Lecture 7 (Int. MKTG)

Home Country Political and Legal Environment
No company can afford to ignore the policies and regulations of the country from which they
conduct international marketing transactions. Wherever a firm is located, it will be affected
by government policies and the legal system.
Many of these laws and regulations may not be designed specifically to address international
marketing transactions, yet they can have a major impact on a firm’s opportunities abroad.
Minimum wage legislation, for example, the cost of domestic safety regulations may
significantly affect the pricing policies of firms in their international marketing efforts. Four
main areas of governmental activities are of major concern to the international marketer here:
embargoes or trade sanctions, export controls, import controls, and the regulation of
international business behaviour.
 Embargoes and Sanctions
The terms trade sanctions and embargoes as used here refer to governmental actions that
distort the free flow of trade in goods, services, or ideas for decidedly adversarial and
political, rather than strictly economic, purposes. Over the years, economic sanctions and
embargoes have become an often-used foreign policy tool for many countries. Reasons for
the burden are varied, ranging from human rights to nuclear non-proliferation to terrorism.
The range of sanctions imposed can be quite broad, it can be elimination of credits and
prohibition of financial transactions and may make the obtaining of goods more difficult or
expensive for the sanctioned country. These sanctions are mainly put by United Nations.
 Export Control
Many nations have export control systems, which are designed to deny or at least delay the
acquisition of strategically important goods by opponent country. Most of these systems
make controls the exception rather than the rule, with exports taking place independently
from politics. In order for any export, most of the country has rules that company have to
obtain export license and they can do business. The international marketing consequences of
export controls are important. It is one thing to design an export control system that is
effective and that restricts those international business activities subject to important national
concerns.
 Imports Control
In some countries, either all imports or the imports of particular products are controlled
through tariff and nontariff mechanisms. Tariffs place a tax on imports and raise prices.
Nontariff barriers like voluntary restraint agreements are self-imposed restrictions and
cutbacks aimed at avoiding penalizing trade actions from the host. Quota system reduces the
volume of imports accepted by a country. The final effect of all these actions is a quantitative
reduction of imports. For the international marketer, such restrictions may mean that the most
efficient sources of supply are not available because government regulations restrict
importation from those sources. Some of the problems related to import is high costs at
domestic level and shifting to different business due to restrictions on import of the product.
 Regulation of International Business Behaviour
Home countries may implement special laws and regulations to ensure that the international
business behaviour of their firms is conducted within the legal, moral, and ethical boundaries
considered appropriate. The definition of appropriateness may vary from country to country
and from government to government. Therefore, such regulations, their enforcement, and
their impact on firms can differ substantially among nations. Several major areas in which
nations attempt to govern the international marketing activities of its firms are boycotts,
whereby firms refuse to do business with someone, often for political reasons; antitrust
measures, wherein firms are seen as restricting competition; and corruption, which occurs
when firms obtain contracts with bribes rather than through performance. Arab nations, for
example, have developed a blacklist of companies that deal with Israel.

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Home Country Political and Legal Environment

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