements EU legislation, and represents the
EU to international organizations.49
Commission members represent the union rather than their
respective nations.
46Bob Davis, “Red-Tape Traumas: To All U.S. Managers Upset
by Regulations: Try Germany or Japan,” The Wall
Street Journal (December 14, 1995), p. A1.
47Raphael Minder, “The Lobbyists Take Brussels by Storm,”
Financial Times (January 26, 2006), p. 7. See also
Brandon Mitchener, “Standard Bearers: Increasingly, Rules of
Global Economy Are Set in Brussels,” The Wall Street
Journal (April 23, 2002), p. A1.
48Klaus-Dieter Borchardt, European Integration: The Origins
and Growth of the European Union (Luxembourg: Office
for Official Publications of the European Communities, 1995),
p. 30.

49Klaus-Dieter Borchardt, The ABC of Community Law
(Luxembourg: Office for Official Publications of the European
Communities, 1994), p. 25.
M05_KEEG6711_07_PIE_C05.QXD 2/2/12 7:35 PM Page 177
178 PART 2 • THE GLOBAL MARKETING ENVIRONMENT
The laws, regulations, directives, and policies that originate in
the commission must be
submitted to the parliament for an opinion and then passed
along to the council for a final decision.
Once the council approves a prospective law, it becomes union
law, which is somewhat analogous to
U.S. federal law. Regulations automatically become law
throughout the union; directives include a
time frame for implementation by legislation in each member
state. For example, in 1994 the
commission issued a directive regarding use of trademarks in
comparative advertising. Individual
member nations of the EU have been working to implement the
directive; in the United Kingdom,
the 1994 Trade Marks Act gave companies the right to apply for
trademark protection of smells,
sounds, and images and also provides improved protection
against trademark counterfeiting.
With the rise of the single market, many industries are facing
new regulatory environments. The
European Court of Justice, based in Luxembourg, is the EU’s
highest legal authority. It is responsible
for ensuring that EU laws and treaties are upheld throughout the
union. Based in Luxembourg, it
consists of two separate tribunals. The senior body is known as

the Court of Justice; a separate entity,
the Court of First Instance, hears cases involving commerce and
competition (see Table 5-5).
Although the European Court of Justice plays a role similar to
that of the U.S. Supreme Court,
there are important differences. The European court cannot
decide which cases it will hear, and it does
not issue dissenting opinions. The court exercises jurisdiction
over a range of civil matters involving
trade, individual rights, and environmental law. For example,
the court can assess damages against
countries that fail to introduce directives by the date set. The
court also hears disputes that arise
among the 27 EU member nations on trade issues such as
mergers, monopolies, trade barriers and
regulations, and exports. The court is also empowered to resolve
conflicts between national law and
EU law. In most cases, the latter supersedes national laws of
individual European countries.
Marketers must be aware, however, that national laws should
always be consulted. National laws
may be stricter than community law, especially in such areas as
competition and antitrust. To the
extent possible, community law is intended to harmonize
national laws to promote the purposes
defined in Articles 30 through 36. The goal is to bring the lax
laws of some member states up to desig-
nated minimum standards. However, more restrictive positions
may still exist in some national laws.
For example, Italy recently introduced the Reguzzoni-Versace
Law. It is intended to regulate
trade in textiles, leather, and footwear; it states that if at least
two stages of production—there are four

stages altogether—occur in Italy, a garment can be labeled
“Made in Italy.” In addition, the country or
countries in which the remaining production stages took place
must be identified. Reguzzoni-Versace
was supposed to enter into force October 1, 2010. However,
Brussels objected on grounds that the law
conflicts with Article 34 which prohibits national measures
providing restrictions to trade in the
European Union. EU regulators view Reguzzoni-Versace as
“protectionist” and more stringent than
EU law which only requires that one main production stage take
place in Europe.50
TABLE 5-5 Recent Cases Before the European Court of
Justice/Court of First Instance
Country/Plaintiffs Involved Issue
Chocoladefabriken Lindt & Sprüngli AG
(Switzerland)/Franz Bauswirth GmbH (Austria)
Lindt markets gold-foil wrapped chocolate Easter bunnies
(Goldhase), for which it
owns a trademark. Lindt sued Hauswirth for trademark
infringement after the
Austrian company began marketing its own foil-wrapped bunny.
The Austrian
Supreme Court asked the ECJ to rule on “bad faith” in
trademark matters.51
L’Oréal (France)/Bellure (France) Perfume marketer L’Oréal
sued rival Bellure for marketing “knockoff” perfume that
mimicked the bottles, packaging, and fragrances of L’Oréal’s
brands. The ECJ ruled in
favor of L’Oréal on the grounds that the similarity of Bellure’s
products to L’Oréal’s

