International Marketing

Political and Legal

environment
What Is A Political
Economy?
The political economy of a nation refers to
how the political, economic, and legal
systems of a country are interdependent

• they interact and influence each other

• they affect the level of economic well-being

in the nation
 What Is A Political
System?
Political system refers to the system of
government in a nation
Assessed according to
• the degree to which the country emphasizes
collectivism as opposed to individualism
• the degree to which the country is democratic
or totalitarian (autocratic)
 What Is
Collectivism?
Collectivism stresses the primacy of
collective goals over individual goals
• can be traced to the Greek philosopher, Plato (427-347
BC)
Today, collectivism is equated with socialists
(Karl Marx 1818-1883 & Freidrich Engels 1820-1895
wrote communist manifesto)
advocate state ownership of the basic
means of production, distribution, and
exchange
manage to benefit society as a whole,
rather than individual capitalists
2-4
What is communism?
•A political or economic system in which the major resources and
means of production are owned by the community rather than
by individuals.

•Communists traditionally have called for government ownership

rather than private ownership of land, factories, and other
economic resources (the means of production)

•There is also government planning of economic activities

•A long-range goal of communism is a society that provides

equality and economic security for all
​
Karl Marx
• German philosopher that
transformed communism into
a revolutionary movement

• He was sent into exile and he

went to Paris

• He created the Communist

League, wrote its mission
statement (the Communist
Manifesto) and labeled earlier
visions of socialism as
“utopian”
Marx’s Idea
•Marx's basic ideas were first expressed in the Communist
Manifesto (1848), a pamphlet that he wrote with Friedrich Engels (a
German economist)

•Both Marx and Engels lived during the Industrial Revolution when
factories were being built and people worked in horrible conditions

•Marx believed the only way to ensure a happy, harmonious society

was to put the workers in control

•His ideas were partly a reaction against hardships suffered by

workers in England, France, and Germany during the Industrial
Revolution
Marx’s Idea (Cont.)
•Marx assumed that the ruling class would never willingly give up power

•As a result, he believed that struggle and violence were inevitable to

overthrow this system

•Marx called for the abolition of capitalism, an economic system in which the
means of production are privately owned

•Marx called for the abolition of capitalism, an economic system in which the
means of production are privately owned

•Communism came to the Soviet Union in 1917 as a result of the Russian

Revolution
• It would last until the 1990s when communism collapsed
• Communism came to China through a revolution in 1949 and the
People’s Republic of China was born
 Cont.
•Throughout the 1940-1960s communism also spread to various countries in
Eastern Europe and Southeast Asia

•In 1959 communism

came to Cuba through
a revolution as Fidel
Castro took power
Soviet Maosetung

Union CUBA CHINA

Reason
Top 10 Socialistic Countries
 How Does Modern-Day Collectivism Look?
In the early 20thcentury, socialism split into

1. Communism – It can only be achieved through violent

revolution and totalitarian dictatorship
 in retreat worldwide by mid-1990s (example in the next
page)

2. Social democrats – It is achieved through

democratic means
 retreating as many countries move toward free
market economies
 state-owned enterprises have been privatized
Socialism: another response to
industrialization
•Socialists tried to solve the problems in the industrialized
world
• Alienation felt by the workers
• Poverty of the workers
• A perception of a new class elite that had replaced the feudal elite

•Socialists believed that capitalism caused these problems

because it emphasized
• Competition
• Individualism
• Private property

•Socialists proposed:
• Cooperation
• Communal property
• People could own their own homes, etc., but could not own everything
Robert Owen
•In the early 1800s, he was a British industrialist who
sought to have both industry and a healthy working class.
•At New Lanark in Scotland he provided good, clean
housing; safe working conditions; child care; education and
a safety net/retirement for workers.
• 10 hour work days
• Children ages 5-10 went to school, not work

•In his book, A New View of Society (1813), Owens wrote

that these paternalist measures are not enough. Capitalist
competition was irrational & had torn apart the family. He
wanted to reunite work, family, and community in a more
rational way.
Advantages of Socialism
Absence of exploitation
According to the socialistic system, each person is
guaranteed access to basic goods, even those who are
not able to contribute. As a result, the system helps to
minimize poverty levels in the society. In addition, each
person has the same right to access health care and
other important social aspects, such as education.

