Business Environment

Environment refers to all external forces, which have a bearing on the functioning of business. Environment factors “are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. The business environment poses threats to a firm or offers immense opportunities for potential market exploitation. Environmental businesssolutions will give way to the environmental business opportunities.

Types of Business Environment

Environment includes such factors as socio-economic, technological, supplier, competitor and the government. There are two more factors, which exercise considerable influence on business. They are physical or natural environment and global environment.

Technological Environment

Technology is understood as the systematic application of scientific or other organized knowledge to practical tasks. Technology changes fast and to keep pace with it, businessmen should be ever alert to adopt changed technology in their businesses.

Economic Environment

There is close relationship between business and its economic environment. Business obtains all its needed inputs from the economic environment and it absorbs the output of business units.

Political Environment

It refers to the influence exerted by the three political institutions viz., legislature executive and the judiciary in shaping, directing, developing and controlling business activities. A stable and dynamic political environment is indispensable for business growth.

Natural Environment

Business, an economic pursuit of man, continues to be dictated by nature. To what extend business depends on nature and what is the relationship between the two constitutes an interesting study.

Global or international Environment

Thanks to liberalization, Indian companies are forces to view business issues from a global perspective. Business responses and managerial practices must be fine-tuned to survive in the global environment.

Social and culture Environment
It refers to people’s attitude to work and wealth; role of family, marriage, religion and education; ethical issues and social responsiveness of business.

Global Business Environment
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Chapter 4 : Political Environment
Types of Political Systems Political Risk Foreign Politics Domestic Politics International Politics Nature of Political Risk Factors that Contribute to Political Risk Social Unrest Attitude of Nationals Policies of the Host Government Analysis of Political Risk Management of Political Risk Techniques.

Chapter Summary
Political systems can be classified based which governments attain power. Based can be classified into parliamentary parliamentary governments. Absolutist power by force. on the party system in the society, and mode in on the way governments come into power, they type or absolutist type. The citizens elect governments are not elected. They come into

Based on the number of parties active in a country, the political establishment can be classified into four types: single-party, two-party, multiparty, and one-party dominated systems. In a single-party system there is only party. This party has absolute power. In a two-party system two major groups with differing political philosophies compete for control of the government. In a multiparty system no single party may have the strength to form the government. As a result, parties enter into coalitions with many small parties to form the government. In a system dominated by a single-party, although there are many parties, only one party is strong enough to form the government. India, for example, had such a single-party dominated system for nearly 50 years after Independence.

To understand and assess the political environment of a company it is necessary to identify and evaluate factors that can cause political instability. Social unrest, attitudes of nationals, and policies of the host government are some factors that can cause social instability. Political risk refers to political actions that have a negative impact on a firm's value. Companies operating internationally have to deal with foreign politics, domestic politics, and international politics. The political environment in the host country is referred to as foreign politics. A company may face problems due to a political crisis in its parent country also. This crisis is confined to domestic politics. Political relations between two or more countries also affect business relations between the countries. A company can face problems if the relations between the country in which the firm operates and the country from which it hails are not good. The process of establishing a cause-and-effect relationship between political factors and business income is called political risk analysis. Some government policies that adversely affect the business environment include non-convertibility of currency, preventing the repatriation of profits, nationalization and inadequacy of compensation, and domestic political violence. Political risk analysis is an ongoing function and is not restricted to the initial investment decision. Publications of political analysts, international rating agencies and the views of employees of the foreign subsidiaries, are some of the sources of information on political risk. Companies operating internationally employ different strategies to reduce their political risk. The strategic techniques are: Integrative technique, Protective/Defensive techniques. A company adopting the Integrative Technique tries to blend with the host country's ethos. Companies can minimize the political risk they face by adopting Protective Techniques. A company can locate its key operations beyond the control of the host country government.

Chapter 5 : Political Environment in Emerging Countries
Political Environment in China Power Centers in China Political Environment in India Power centers in India Political Environment in Brazil Power centers in Brazil Political Environment in Russia Power centers in Russia.

Chapter Summary
Although China has moved from a centrally planned economy to a market-oriented one, the political system has remained the same. The Communist Party of China (CPC) still reigns supreme. The leaders of the CPC take the major policy decisions that determine the future of China. The final authority rests with the 21-member CPC politburo. Major power centers in China are: Conservatives, Liberals, the current President Hu Jintao, the former President Jiang Zemin, Labor, Military, and Pragmatists. With a population over 1 billion, India is the largest democracy in the world. It is a federal republic, consisting of 29 states and 6 union territories. The Indian Parliament consists of two houses: Upper House or Rajya Sabha and Lower House or Lok Sabha. 250 members are elected to the Rajya Sabha. Of the 250, 238 members represent states and union territories. The President nominates the remaining 12 members. On the whole, 545 members are elected to the Lok Sabha. The usual term of the Lok Sabha is five years. Major power centers in India are: Congress (I) party, Bharatiya Janata Party, Communist parties, Labor, and Military. Brazil follows a federal system. It is organized into 26 states and a federal district. The federal government that consists of executive, legislative, and judiciary branches has extensive powers. The President is the head of the state. The bicameral “Congresso Nacional” (National Congress) holds legislative power. This body consists of a “Senado Federal” (Senate) and a "Câmara dos Deputados" (Chamber of Deputies). The Senate consists of 81 members: three members from every state and the federal district. 513 Deputies are elected to the Chamber of Deputies. Some power centers in Brazil are: The current President Luis Inacio da Silva, Democratic Movement Party (PMDB), Labor, Liberal Front Party (PFL), Social Democratic Party (PSDB), Workers Party (PT), and Military.