constituted an unfair advantage. The Court of Appeal later
upheld the ECJ’s decision.52
Italy/Monsanto, Syngenta, Pioneer Hi-Bred
International
In 2000, fearing risk to human health, Italy banned foods
containing four strains of
genetically modified corn. The Italian court hearing the
plaintiffs’ appeal asked for
ECJ intervention; in 2003, the ECJ ruled that the ban was not
justified. The case was
returned to Italy for a final ruling; the Italian court ruled that
the government was not
entitled to impose the ban.
50David Segal, “Is Italy Too Italian?” The New York Times
(July 31, 2010), p. B1.
51Charles Forelle, “Europe’s High Court Tries on a Bunny Suit
Made of Chocolate,” The Wall Street Journal (June 11,
2009), p. A1.
52Michael Peel, “L’Oréal in Legal Victory over Rival,”
Financial Times (June 18, 2009).
Summary
The political environment of global marketing is the set of
governmental institutions,
political parties, and organizations that are the expression of the
people in the nations of

the world. In particular, anyone engaged in global marketing
should have an overall
understanding of the importance of sovereignty to national
governments. The political
environment varies from country to country, and political risk
assessment is crucial. It is also
important to understand a particular government’s actions with
respect to taxes and seizure
of assets. Historically, the latter have taken the form of
expropriation, confiscation,
and nationalization.
The legal environment consists of laws, courts, attorneys, legal
customs, and practices.
International law comprises the rules and principles that nation-
states consider binding upon
themselves. The countries of the world can be broadly
categorized as having either common-law
legal systems or civil-law legal systems. The United States and
Canada and many former British
colonies are common-law countries; most other countries are
civil-law countries. A third system,
Islamic law, predominates in the Middle East. Some of the most
important legal issues pertain to
jurisdiction, antitrust, and licensing. In addition, bribery is
pervasive in many parts of the world;
the Foreign Corrupt Practices Act (FCPA) applies to American
companies operating abroad.
Intellectual property protection is another critical issue.
Counterfeiting is a major problem in
global marketing; it often involves infringement of a company’s
copyright, patent, or
trademark ownership. When legal conflicts arise, companies can
pursue the matter in court
or use arbitration.

The regulatory environment consists of agencies, both
governmental and nongovernmental,
that enforce laws or set guidelines for conducting business.
Global marketing activities can be
affected by a number of international or regional economic
organizations; in Europe, for example,
the EU makes laws governing member states. The WTO will
have a broad impact on global
marketing activities in the years to come. Although all three
environments are complex, astute
marketers plan ahead to avoid situations that might result in
conflict, misunderstanding, or
outright violation of national laws.
Discussion Questions
1. What is sovereignty? Why is it an important consideration in
the political environment
of global marketing?
2. Describe some of the sources of political risk. Specifically,
what forms can political risk
take?
3. Briefly describe some of the differences between the legal
environment of a country that
embraces common law and one that observes civil law.
4. Global marketers can avoid legal conflicts by understanding
the reasons conflicts arise
in the first place. Identify and describe several legal issues that
relate to global
commerce.
5. You are an American traveling on business in the Middle
East. As you are leaving

country X, the passport control officer at the airport tells you
there will be a passport
“processing” delay of 12 hours. You explain that your plane
leaves in 30 minutes,
and the official suggests that a contribution of $50 would
probably speed things up.
If you comply with the suggestion, have you violated U.S. law?
Explain.
6. “See you in court” is one way to respond when legal issues
arise. Why can that
approach backfire when the issue concerns global marketing?
180 PART 2 • THE GLOBAL MARKETING ENVIRONMENT
CASE 5-1 CONTINUED (REFER TO PAGE 150)
America’s Cuban Conundrum: The Assignment
Cuba is a communist outpost in the Caribbean where “socialism
ordeath” is the national motto. After Fidel Castro came to power
in
1959, his government took control of most private companies
without
providing compensation to the owners. American assets owned
by both
individuals and companies worth approximately $1.8 billion
were among
those expropriated; today, those assets are worth about $6
billion (see
Table 1). President Kennedy responded by imposing a trade
embargo on

