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International Marketing &

Operations

International and Global


Marketing Environment
By
Sandy De Mel

Chapter 2

Lesson Overview

Intertwined World Economy

Information Technology and the Changing


Nature of Competition

Regional Economic Arrangements

Multinational Corporations

Political Environment - Social Pressures


and Political Risk

Issues Transcending National Boundaries


Chapter 2

Introduction

In 2005, the annual global trade in goods and


services amounted to $ 12.5 trillion.

Daily international financial flows now exceed $


1 .9 trillion.

From 1990 to 2004, world G DP grew some 40


percent.

In the same period, total world exports of


merchandise and services increased by almost
120 percent.
Chapter 2

Introduction

The net result of these factors has been the increased


interdependence of countries/economies and increased
competitiveness and the concomitant need for firms to
keep a constant watch on the international economic
environment.

International marketers should be aware that the


economic interests of their companies can differ widely
from those of the countries in which they do business.

International marketers must abide by various


international agreements, treaties and laws.

Political and legal climates are inherently related and


inseparable because laws are generally a manifestation
of a countrys political processes.
Chapter 2

Intertwined World Economy

As firms invest in manufacturing and


distribution facilities outside their home
countries to expand into new markets
around the world, they have added to the
stock of foreign direct investment.

The weekly volume of international trade in


currencies exceeds the annual value of the
trade in goods and services.
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Country Competitiveness

Chapter 2

Emerging Economies

Over the next two decades, the big emerging markets ( BEMs) will
hold the greatest potential for U.S. exports

The largest BEMs include the Chinese economic area (including


China,

Hong Kong region, and Taiwan), India, C.I.S, ( Russia, Central Asia, and
the Caucasus states), South Korea, Mexico, Brazil, and Argentina

R.I.C. - Russia, India & China (with Brazil, its sometimes called B.
R .I.C)

Each of these economies has unique economic, market, and industry


characteristics, that, in turn present opportunities and challenges for
local policy makers, businesses and the international business and
economic community

Chapter 2

Emerging Economies

Chapter 2

Evolution of Cooperative International


Trade Agreements
ITO ( International Trade Organization):

ITO was established after World War II.


GATT (General Agreements on Tariffs & Trade):

After 1950 , GATT succeeded ITO.

The main operating principle of GATT was


the concept of most favored nations (MFN ).

GATT was successful in lowering trade


barriers.

Chapter 2

Evolution of Cooperative Global Trade


Agreements

WTOs ninth round---called the Doha Development


Agenda (Doha Round) was launched in Doha, Qatar
in
November 2001 ( see Exhibit 2-5) . Interim deal in

December 2005 to end farm export subsidies by 2013


prevented collapse of the latest round of the talks.

The Doha Round of 2001 facilitated the way for


China and Taiwan to get full membership in the
WTO.

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Evolution of Cooperative Global Trade


Agreements

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Information Technology and the


Changing
Nature of Competition
The Trade Related Aspects of
Intellectual Property Rights (TRIPS )
Agreement was concluded as part of
the GATT Uruguay Round. Update to
accord ensuring patent protection
does not block developing countries
access to affordable medicines is the
top of the agenda.

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Regional Economic
Arrangements

Types of Regional Economic Arrangements:

Free Trade Areas: Formal agreement


among two or more countries to reduce
or eliminate customs duties and
nontariff barriers. Examples: NAFTA,
MERCOSUR, CAFTA-DR & FTAA
(proposed and currently stalled)
Customs Union: Addition of common
external tariffs to the provisions of free
trade agreements. Example: ASEAN.

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Regional Economic
Arrangements
Common Market: Eliminates all tariffs and other

barriers, adopts a common set of external tariffs on


nonmembers, and remove all restrictions on the
flow of capital and labor among member nations.
Example: European Union.
Monetary Union: Represents the fourth level of
integration with a single currency among politically
independent countries. Example: EU and the euro.
Political Union: Highest level of integration
resulting in a political union. Sometimes, countries
come together in a loose political union for
historical reasons, as in the case of the British
Commonwealth which exists as a forum for
discussion and common historical ties.

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Multinational Corporations

One third of multinational


companies trade is accounted
for by intra-firm activities.
Two-thirds of of world trade in
goods and services is controlled
by multinational companies.
Of the 100 largest economies in
the world, 51 are corporations.

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Multinational Corporations

By 1995, less than half of the


36,000 multinationals identified
by the United Nations came from
four countries: the United States,
Japan, Germany, and Switzerland.