Rejection of discrimination
The system disapproves discrimination, and each person
does what he is good at or what he enjoys best. If there
are jobs that should be done and there is no one to
perform them, a higher remuneration is provided.
Natural resources are protected for posterity.
 What Is
Individualism?
Individualism refers to philosophy that an
individual should have freedom in his own
economic and political pursuits-
 can be traced to Greek philosopher, Aristotle (384-322
BC), who argued that individual diversity and private
ownership are desirable

individual economic and political freedoms are the

ground rules on which a society should be based

2-22
implies democratic political systems and free market
Individualism is built on two central tenets-

• Emphasis on the importance of guaranteeing

individual freedom and self-expression

• The welfare of society is best served by letting

people pursue their own economic self-interest
 What Is
Democracy?
Democracy refers to a political system in
which government is by the people, exercised
either directly or through elected
representatives
usually associated with individualism

 pure democracy is based on the belief that

citizens should be directly involved in decision
making
 most modern democratic states practice
representative democracy where citizens periodically
 What Is

Totalitarianism?
Totalitarianism is a form of government in which one
person or political party exercises absolute control over
all spheres of human life and prohibits opposing
political parties
1. Communist totalitarianism – found in states where
the communist party monopolizes power
2. Theocratic totalitarianism - found in states where political
power is monopolized by a party, group, or individual that
governs according to religious principles
3. Tribal totalitarianism - found in states where a political
party that represents the interests of a particular tribe
monopolizes power
4. Right-wing totalitarianism - permits some individual economic
freedom, but restricts individual political freedom
1
2

https://www.worldatlas.com/articles/countries-with-theocratic-governments-today.html
3

https://www.thoughtco.com/location-of-conflict-tutsis-and-hutus-3554918
4

Right-wing totalitarianism is characterized by its

intense hatred of communism.

One party, typically backed by the military,

restricts political freedom, arguing that such
freedom would lead to communism.

Example: In the postwar decades, the Philippines,

South Africa, South Korea, Taiwan, and most Latin
American countries practiced right-wing
totalitarianism. Most of these countries have
recently become democratic.
 What Is An Economic
 System?
There are three types of economic systems
1. Market economies - all productive activities are privately owned
and production is determined by the interaction of supply and
 demand
government encourages free and fair competition between private
producers
2. Command economies - government plans the goods and services that a
country produces, the quantity that is produced, and the prices as which
they are sold
 all businesses are state-owned, and governments allocate resources
for “the good of society”
 because there is little incentive to control costs and be efficient,
command economies tend to stagnate
3. Mixed economies - certain sectors of the economy are left to private
ownership and free market mechanisms while other sectors have
significant state ownership and government planning
 governments tend to own firms that are considered important
to national security
 What Is A Legal
 System?
The legal system of a country refers to the
rules that regulate behavior along with the
processes by which the laws are enforced and
through which redress for grievances is
obtained
 There are three types of legal systems
1. Common law - based on tradition,
precedent, and custom
• Tradition refers to the country’s legal history, precedent to
cases that have come before the courts in the past
• Judges have more power as they can interpret the law to
match the circumstance
• Laws are thus flexible (can be altered, clarified or amended)
Common law is formed when judges seek out what the local
customs are in a certain area. This is done by examining
prior cases from other courts in the area. From the facts of
each case comes the rule of law.

The common law allows a jury of average people to decide

the outcome of a case. This gives more power to the people
as opposed to the educated elite, which is a pillar of our
democracy.

Civil attorneys in our modern system have a much greater

responsibility to convince the judge and jury that their
version of the law is the actual common law and
custom. This leads to a system where lawyers fight over
what the law actually is.
Common Law Countries:
The United States
England
India
Canada
2. Civic law - based on detailed set of laws organized
into codes

In a civil system of law, civil lawyers and judges get

together to decide how to apply the codified law to
the facts. This makes judges much more powerful
and tends to “institutionalize” the law.

Civil Law Countries:

China
Japan
Germany
France
Spain
3. Theocratic law - law is based on religious
teachings
 How Are Contracts Enforced In
Different Legal Systems?
 A contract is a document that specifies the conditions under
which an exchange is to occur and details the rights and
obligations of the parties involved
 Contract law is the body of law that governs contract
enforcement
 Under a common law system, contracts tend to be very
detailed with all contingencies spelled out
 Under a civil law system, contracts tend to be much shorter
and less specific because many issues are already covered in
the civil code
 Many countries have ratified the United Nations Convention on
Contracts for the International Sale of Goods (CIGS) which
establishes a uniform set of rules governing certain aspects of
the making and performance of everyday commercial
contracts between buyers and sellers who have their places
of business in different nations
How Are Property Rights And Corruption Related?
 Property rights refer to the legal rights over the use to which
a resource is put and over the use made of any income that
may be derived from that resource
 Can be violated through
1. Private action – theft, piracy, blackmail
2. Public action - legally - ex. excessive taxation or illegally - ex. bribes
or blackmailing
 high levels of corruption reduce foreign direct investment, the level of
international trade, and the economic growth rate in a country
 The Foreign Corrupt Practices Act makes it illegal for
U.S. companies to bribe foreign government officials to
obtain or maintain business over which that foreign official
has authority
Where are we?

https://www.transparency.org/country/BGD#
 How Can Intellectual Property Be
Protected?