Power centers in Russia are: the current President Vladimir Vladimirovich Putin. pro-Big Business then probably taxation will be modest and there will not be a lot of stringent rules about environmental considerations.. rivers. If the citizens are.If the citizens are very concerned about safety issues. challenges in theeconomic enviromment (currency exchange rates. ethnicity. The Prime Minister as the leader of the government needs to have the support of the Duma. immigration etc. seasons etc. business or international business situation and analyze this in terms of what environments are involved and how they exerted influence WTGR . Laws are made by politicians . which will make it more expensive for some companies that have big shipping costs. The rules and regulations created by the politicians.After turning into a democracy in 1991. unemployment rates) and also to some extent the geographic environment in terms of how the region is laid out. Communist Party of the Russian Federation (KPRF). or have the business fined for noncompliance of some regulation. for example. mountains. then there will be a lot of rules and regulations governing things such as transportation safety. The Political / Legal / Regulatory environment is often a direct consequence Political / Legal / Regulatory of the political parties in power.). and Liberal Democratic Party (LDPR). . The political environment is affected and effected by politicians who in turn are influenced by changes and challenges in the social cultural enviromment (languages. The president directly elected by the people. The objectives for this unit are to help the reader understand o the role played by each of the 6 environments in business o that these 6 environments can in turn influence each other o that being aware of changes in the environments can help one do business effectively When the reader has completed this unit it would expected that they could read information about a marketing. corporate activity. for example. Business Oligarchy. proximity to other countries.who enact these laws based on the likelihood they will get re-elected. have significant influence on the cost of running a business and the way it can market products and services for example in Canada there are severe regulations about advertising for alcohol and tobacco. . is the chief executive of the state. which represents the popular opinion of the citizens of the region. weather. INTRODUCTION The Political / Legal / Regulatory Environment can be simply described as the laws and regulations that business has to follow in order to make sure the business owners do not get arrested. the Russian Federation (Russia) adopted a political system that has characteristics of both the presidential and parliamentary forms of government.

specifically securities. "China slaps a 17% value-added tax on computer chips sold there. Prof. ." .S. chips in China. calling it the Redberry . Semiconductor taxes. at the same time as meeting Canadian federal and provincial regulations. when the 180 or so companies that do that need only one regulator. Prof.. That makes it almost impossible for foreign chipmakers to compete.S. Complying at the same time with 10 provincial and three territorial regulators seems to be a rather costly and unnecessary exercise. This month.S. regulations in the financial services industry . " So Canadian companies are burdened by having to comply with U. . .S.. measured by market capitalization. chipmakers Intel and Broadcom said they'll stop selling wireless Internet. China must abide by the WTO's decision or risk censure. Howe Institute.The cost of complying with provincial regulations is quite substantial for mediumsized and small businesses. Political / Legal / Regulatory Environment Prof.how it effects the Technological Environment Environment how it effects the In April 2006 several newspapers ran Technological stories about how Chinese companies Environment are launching a knock-off of the Blackberry.com ran a story in April 2004 about how the Chinese government has launched regulations negatively effecting foreign technology companies. Political Environment how it effects the Technological Environment Political Environment . trade office filed a case against China's semiconductor tax with the World Trade Organization. Jack Mintz teaches taxation at the University of Toronto and also serves as President of the C. Mintz wrote an article in the Sept 2003 edition of CB Magazine which features a good example of how the political / legal / regulatory environment effects Canadian international business. must comply with new US securities rules.". permission to quote from Canadian Business magazine given by Scott Steele. Mintz's article discusses the effect of U. Mintz explains "A large share of corporate Canada. and how these regulations will effect the way Canadian companies have to operate when they do business in the U..df w. the SIA says.D. This month.S. But it gives rebates of up to 14% to domestic chip plants. tech companies from the booming market. Political Political Environment . . A new law requires that the chips include a security technology licensed by Chinese companies. regulations. the U.Michelle Kessler explains "Chinese Policies Push Some U. since it has been economically better to raise capital in New York than in Toronto.how it effects the Technological Environment ecommercetimes.. Tech Companies Out" Kessler says "Chinese government policies that favor Chinese companies over foreign firms are driving some U. . Richardson has written several ecommerce and international business articles for Canadian Business magazine over the years. Executive Editor. which China joined in 2001. or Wi-Fi.S.