the island nation. Five decades later, when Fidel Castro finally
stepped
down, no significant changes in policy were made.
In 1990, Castro opened his nation’s economy to foreign
investment;
by the mid-1990s, foreign commitments to invest in Cuba
totaled more
than half a billion dollars. In 1993, Castro decreed that the U.S.
dollar was
legal tender although the peso would still be Cuba’s official
currency. As a
result, hundreds of millions of dollars were injected into Cuba’s
economy;
Cuban exiles living in the United States were the source of
much of the
money. Cubans were able to spend the dollars in special stores
that
stocked imported foods and other hard-to-find products. In a
country
where doctors are among the highest paid workers with salaries
equal to
about $20 per month, the cash infusions significantly improved
a family’s
standard of living. In 1994, mercados agropecuarios (“farmers
markets”)
were created as a mechanism to enable farmers to earn more
money.
Cuba desperately needed investment and U.S. dollars, in part to
com-
pensate for the end of subsidies following the demise of the
Soviet Union.
Oil companies from Europe and Canada were among the first to
seek po-
tential opportunities in Cuba. Many American executives were

concerned
that lucrative opportunities would be lost as Spain, Mexico,
Italy, Canada,
and other countries moved aggressively into Cuba. Anticipating
a softening
in the U.S. government’s stance, representatives from scores of
U.S. compa-
nies visited Cuba regularly to meet with officials from state
enterprises.
Throughout the 1990s, Cuba remained officially off-limits to all
but
a handful of U.S. companies. Some telecommunications and
financial
services were allowed; AT&T, Sprint, and other companies have
offered
direct-dial service between the United States and Cuba since
1994. Also,
a limited number of charter flights were available each day
between
Miami and Havana. Sale of medicines was also permitted under
the em-
bargo. At a State Department briefing for business executives,
Assistant
Secretary of State for Inter-American Affairs Alexander Watson
told his
audience, “The Europeans and the Asians are knocking on the
door in
Latin America. The game is on and we can compete effectively,
but it will
be a big mistake if we leave the game to others.” Secretary
Watson was
asked whether his comments on free trade applied to Cuba. “No,
no.
That simply can’t be, not for now,” Watson replied. “Cuba is a
special

case. This administration will maintain the embargo until major
demo-
cratic changes take place in Cuba.”
Within the United States, the government’s stance toward Cuba
had both supporters and opponents. Senator Jesse Helms pushed
for
a tougher embargo and sponsored a bill in Congress that would
penalize foreign countries and companies for doing business
with
Cuba. The Cuban-American National Foundation actively
engaged in
anti-Cuba and anti-Castro lobbying. Companies that openly
spoken
out against the embargo included Carlson Companies, owner of
the
Radisson Hotel chain; grain-processing giant Archer Daniels
Midland
(ADM); and the Otis Elevator division of United Technologies.
A spokesperson for Carlson noted, “We see Cuba as an exciting
new
opportunity—the forbidden fruit of the Caribbean.” A number
of
executives, including Ron Perelman, whose corporate holdings
include
Revlon and Consolidated Cigar Corporation, were optimistic
that the
embargo would be lifted within a few years.
Meanwhile, opinion was divided on the question of whether the
embargo was costing U.S. companies once-in-a-lifetime
opportunities.
Some observers argued that many European and Latin American
investments in Cuba were short-term, high-risk propositions
that would not
create barriers to U.S. companies. The opponents of the

embargo, how-
ever, pointed to evidence that some investments were
substantial. Three
thousand new hotel rooms were added by Spain’s Grupo Sol
Melia and
Germany’s LTI International Hotels. Both companies were
taking advantage
of the Cuban government’s goal to increase tourism. Moreover,
Italian and
Mexican companies were snapping up contracts to overhaul the
country’s
telecommunications infrastructure. Wayne Andreas, chairman of
ADM,
summed up the views of many American executives when he
said, “Our
embargo has been a total failure for 30 years. We ought to have
all the
Americans in Cuba doing all the business they can. It’s time for
a change.”
The Helms-Burton Era
The Helms-Burton Act brought change, but not the type
advocated by
ADM’s Andreas. The toughened U.S. stance signaled by Helms-
Burton
greatly concerned key trading partners, even though Washington
insisted that the act was consistent with international law. In
particular,
supporters noted that the “effects doctrine” of international law
permits
a nation to take “reasonable” measures to protect its interests
when an
act outside its boundaries produces a direct effect inside its
boundaries.
Unmoved by such rationalizations, the European Commission
responded