 Intellectual property - property that is the product of

intellectual activity-

 Can be protected using

1. Patents – exclusive rights for a defined period to the
manufacture, use, or sale of that invention

2. Copyrights – the exclusive legal rights of authors, composers,

playwrights, artists, and publishers to publish and disperse
their work as they see fit

3. Trademarks – design and names by which merchants or

manufacturers designate and differentiate their products
What is Patent?
 Protection for Inventors
 A ‘Patent’ gives an inventor exclusive rights to use their
invention for a limited time. These rights will prevent other
parties from copying or selling the invention without the
permission of the inventor.

What can be patented?

• Products
• Process (functional or technical)
• Software
Patent is a negative right
A patent is a government issued deed. A patent is a government
issued deed which confers upon the patentee(s) (the which
confers upon the patentee(s) (the inventor who has been
granted a inventor who has been granted a patent) the right to
exclude others from patent) the right to exclude others from the
invention.

Types of Patent?
• Utility Patent
• Design Patent
• Plant Patent
Meanings and Tenure
Utility Patents: are issued for “. . . any new and useful process,
machine, manufacture, or composition of manufacture, or
composition of matter, or any new and useful matter, or any
new and useful improvement thereof.”

Valid for twenty (20) years from the date of filing or the earliest
priority date.

Design Patents: are issued for novel, non-obvious, ornamental

design in an article of manufacture, in other words, for its
appearance.

The term of a design patent is fourteen (14) years from the date
of grant.
Plant Patents: are issued for new Types of Patents
varieties of plants which have been asexually reproduced.

The new variety must be novel, distinct, non-obvious and must

have been asexually reproduced.

Plants discovered in nature are not patentable.

A plant patent has the same length of term as a utility patent.

Nintendo Loses Patent Lawsuit,
Ordered to Pay $10 Million
https://www.inc.com/will-yakowicz/nintendo-loses-patent
-infringement-case-wii.html
Copyright
• Automatically g ra nte d to artists, musicians
a ut ho r s
• Only protects original work
• La sts life time of an a r t i st
• Artist ma y have to prove t h e date of creation

• Must be fixed in a tangible medium: Cannot reside in the

author's mind, but must be transferred from the author’s
mind onto a fixed tangible medium, such as a writing, a
sculpture, a musical work, etc.

• Fee of charge
What can’t be copyrighted?

• Ideas are not protected:

Including concepts, methods of operation, business systems,
processes, procedures, discoveries and natural laws.

• Facts and research results

• Work without original authorship

• Facts or discoveries

• Government works created by the government.

What can be copyrighted?
• Blueprints

• Sound recordings

• Architectural works

• Fictitious characters

• Compilations

• Derivative works
https://www.copyrighted.com/blog/
copyright-infringement
"Star Wars" sues "Battlestar Galactica", 20th Century Fox vs. Universal
Studios

Napster vs. various recording companies

What is trademark?
• A word or name
• A logo
• A slogan
• A design
• A color scheme
• A Sound

A trademark is something that distinguishes your

products from others within the market
Objective of Trademark
To prevent confusion among consumers as to the
source of goods or services;

To permit the trade mark owner to control the

products’ or services’ reputation.

To protect the good will that the trademark owner has

built up in his products and services.

https://www.trademarknow.com
/blog/9-nasty-trademark-infringement-cases-and-how-to-a
void-them
 What Determines A Country’s Level
Of Economic Development?
 Two ways to measure levels of
economic development are
1. Gross Domestic Product (GDP)
2. Purchasing power parity (PPP)
involves adjusting GNI by purchasing
power
 Nobel-prize winner Amartya Sen argues
economic development should be seen as a
process of expanding
the removal the real freedoms
of major impediments to freedom
that
likepeople experience
poverty, tyranny, and neglect of public
 facilities
the presence of basic health care and basic
education
http://dev.thedailystar.net/growth-rates-and-instability-64651
 What Determines A Country’s Level
Of Economic Development?
 The United Nations used Sen’s ideas to
develop the Human Development
Index (HDI) which is based on
 life expectancy at birth
 educational attainment
 whether average incomes are sufficient
to meet the basic needs of life in a
country
https
://s3-eu-west-1.amazonaws.com/tutor2u-media/subjects/economics/hdi_2016.jpg?mti
me=20170520173933
What about Bangladesh?