S." nn What does RIM say? . they are hoping to make gazillions with their joint venture with China Mobile and are hesitant to accuse the Chinese government of being complicit of allowing this other Chinese company to be so blatant in infringing on their product. .) per month. China Unicom says standard five-megabyte e-mail account at RedBerry will cost less than a dollar a month. plus a few cents for each e-mail sent.Bruce Meyerson of ecommercetimes.Meyerson says "well. Political Environment how it effects the Technological Environment Political Environment . m reported by Geoffrey York and Simon Avery in the Globe and Mail and Bruce Meyerson in Ecommercetimes. Political Environment - . in MGTC44 in Nov 2009 wrote about RIM's problems in India Prem explained "One trade barrier that Rim faced while trying to get it's Blackberrys into the Indian market was Indian security. Rim refused this request saying that its data encryption is designed so that no third party or Rim itself can access the data being transmitted wirelessly. nnn Political Environment how it effects the Technological Environment Political Environment .even if it gets ripped off by Redberry (because the Chinese market is so large they think they can still obtain a decent ROI) . permission to quote from Canadian Business magazine given by Scott Steele. In a press release. ." $1 Redberry versus $64 Blackberry ." . Indian security officials demanded that the encryption used by the Blackberry network is lowered from 256 bits to 40 bit encryption.how it effects the Technological Environment Student Prem A. On one level.com explains "one state-controlled company is angling to get a few months head start on another state-run company by playing on the name recognition of BlackBerry.but this situation sends a bad message to any other hi-tech company thinking about doing business in China.com . RIM may still end making some money .I'd say that is a pretty good example of predatory pricing. However. Furthermore Rim argued that four other mobile products providing similar services are not facing the same demands. But the obvious infringement on BlackBerry's trademark is so sophomoric that no company would bother trying it anywhere but in a nation with dubious legal protections.. A typical BlackBerry account in Hong Kong costs up to $64 (U.how it effects the Technological Environment Canadian Business magazine ran a story Sept 2003 about the problems RIM is having with a courtroom battle involving intellectual property claims. this might sound impressive since the two rivals appear to be competing as you'd hope they would in a free market. . Executive Editor.

because it was reported that rear wheel drive cars produced at the G. Political Environment how it effects the Technological Environment Political Environment .S. permission to quote from Canadian Business magazine given by Scott Steele.S. plant in Oshawa cannot meet the "miles per gallon" requirements of the new U. regulations. Microsoft said the first versions of Windows without Media Player will hit EU retailers in the coming week. brought by a U.how it effects the Economic Environment & Jobs 2008 Jan 24 widely reported on 680 news and Toronto newspapers The U. can have a direct effect on business in Canada. congress may be unfavourable to screwing around Canadian based RIM because after 911.how it effects the Technological Environment The U. which is made at the G. than is sold in North America .. This has had an effect on Canadian auto assemblers..the EU regulatory environment . which is trying to ascertain that RIM infringed on some 1990 patent rights in the development of the Blackberry. and used as a police car in Canada and the U.S. Patent office is involved in an action.M.S..how it effects the Technological Environment Toronto Star ran an Associated Press story 2005 Jan 25th about how Microsoft will ship a different version of Windows to Europe. is being dropped by G.M.. all members of congress where given Blackberries in order to keep in touch and they really liked them. so RIM got a lot of congress people on their side ! Many people in Canada hope RIM doesn't get in serious trouble because it is often touted is a great example of the vibrant technology sector in Ontario. AP reported "Microsoft Corp. NTP is concerned that the U. company (NTP). .S." .S. has created new regulations about fuel efficiency requirements for cars. in Oshawa and produced in the U. plant in Oshawa.. . The rear-wheel drive Chevy Impala. although it continues to appeal the European Union sanctions. This situation serves as a very good example of how political regulatory changes in the U.M. Political Environment how it effects the Economic Environment Political Environment .S.reason? . . Executive Editor.S. will immediately ship a version of Windows stripped of the company's multimedia player in Europe and divulge some software blueprints.

the marijuana smoker won his complaint to the Human Rights Commission. the Human Rights Commission"http://www.ca/ agreed to hear the case.000 on lawyers fees and expert witnesses to "defend" himself against this discrimination charge. in a moment of "political correctness". Political Political Environment .how regulations effect small businesses . thestar. Ironically. AND paid for a lawyer to represent the smoker.".on. This forced the small business owner to hire a lawyer to defend himself and he has (by 1st week of Feb 2008) spent more than $100. The business owner says he wasn't "discriminating" at all. owner of Gator Ted's Tap & Grill in Burlington has to pay legal fees and post a sign saying "We accommodate medicinal marijuana smokers. UPDATE 2009 Steve Gibson. Political Environment .com/News/GTA/article/585012 Ted Kindos.ohrc. The smoker said "you can't stop me" and he threatened to file "discrimination" with the Ontario Human Rights Commission Incredibly. a different government agency has said Gator Ted's could lose his liquor licence because serving anybody possessing a controlled substance – prescribed or not – is against the law.a photo of a Chevy Lumina serving as a NYPD car in Broolyn pic by WTGR May 2010 in Brooklyn NYC . he was simply sticking up for the customers who didn't want to smell majrijuana smoke going in to and out of the bar . . When the owner asked the man to move away he said he had a government issued card allowing him to smoke medicial marijuana. The bar owner said that may be legal but it doesn't mean you can smoke it outside the door to my bar. .how regulations effect small businesses 2008 Feb 06 How can rules allowing people to smoke "medicinal" marijuana become a problem for a small business owner?? as discussed on 640AM radio A owner of a small bar/restuarant "Gator Teds" had a problem were a customer kept going outside the bar to smoke his "weed" on the sidewalk. . and bother all my customers coming and going. and this bothered other customers.