in mid-1996 by proposing legislation barring European
companies from
complying with Helms-Burton. Although such a “blocking
statute” was
permitted under Article 235 of the EU treaty, Denmark
threatened to
veto the action on the grounds that doing so exceeded the
European
Commission’s authority; its concerns were accommodated, and
the leg-
islation was adopted. Similarly, the Canadian government
enacted legis-
TABLE 1 American Companies Seeking Restitution from Cuba
Company Amount of Claim (millions)
American Brands $10.6
Coca-Cola $27.5
General Dynamics $10.4
ITT $47.6
Lone Star Cement $24.9
Standard Oil $71.6
Texaco $50.1
Source: U.S. Justice Department.

lation that would allow Canadian companies to retaliate against
U.S.
court orders regarding sanctions. Also, Canadian companies that
com-
plied with the U.S. sanctions could be fined $1 million for
doing so.
In the fall of 1996, the WTO agreed to a request by the EU to
convene a three-person trade panel that would determine
whether
Helms-Burton violated international trade rules. The official
U.S. position
was that Helms-Burton was a foreign policy measure designed
to pro-
mote the transition to democracy in Cuba. The United States
also hinted
that, if necessary, it could legitimize Helms-Burton by invoking
the WTO’s
national security exemption. That exemption, in turn, hinged on
whether
the United States faced “an emergency in international
relations.”
Meanwhile, efforts were underway to resolve the issue on a
diplo-
matic basis. Sir Leon Brittan, trade commissioner for the EU,
visited the
United States in early November with an invitation for the
United States
and EU to put aside misunderstandings and join forces in
promoting
democracy and human rights in Cuba. He noted:

By opposing Helms-Burton, Europe is challenging one country’s
presumed right to impose its foreign policy on others by using
the threat of trade sanctions. This has nothing whatever to do
with human rights. We are merely attacking a precedent which
the U.S. would oppose in many other circumstances, with the
full support of the EU.
In January 1997, President Clinton extended the moratorium on
lawsuits against foreign investors in Cuba. In the months
following the
Helms-Burton Act, a dozen companies ceased operating on
confiscated
U.S. property in Cuba. Stet, the Italian telecommunications
company,
agreed to pay ITT for confiscated assets, thereby exempting
itself from
possible sanctions. However, in some parts of the world,
reaction to the
president’s action was lukewarm. The EU issued a statement
noting that
the action “falls short of the European Commission’s hopes for
a more
comprehensive resolution of this difficult issue in trans-Atlantic
relations.” The EU also reiterated its intention of pursuing the
case
at the WTO. Art Eggleton, Canada’s international trade minister
responded with a less guarded tone: “It continues to be
unacceptable
behavior by the United States in foisting its foreign policy onto
Canada,
and other countries, and threatening Canadian business and
anybody
who wants to do business legally with Cuba.”
In February, the WTO appointed the panel that would consider

the dispute. However, Washington declared that it would
boycott the
panel proceedings on the grounds that the panel’s members
weren’t
competent to review U.S. foreign policy interests. Stuart
Eizenstat,
undersecretary for international trade at the U.S. Commerce
Department,
said, “The WTO was not created to decide foreign-policy and
national-
security issues.” One expert on international trade law
cautioned that the
United States was jeopardizing the future of the WTO. Professor
John
Jackson of the University of Michigan School of Law said, “If
the U.S.
takes these kinds of unilateral stonewalling tactics, then it may
find itself
against other countries doing the same thing in the future.”
The parties averted a confrontation at the WTO when the EU
suspended its complaint in April, following President Clinton’s
pledge to
seek congressional amendments to Helms-Burton. In particular,
the presi-
dent agreed to seek a waiver of the provision denying U.S. visas
to
employees of companies using expropriated property. A few
days later,
the EU and the United States announced plans to develop an
agreement
on property claims in Cuba with “common disciplines” designed
to deter
and inhibit investment in confiscated property.
The U.S. stance was seen in a new perspective following Pope