http://epaperbeta.timesofindia.com/NasData//PUBLICATIONS/THETIMESOFINDIA
/DELHI/2015/12/15/Photographs/017/15_12_2015_017_030_010.jpg
How Do Countries Compare
on Economic
Development?
Economic Data for Select Countries
 How Does Political Economy
Influence Economic Progress?
Innovation and entrepreneurship are the engines
of long-run economic growth
Innovation and entrepreneurship require a market
economy and strong property rights
Democratic regimes are probably more conducive
to long-term economic growth than
dictatorships, even the benevolent kind
Subsequent economic growth leads to the
establishment of democratic regimes
How Do Geography And
Education Influence Economic
Development?
Countries with favorable geography are
more likely to engage in trade, and so, be
more open to market-based economic
systems, and the economic growth they
promote
Countries that invest in education have
higher growth rates because the workforce
is more productive
 What Is The Nature Of
Economic Transformation?
 The shift toward a market-based system
involves
deregulation – removing legal restrictions to
the free play of markets, the establishment of
private enterprises, and the manner in which
private enterprises operate
privatization - transfers the ownership of state
property into the hands of private investors
 the creation of a legal system to safeguard
property rights
 What Does The Changing
Economy Mean For Managers?
 Markets that were formerly off-limits to Western business
are now open
 By identifying and investing early in a potential future
economic stars, firms may be able to gain first mover
advantages (advantages that accrue to early entrants into
a market) and establish loyalty and experience in a
country
 ex. China -1.2 billion people and India – 1.1 billion people
 However, the potential risks are large
 It can be more costly to do business in countries with
dramatically different product, workplace, and pollution
standards, or where there is poor legal protection for
property rights
 What Does The Changing
Economy Mean For Managers?
 Managers must consider
1. Political risk - the likelihood that political forces will
cause drastic changes in a country's business
environment that adversely affects the profit and other
goals of a business enterprise
2. Economic risk - the likelihood that economic
mismanagement will cause drastic changes in a country's
business environment that adversely affects the profit and
other goals of a business enterprise
3. Legal risk - the likelihood that a trading partner
will opportunistically break a contract or
expropriate property rights
Political Risk example
There have been constant riots in Venezuela in an effort to overthrow Nicolas
Maduro. As one of the counties with the largest oil reserves, Venezuela is a
great business source for U.S. based oil refineries. However, political
instability has caused President Donald Trump to impose sanctions on
Venezuelan oil. This has affected the U.S. refineries that purchase oil from that
country. 

Economic Risk example

A US microchip manufacturer imports electrical circuits from a Chinese
manufacturer places an order for CNY 300,000 today, and agrees to pay
after 90 days. At the current market price, it would be roughly $43,652,
which is CNY 6.87 per dollar. If the market price for yen moves above
6.87, the payment to be made will be above $43,652, whereas if the
market price for yen moves below 6.87, the cost to be made will fall below
$43,652.
Legal Risk Example
Generally, all laws in the host country will apply to an
entrepreneur’s local business operations. Examples include filing
procedures, employment law, environmental law, tax law, and
ownership requirements. 

In 2015, the German car manufacturer, Volkswagen was found

guilty of making cars that were not meeting the emission
standards of the U.S, through the years 2009-2015.  Devices that
were called “defeat devices” were made by engineers to detect
when vehicles were being tested and produced fake results.
Ultimately, Volkswagen faced a huge lawsuit and CEO Martin
Winterkorn was charged with fraud and conspiracy in the U.S.
Risks evolves
- Contract risk
- Legislative compliance risks
- Privacy compliance and data breach risk
https://www.theguardian.com/world/2014/apr/19/rana-pl
aza-bangladesh-one-year-on

https://www.theguardian.com/fashion/shortcuts/2012/dec
/05/fire-in-bangladesh-fashion-scandal

https://www.theguardian.com/technology/2019/mar/17/t
he-cambridge-analytica-scandal-changed-the-world-but-it-
didnt-change-facebook
How Can Managers Determine A
Market’s Overall Attractiveness?
 The overall attractiveness of a country as a
potential market and/or investment site for an
international business depends on balancing
the benefits, costs, and risks associated with
doing business in that country
 Other things being equal, the benefit-cost-risk
trade-off is likely to be most favorable in
politically stable developed and developing
nations that have free market systems and no
dramatic upsurge in either inflation rates or
private sector debt