resulting in the loss of an estimated 11. Political Environment how it effects the Economic Environment Political Environment . This association is mainly composed of Korean immigrants to Canada who own and operate small convenience stores.thestar. may lose about 19.Environment how it effects the Economic Environment 2008 May 13 UPDATE As reported in several Toronto newspapers 2nd week of May 2008.com published a research report in which they said "Alberta.simply make a Human Rights complaint and cause the business to spend thousands and thousands on legal fees to defend themselves .large piles of cigarettes behind the counter.100 jobs on oil rigs." . the brokerage said.000 direct and indirect jobs.how it effects the Economic Environment & Jobs 2007 Oct 11 Toronto Star reported "oil royalty boost could cut 19.S. According to the association." said Sonny Cho. newspapers in Toronto reported a rally at Queen's Park by the Korean Businessman's Association.com/Business/article/265573 Calgary-based brokerage FirstEnergy Capital Corp.how it effects the Economic Environment 2006 April 18. for free.100 jobs if the government imposes higher royalties" Apparently the Alberta government is considering a recommendation to boost royalties and implement a new tar-sands tax.how Canadian government red tape effects Environment international business situations . the owner of the bar decided he could not afford to continue paying a lawyer to defend him against the Human Rights Commission so he agreed to settle with the pot smoker The pot smoker had no legal fees! The pot smoker simply made a complaint to the Human Rights Commission and the Commission supplied the lawyer. one of the ways they advertize is with "power walls" .000 Korean convenience stores in Ontario . the source of about 10 per cent of U. there are 3.100 jobs" www. Political Political Environment . . www. a combination of restrictive advertising regulations and tax regulations is making it difficult for these business people to conduct their business in an economical way. So.the person doing the complaining has nothing to lose cause the Commission will pay their legal fees !! . . which they say is causing more people to rob stores and the increased violence is frightening for many store owners.a large number of these stores make money selling cigarettes. to argue the case for the pot smoker Some people have suggested that this could be a tactic to drive another business into trouble . Political Environment how it effects the Economic Environment Political Environment . "The McGuinty government has repeatedly raised tobacco taxes without understanding the effect it has on safety in our stores. "Higher royalties may prompt the cancellation of $28 billion in oil-sands projects from 2008 to 2015. oil supplies.firstenergy. The Korean businessmen are also protesting the increased taxes on cigarettes. spokesperson for the Ontario Korean Businessmen's Association. New government legislation [2006] by the provincial Liberal gov't is going to outlaw such advertising. Since cigarette advertising is several restricted. while reduced drilling would eliminate about 8.

sounds good cause Denison exports uranium But. . Political Political Environment .. and have few facilities for inspecting shipments. Farmer [Denison's CEO ] said he doesn't mean to knock the commission for the lengthy approval process.. such as Kazakhstan and Namibia. among other things.."The world is facing a shortage of nuclear fuel because Canada's lengthy permitting process is slowing the development of new uranium mines in Saskatchewan. is that the commission is under staffed. cbc. Other jurisdictions." ." .Canadian Red Tape Denison Mines denisonmines.how Canadian government red tape effects Environment Management positions Canadian Red Tape Reuters journalist Mark McSherry wrote a piece in Jan 2007 discussing the pressures causing CFO's to quit . have processed operating permits much faster. boards and chief executives. the problem facing uranium producers is that they may not be able to build new mines fast enough to keep up." CBC . Investigators from the CBSA Canada Border Services Agency uncovered a risky situation where border officers were unable to provide inspections on containers coming in to Canada because the number of containers was too high.". Reporter Drew Hasselback of the Financial Post says "While greater demand is usually good news for any commodity. Red Hasselback says "Permits to operate uranium mines and mills are granted by the Canadian Tape Nuclear Safety Commission.ca/canada/story/2009/09/14/border-railway-inspect-train-drug. They're given almost no training.when the piece ran in the Toronto Star the titled it Chief Financial Officers jump corporate ship McSherry wries "Experts say turnover of CFOs has increased and tenure has shortened as incumbents struggle with a multitude of issues that include mounting regulation and the demands of investors.000 rail cars and containers annually. Some argue that many CFOs are being asked to perform in at least two different arenas — compliance and strategy" “The government regulations like Sarbanes-Oxley and unrelenting pressures from CEOs and boards are making life miserable for many CFOs” says McSherry quoting a headhunter.. Denison's CEO told people at the AGM in April 2006 that the "boom in reactor construction around the globe will increase demand for uranium. The problem.. with just two officers now responsible for the vetting of some 400.comis a Canadian mining company that mines uranium.html . "A border-screening program begun in 2000 has fallen into disrepair.000 containers 2 inspectors Political Environment . close shop on weekends. get little support from other security officers. Mr.how Canadian government limitations lead to security risks crossing the border Reported by the Canadian Press.. so it takes too long to complete reviews. based on information obtained through the Access to Information Act. for the two officers assigned to the task of investigation. Political Environment 400." . he said.