John
Paul II’s visit to Cuba in January 1998. Many observers were
heartened
by Cuban authorities’ decision to release nearly 300 political
prisoners in
February. In the fall of 2000, President Clinton signed a law
that permits
Cuba to buy unlimited amounts of food and medicine from the
United
States. The slight liberalization of trade represented a victory
for the
U.S. farm lobby, although all purchases must be made in cash.
In 2002, several pieces of legislation were introduced in the
U.S.
Congress that would effectively undercut the embargo. One bill
prohibited funding that would be used to enforce sanctions on
private
sales of medicine and agricultural products. Another proposal
would
have the effect of withholding budget money earmarked for
enforcing
both the ban on U.S. travel to Cuba and limits on monthly dollar
remit-
tances. Also in 2002, Castro began to clamp down on the
growing
democracy movement; about 70 writers and activists were
jailed.
President George W. Bush responded by phasing out cultural
travel exchanges between the United States and Cuba. In 2004,
President Bush imposed new restrictions on Cuban Americans.
Visits
to immediate family members still living in Cuba were limited
to only

one every 3 years. In addition, Cuban Americans wishing to
send
money to relatives were limited to $1,200 per year.
The early months of Barack Obama’s administration saw a
rollback
of various restrictions. In April 2009, for example, the president
lifted
restrictions on family travel and money transfers. Although
reactions
to the announcement were mixed, a significant increase in travel
on
commercial airlines will not be possible until a bilateral
aviation agree-
ment is negotiated between the two nations.
At a Summit of the Americas meeting in Trinidad, President
Obama declared, “The United States seeks a new beginning with
Cuba. I know there is a longer journey that must be traveled in
over-
coming decades of mistrust, but there are critical steps we can
take.”
Many observers were surprised by the conciliatory tone of Raul
Castro’s response to the U.S. president’s overtures. Castro
indicated a
willingness to engage in dialog about such seemingly
intractable
issues as human rights, political prisoners, and freedom of the
press.
“We could be wrong, we admit it. We’re human beings. We’re
willing
to sit down to talk, as it should be done,” Castro said.
Raul’s initial response to Obama’s overture was indeed
conciliatory,
and in August 2009 the United States and Cuba held extended

talks
for the first time in at least 10 years. These talks included
meetings
between U.S. and Cuban governmental official and between
U.S.
officials and Cuban opposition figures. But the official position
of
the Cuban government, announced in September by Cuban
foreign
minister Bruno Rodriguez, was that the U.S. trade embargo
should be
lifted unilaterally without preconditions. Meanwhile, Obama,
despite
his overtures, appears to be linking any lifting of the embargo
to
Cuba’s making progress on human rights.
Discussion Questions
1. What was the key issue that prompted the EU to take the
Helms-
Burton dispute to the WTO?
2. Who benefits the most from an embargo of this type? Who
suffers?
3. In light of the overtures U.S. President Barack Obama has
made
to Raul Castro, what is the likelihood that the United States and
Cuba will resume diplomatic and trade relations during the
Obama administration?
Sources: The authors are indebted to Hunter R. Clark, Professor
of Law, Drake University
Law School, for his contributions to this case. Additional
sources: Laura Meckler,
“Leaders’ Comments Auger Warmer U.S.-Cuba Ties,” The Wall

Street Journal (April 18,
2009), p. A3; Alan Gomez, “Obama Could Change Relations
with Cuba,” USA Today
(December 8, 2008), p. 4A; Jerry Perkins, “Making American
Dollar Legal Tenderizes
Tough Cuban Economy,” The Des Moines Register (April 6,
2003), pp. 1D, 5D; Mary
Anastasia O’Grady, “Threshing Out a Deal Between the Farmers
and Fidel,” The Wall
Street Journal (September 20, 2002), p. A11; Pascal Fletcher,
“Cuba Sees Itself as
Shining Example Amid Global Troubles,” Financial Times
(September 19–20, 1998), p. 3;
Carl Gershman, “Thanks to the Pope, Civil Society Stirs in
Cuba,” The Wall Street
Journal (September 18, 1998), p. A11; Stuart E. Eizenstat, “A
Multilateral Approach to
Property Rights,” The Wall Street Journal (April 11, 1997), p.
A18; Therese Raphael,
“U.S. and Europe Clash over Cuba,” The Wall Street Journal
(March 31, 1997), p. A14.

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