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Political Environment Individual Governments

Government affects almost every


aspect of business life in a country.
National politics affect business
environment directly, through changes
in policies, regulations, and laws.
The political stability and mood in a
country affect the actions a
government will take.
Home Country vs. Host Country.

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Political Environment Individual Governments

Ideology
Communism
Capitalism
Socialism
Political Parties

Structure

of Government:

Single-party-dominant country
Dual-party system
Multi-party system

Government Policies and Regulations: It is the role of


government to promote a countrys interests in the
international arena for various reasons and objectives
such as: national security, developing new industries,
and protecting declining industries.
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Political Environment Individual Governments

Incentives and Government Programs


Government Procurement
Trade Laws
Tariff and Nontariff Barriers
Embargoes and Sanctions
Export License Requirements
Investment Regulations (ownership &
financial controls)
Macroeconomic Policies (governments
monetary & fiscal policies such as the cost of
capital, level of economic growth, rates of
inflation & international exchange rates)

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Political Environment - Individual


Governments

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Political Environment - Social


Pressures and Political Risk

Social Pressures and Special Interestsforeign companies also have to consider social
factors as part of the political environment of
host countries, e.g., feelings of nationalistic
sentiment.
Managing the Political Environment :

Expropriation
Confiscation
Nationalization
Domestication Policy/Phase-Out Policy
Countertrade

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Political Environment - Social


Pressures and Political Risk

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Political Environment - Social Pressures and


Political Risk

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Terrorism and the World


Economy

According to an IMF study, the September


11, 2001 terrorist attacks in New York and
Washington D.C. resulted in major losses
for the U.S. economy.
The short-term lost economic output was
estimated as $47 billion.
The stock market lost $1.7 trillion. In
addition, 125,000 workers were laid off for
30 days.
Terrorist activities disrupt international
movement of supplies and merchandise
and financial flows.

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International Agreements

G7 (Group of Seven) is an economic policy


coordination group made up of political
leaders from Canada, England, France,
Germany, Italy, Japan, and the United States.
G8 (Group of Eight) consists of G7 and
Russia.
COCOM (The Coordinating Committee for
Multilateral Controls) was founded in 1949
to stop the flow of Western technology to the
former Soviet Union; members countries
include Australia, Japan and the NATO
countries except Iceland.

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International Law and


Local Legal Environment

International Law (the law of nations)


comes from three main sources:

Chapter 2

Customs
International treaties
Court decisions

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International Law and


Local Legal Environments

Local Legal Systems and Laws

Business Practices and the Legal Systems

Issues of green marketing

Regulations on E-Commerce- privacy issues


Types of Legal Systems:

Common Law
Code (written) Law
Islamic Law
Socialist Laws
Civil Law
Commercial Law

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International Law and


Local Legal Environment

Cultural Values and Legal Systems:

Japans population of lawyers is low.


In the U.S., emphasis is on explicit
contracts and a reliance on the legal
system is high.
In China, relationships (guanxi) and
verbal contracts are important.
In Brazil, Jeitinho is used to find
solutions outside the legal system.

Planning Ahead
Arbitration and Enforcement

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Issues Transcending National


Boundaries

ISO 9000 certification has become an


essential marketing tool for firms.
ISO 14000 is based on the principle of self
regulation, thereby minimizing surveillance
and sanctions.
Intellectual Property Protection:

TRIPs (Trade-Related Aspects of


Intellectual Property Rights)
Patent (first-to-file & first-to-invent
principles)

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Issues Transcending National


Boundaries

Copyright
The

Digital Millennium
Copyright Act (DMCA)

Trademark (prior-use, first-to-use &


first-to-file principles)
Trade Secret
Paris Convention
Patent Cooperation Treaty
Patent Law Treaty

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Issues Transcending National


Boundaries

European Patent Convention


Berne Convention

Antitrust Laws of the United States:

Chapter 2

The Sherman Act


The Clayton Act
Extraterritorial application of U.S.
antitrust laws
Export Trading Company (ETC) Act
of 1982
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Issues Transcending National


Boundaries

Antitrust Laws of the European Union:


Foreign Corrupt Practices Act (FCPA) of
1977:

The FCPA was designed to prohibit


the payment of any money or
anything of value to a foreign
official, foreign political party, or
any candidate for foreign political
office for purposes of obtaining,
retaining, or directing business.

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Issues Transcending National


Boundaries

Chapter 2

The FCPA does not prohibit so


called facilitating or grease
payments.
Small payments to lower level
officials are allowed to expedite
the process.
FCPA does not prohibit bribery
payments to nongovernmental
personnel.
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Issues Transcending National


Boundaries

Chapter 2

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