S. and public accounting firms.. What do we mean by being "public"? "going public". vs. I think the uncertainty and the actions that the US are taking right now are extremely damaging to their relationships with other countries. Companies do this to raise capital (which is just a fancy way of saying big money) for growing and U. Red Tape .. in the context of NAFTA. Red Tape .Political Environment Political Environment . or "launching an IPO" are terms that apply to companies that list their stock on the stock exchange. their accountants have to abide by the reporting requirements of the Sarbanes-Oxley legislation.U. Red Tape . government red tape effects Canadian businesses Sarbanes-Oxley . Named after sponsors Senator Paul Sarbanes (D-Md. and Mexico may forecast some problems in Canada's relationship with the U..S.org/wiki/Sarbanes-Oxley_Act proper name: Public Company Accounting Reform and Investor Protection Act of 2002.S. Mexico 2009 UTSC Student Bernice L.financialpost.html?id=1398564 U. the reason this has an effect on Canadian companies involved in international business and e-commerce is simply due to the fact that many medium and large sized Canadian companies operate in the U. The US haspulled a program that allowed Mexican trucks to transport goods throughout the US and as a result.The legislation is wide ranging and establishes new or enhanced standards for all U.4 billion worth of industrial and agricultural exports with tariffs as a form of retaliation." the story Bernice is referring to was at http://www.S. Mexico is planning to place US$2.) and Representative Michael G..S. Since President Obama has not yet said what his views are on free trade (or NAFTA). also known as "going to the street".how U. If the US decides to continue to place trade barriers.wikipedia. Bernice said "This article talks about the trade dispute between the US and Mexico.S. many other countries will do the same. Oxley (R-Oh) U." WTGR adds. management. public company boards.S.S.S.Sarbanes-Oxley . and therefore when they do their "financials" at the end of the year.2002 One of the big reasons why large Canadian companies need to comply with the Public Company Accounting Reform and Investor Protection Act is that they must comply with these regulations as part of being a public company operating in the U.2002 "a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron" Wikipedia explains "These scandals resulted in a decline of public trust in accounting and reporting practices. [since being innaugurated]. Political Environment Political Environment . thus leading to great disadvantages for everyone.. in MGTC46 in March 2009 sent an email to comment on how problems between the U. see http://en. Mexico and the rest of the world are very concerned and defensive about the protectionist barriers that the US may put up.com/news-sectors/story. Political Environment Political Environment .S.

than in Canada. .S.. and standards Issues The political environment The legal environment Terms of access Winds of change Chapter Summary Key Terms Review Questions Review Questions Answers References ..? . . Chapter 4: The Legal.cause they have 305 million people who can invest in your company and we have just 33 million therefore (simplistically expressed) you can raise more money from stockholders in the U. Why would you want to be a public company in the U.expanding in a competitive market. rules.S. Political/Trade Environment Chapter Objectives Structure Of The Chapter Laws.

The most important rules in any system are those defining. allocating and enforcing property rights. Chapter Objectives The objectives of this chapter are: • To give an understanding of the major factors which must be considered in the legal/political environment when planning to market globally • To describe the "Terms of Access" and show the importance of these as vital elements of facilitating trade • To give. "International law" can be defined as rules and principles that states and nations consider binding upon themselves. Quality standards may be mandatory or voluntary and minimum or multiple grades. including both tariff and non tariff barriers. Standards may include basic weights. quality grades and contract forms. fair trading etc). quality and certificates of origin. and give order and stability to the means of doing business. This raises two interesting characteristics of international law. Licensing also facilitates marketing agencies and producers by reducing transaction costs. or withdrawal of export guarantee cover. a description of the main elements of the latest GATT Round • To show the importance of legal/political aspects in global marketing. rules. . financial solvency and so on. and rules and conventions defining allowable and non-allowable forms of cooperation and competition (standards. The EU has a strict set of standards regarding horticultural products for example. The establishment and enforcement of standards can reduce transaction costs by increasing the available information to buyers and consumers. A major section of the chapter is devoted to the main provisions of the new GATT Round (1995) and an assessment of its impact on the global marketer. The international business is also subject to political decrees made by governments both in "home" and "host" countries. Rules and conventions specifying entry conditions and boundaries on cooperative and competitive policies also facilitate exchange and coordination. in detail. These measures may take the refusal to grant an export licence. Articulated ownership and rights to use. These standards help where trade is at a distance. operating restrictions or expropriation. social and legal ground rules. measures. Performance standards are built in to maintain the licensing agreement. The first is that "law" belongs to individual nations and international law only exists to the degree that individual nations are willing to relinquish their rights. rules of contract. Home governments can apply pressure not to deal with disapproved parties. The host government may take measures like taxation. This occurs when the criteria for licensing revolves around asset holdings. Well defined and enforced systems regarding property rights are essential.The legal/political aspect is very important in global marketing. trade and alter assets is vital to market development. The second is the lack of an adequate international judicial and administrative framework or a body of law which would form the basis of a truly comprehensive international legal system. These ground rules form the laws of all production. Structure Of The Chapter The chapter begins by looking at the major factors which the marketer must consider in assessing vulnerability to the legal/political environment. exchange and distribution and give rise to certain expectations and assurances about the actions of others. and standards All agricultural exports operate within an institutional environment. ownership controls. which is made up of a set of political. including hygiene. since this assigns to individuals the right to benefits and losses in production and marketing activities. It then goes on to describe in detail the major elements of the legal environment and Terms of Access. Laws.

It's misleading to the consumer to use other ingredients and still slick to the name chocolate. One of the problems with this noble effort to inform the consumer is that producers may lose their competitive differentiation advantage through divulging information to competitors. pesticides used on horticultural produce. Particularly. But Britain. consumer and trading bodies like the EU are enforcing the disclosure of more and more information. trademarks. would oppose new laws that would change labelling standards. as the EU brings its policies into line. For example the EU directive on the pricing of cabbages runs to hundreds of pages and.Increasingly. Now. like the USA International Trade Commission and the GATT system. ii) Property rights .1 When Is Chocolate Not Chocolate? Sometime this year the European Union will have to decide at what point chocolate stops being chocolate. . social and legal ground rules within which the global marketer must operate. in the case of milk chocolate. This is becoming an increasingly important issue as food products become more complex and varied. (see chapter on Product Decisions). chocolate can only contain cocoa butter. these efforts revolve around packaging. Ireland and Denmark as well as new EU members Austria Finland and Sweden are exempted from the directive and allow manufacturers to use cocoa-butter equivalents (CBEs) such as palm oil in making chocolate. Case 4. Chocolate producers stand to profit from relaxed standards. handling and processing procedures may be enforced. especially if the price of cocoa were to soar. what constitutes "chocolate" and a "sausage" to name but two products. along with the phenomenon of product liability. The EU produces "E numbers" standards for product additives and artificial colorants or flavourings. cocoa solids. As this trend to disclosure of information grows. The GATT system is a set of norms and procedures which member governments have accepted to create order and predictability in international trade relations.made up of political. sugar and. So may ingredient and nutrition information. issuing directives on product descriptions and pricing. But the ingredients are less likely to be as much a sticking point as the labelling issue. milk. The EU has gone to extraordinary lengths to inform the consumer. on food additives or flavour substitutes. is quite revealing. it is considering whether to allow up to 5 percent CBEs in chocolate manufacturing. Efforts to regulate the international legal system include individual country efforts." A British consumer spokesman said Britain.what taxation schemes will be faced abroad? iv) Recourse . which is keen on keeping its current practice of using up to 5 percent CBEs.possibility and length of action with the possibility of image damaging necessitating arbitration.often necessitating protocols or the signing of trade frameworking agreements. labelling and information. as is the USA. As defined by a 1973 European Commission directive. It is particularly so for any substance which may have long term harmful effects. v) Movement of equity and expropriation threats .patents. The following case proves the point2. The EU is also very strict. "What is to stop the chocolate industry from putting pressure on the EU to allow 10 percent or even complete substitution of cocoa butter and still call the remaining product chocolate?" said Gerrit Ribbink of the Netherlands Development Organisation (SNV) in The Hague. Issues Most issues in the legal/political environment centre around the following:i) "Institutional environment" . for example. regulations regarding certain tests or inspection of products. iii) Taxation .

NATO and the EU have gone a long way to reduce the element of "foreigness". primarily a phenomenon of the developing countries. affecting up to 10 percent of world cocoa production. and this could cut demand even further. In the last years remarkable changes have been taking place in the ideologies of many countries. including the desire to retain national assets. violence and cultural divisions based on language or other factors can lead to a very uncertain environment in which to conduct business. What scares producers even more is that American chocolate manufacturers could lobby the US Food and Drug Administration (FDA) to follow the EU's example.each member country must treat the trade of all other member countries equally ii) open markets which are encouraged by GATT through a prohibition of all forms of protection except customs tariffs. The political environment Checks can be made on the legal/political system as to its ideology. None of these principles is fully realized. Yugoslavia has shown it is not entirely so.producing countries. which produces more than 90 percent of the world's cocoa. Stability: Changes in regime. Nationalism: Much was said about nationalism in the previous section. simply because it is impossible to "police" all sovereign governments and dictate what is or is not tariff or non tariff discriminating. demand for cocoa could drop by anywhere between 100 000 and 200 000 tonnes. The current uncertainty in Liberia and Rwanda. The development of GATT. nationalism. for example. stability and international relations. as a "hostage" situation in international disputes. Expropriation Expropriation is an extreme form of political action. Ideology: A country's ideological leaning may be capitalism. the violence of Somalia and Yugoslavia increase the risk and diminish the confidence of doing business in these countries. Nationalism can lead to expropriation of foreign held assets. the 13-nation Cocoa Producers' Alliance. Whilst. SNV estimated that if the EU allowed CBEs in chocolate. In a statement last October. for example the seizure of Union Carbide's assets after the Bhopal disaster in India."The UK would say the products are still called chocolate". a mixture or other form. International relations: In general international relations have improved over the last twenty years. which affects capital investment includes joint venturing insistence and repatriation of funds. "Partnering" remains widespread (inward investment in tandem with a domestic company) as does restrictions on repatriation of funds. This can be done by reference to the appropriate embassy or government agency or via magazines like "Foreign Affairs" and even by reference to a domestic agency in the host country. and iii) fair trade which prohibits export subsidies on manufactured products and limits the use of export subsidies on primary products. Other government activity. In . the packaging issue is secondary to the fear that an increase in the use of CBEs will lead to a drop in the demand for cocoa. socialism. Similarly. It may occur for a number of reasons. For cocoa . The most dramatic example has been the collapse of the communist USSR and Eastern Europe and its replacement with market led policies and ideologies. The three basic principles are: i) nondiscrimination . he said. The need to systematically evaluate the legal/political environment cannot be overemphasized. many African countries are abandoning their centrist leanings in favour of market led economies. urged the European Union not to enact the proposals. Zimbabwe and Tanzania.

which are not tied as in partnering. Marketing implications Political factors give rise to a number of marketing implications. is the venture really worth it? Assessing political vulnerability Political vulnerability should be assessed by using a systematic checklist. for example.the bigger the more vulnerable • Visibility of firm . employment • Localisation of operations • Subsidiary dependence. free ports. the answers to these questions will enable the marketer to assess the degree to which the product being marketed has to be priced and resourced. However these measures may increase the risk of expropriation or reduce the potential success of the venture. say. the multinational food agent. If the government mainly wishes to attract the mobile investor. for example. If expropriation is a real possibility then the investor should seek to minimise risk by: i) relatively rapid depreciation of assets and repatriation of funds by manipulated transfer prices ii) establish a local supply infrastructure so that any adverse action damages the host economy iii) raise as much investment capital in the country as possible iv) retain control of critical inputs and minimise local stocks of these. can be assessed and fed into the investment discussion. has entered into partnership with Olivine industries. oil? • Is the product a critical input for other industries. so as to either avoid or reduce the risk of expropriation or other political reactions.is it a good corporate citizen? • Contribution to host country. . cement? • Is the product socially or politically sensitive. for example. for example. Such a checklist should include the following: • The firm's own country's relations with other countries • Sensitivity of the product or industry • Size and location of operation . for example. the question is. or overcome say poor local skills. HJ Heinz. the Government may relax its conditions as it sees the benefits. Similarly if viability depends on incentives rather than real return on investment.Zimbabwe. real or perceived. These include the following: • Is the product ever subject to political debate regarding. enterprise zones etc. Incentives Many countries try to reduce perceived risk by promoting inward investment through the provision of tax breaks. Over time.is it high profile say via advertising? • Host country's political situation • Company behaviour . Depending on the answers to these checkpoints. the amount of risk. even if initially the investment is not favourable. one has to assess what would happen if the scheme was withdrawn once the capital had been committed. food? • Is the product of national defence significance? • Is the product taking a disproportional amount of capital repayment? • Is the product leading to the locus of control being held outside of the host country? Again. adequacy of supply. The key is to look at what the disadvantages are..

safety. price freezes. Works with international chambers of commerce and Governments. A patent cooperation treaty (PCT) and a European Patent Convention are also in effect. expropriation and distribution of equity. However. d) ISO (International Standards Organisation) often works with ILO. The EU convention covers 15 countries and gives patent protection in all 15 if signified in one. Member countries produce guidelines for multinational enterprises covering aspects of general policy. g) Codes of conduct. taxation. sales promotion and. The treaty provides that if a filee files in a signatory country within one year of the first filing. like those in the OECP.contracts for agents and distribution. are not technical law but important.collection. performance. embargoed nations.physical. regulation of corrupt practices. particularly international sales and payments. h) Recourse arbitration is an attempt to reduce disputes by consultation. and contains technical committees working on uniform standards. value added systems and taxation • Distribution . a series of other bodies and legislation exists. Holland. a) FCN (Friendship. • Market research . antitrust. storage and transmission of data. the supreme body is the International Court of Justice. situated in The Hague. first signed in 1983 and now honoured by 45 countries. financing. The following touches on a number of these issues and in particular the import/export regulations (terms of access). Here a number of international disputes may be taken for ultimate adjudication. International law To many. c) UNCITRAL (UN) international trade law commission set up with the intent to provide a uniform commercial code for the whole world. warranty • Pricing decisions .price controls. the international legal framework is somewhat confused. WHO etc. f) Air transport is covered mainly by IATA (International Air Transport Authority). insurance • Promotion . packaging. competition. patents and trademarks. physical distribution. The PCT has 39 countries including the USA. Some of the most widely used are the International Chamber of Commerce. taxes. the American Arbitration Association. e) Patents and trademarks there is no such thing as international patent. employment and industrial relations. The most important patent agreement is the International Convention for the Protection of Industrial Property. transfer pricing. product restriction. ICAA (International Civil Aviation Authority) and ITU (International Telecommunication Company). Marketing implications The implications of international law on marketing operations are legion. disclosure of information. Japan and Brazil. Most controls or regulations revolve around export and import controls. the London Court of Arbitration and the Liverpool Cotton Exchange. b) IMF and GATT already discussed in the previous section and concerned with member nations international trade restrictions and dumping.The legal environment As indicated in the introduction to this section. commercial arbitration and shipping legislation.advertising codes of practice. . resale price maintenance. labelling. Commerce and Navigation) and Tax Treaties primarily US based and concerned with giving protection of trading rights and avoiding double taxation. The principle ones are as follows: • Product decisions . chemical. the filee will be afforded the date of the first filing for priority purposes.

length or number of other units of measurements. In the Chilean tariff. They are calculated either as a specific amount per unit or specific duty. and the granting of preferential access to industrial country markets to companies based in less-developed countries. which uses CIF value. or as a combination of both of these methods. Types of duty Customs duties are of two different types. must be multiplied by an established conversion factor to obtain the corresponding amount of escudos. fifty US cents per pound. A uniform basis for the valuation of goods for customs purposes was elaborated by the Customs Cooperation Council in Brussels and was adopted in 1953. the customs value is landed CIF cost at the port of entry. Specific duties: These duties are expressed as a specific amount of currency per unit of weight. Tariff systems Tariff systems provide either a single rate of duty for each item applicable to all countries. applicable to different countries or groups of countries. rates are given in gold pesos and. foreign exchange regulations and preference arrangements. Tariffs are usually grouped into two classifications: Single-column tariff: The single-column tariff is the simplest type of tariff and consists of a schedule of duties in which the rate applies to imports from all countries on the same basis. Two-column tariff: Under the two-column tariff. Specific duties are usually expressed in the currency of the importing country. are supplied to all countries enjoying MFN (most favoured nation) treatment within the framework of GATT. In countries adhering to the Brussels convention on customs valuation. GATT prohibits the use of preferential tariffs with the major exceptions of historical preference schemes. and Japan. particularly in countries that have experienced sustained inflation. . Therefore an exporter is well advised to secure information about the valuation practices applied to his product in the country of destination. volume. Under GATT. twenty-five cents per square yard. or two or more rates. so the rest of this section will be given over to a discussion of these. with some substantial exceptions. The conventional rates. preference schemes that are part of a formal economic integration treaty. but there are exceptions. such as the British Commonwealth preferences and similar arrangements that existed before the GATT convention. The phrase "terms of access" refers to all the conditions that apply to the importation of goods from a foreign country. Preferential tariff A preferential tariff is a reduced tariff rate applied to imports from certain countries. therefore. such as free-trade areas or common markets. the initial single column of duties is supplemented by a second column of "conventional" duties which show reduced rates agreed through tariff negotiations with other countries. The definition of customs value varies from country to country. Major trading nations that are not members of the Brussels convention on customs valuation are the USA and Canada.Other areas affected are obviously in currency and payments but these will be dealt with in later sections. This cost should reflect the arm's-length price of the goods at the time the duty becomes payable. one dollar per pair. import restrictions or quotas. The major instruments covered by this phrase include import duties. for example. Terms of access One particular area where legal/political effects are felt by international marketers is in the terms of access. which use FOB costs as the basis of valuation. or as a percentage of the value of the goods or ad valorem. nations agree to apply their most favourable tariff or lowest tariff rate to all nations who are signatories to GATT. Ad valorem duties: This duty is expressed as a percentage of the value of goods. for example those agreed upon by "convention".

The objective of these levies is to raise the price of imported products to the domestic price level. one of the major tax inequities today is the fact that manufacturers in value-added tax (VAT) countries do not pay a value added tax on sales to non-VAT countries such as the USA while USA manufacturers who pay income taxes in the USA must also pay VAT taxes on sales in VAT countries. Compound or mixed duties: These duties provide for specific plus ad valorem rates to be levied on the same articles. the average reduction by the major industrial countries amounted to about 20 percent and affected about one-half of the dutiable imports. The implementation of such a program would involve major marketing investments by the Jaguar Motor Company in establishing distribution. 8. On agricultural products. Over 60 thousand items were involved. The Kennedy Round and the General Agreement on Tariffs and Trade (GATT) A major development of the 1960s was a series of agreements negotiated in the 1963-67 period. Such "border tax adjustments" must not. training and developing organisations to market the car in Japan. 10.9 percent in the USA. apply a system of variable import levies to their imports of various agricultural products.8 percent in the UK and 10. tariffs on dutiable nonagricultural products averaged 9. Temporary import surcharges: Temporary surcharges have been introduced from time to time by certain countries. such as the UK and the USA. Japan. such as value-added taxes and sales taxes. to provide additional protection for local industry and. tariff concessions on nonagricultural products by the four largest industrial participants -the USA. For example. Such duties take the form of special additional import charges designed to cover the difference between the export price and the "normal" price. Compensatory import taxes: In theory these taxes correspond with various international taxes. Adaptation to meet local requirements: The impact of adaptation to conform to local safety and other requirements can be crippling. Anti-dumping duties are almost invariably applied to articles that are produced in the importing country. During these negotiations. . most countries have introduced legislation providing for the imposition of antidumping duties if injury is caused to domestic producers. a Jaguar car made in the UK and sold in Japan would be three times its UK value. and the EEC . popularly known as the "Kennedy Round". Tariff reductions under the agreement took place in five equal instalments. which usually refers to the price paid by consumers in the exporting countries.7 percent in Japan. amount to additional protection for domestic producers or to a subsidy for exports. according to GATT. At the conclusion of the Kennedy Round negotiations.6 percent in the EEC. 1968 and the last on January 1. in particular. An alternative approach to the Japanese market would be to begin with the Japanese customer to identify the customer's wants and needs and to design a product for that market or to adapt the design to a world design that would fit the needs and wants in both the domestic and the Japanese markets. For example. To offset the impact of dumping.averaged slightly more than 35 percent and covered about $20 billion of trade. in response to balance of payments deficits. The first was concluded on January 1.Alternative duties: In this case both ad valorem and specific duties are set out in the custom tariff for a given product. excluding grains. although there are cases where the lower is specified. including Sweden and the European Union. EU imposition of a tax on imported horticultural products. Normally. advertising and promotion. Anti-dumping dunes: The term dumping refers to the sale of a product at a price lower than that normally charged in a domestic market or country of origin. In practice. the UK. 1972. representing approximately $40 billion in world trade annually. the applicable rate is the one that yields the higher amount of duty. Other import charges Variable import levies: Several countries. It would also involve significant expenditures in designing the car to appeal to the needs of the Japanese customer.

textiles ($27.1 billion in services. Eastern Europe . Loses $0. 3. the way was cleared for the signing of the eighth General Agreement on Tariffs and Trade (GATT) in April 1994 in Morocco. Japan Set to gain from liberalisation in high tech goods. Agriculture to see income increase of $30 billion. EU World's biggest exporting block. 5. The latest GATT round. and biggest services exporter ($2 billion benefit).16 Figure 4. The deal also creates a powerful international bureaucracy. But not all countries will gain. 2.3 billion a year by 2002. an agreement was concluded. only two days before the deadline. agriculture ($22 billion). $1. services ($7 billion). with Nigeria down by $1.1 GATT who wins what 1. nearly twenty times the size of UK's annual budget.6 billion) sectors will also benefit. After failing to meet two deadlines in 1990 and 1991.8 billion in textiles. which covers ten times the value of the previous seven GATT Rounds put together. completion of the North American Free Trade Agreement (NAFTA) and the hints of the development of a similar trading block in the Asian-Pacific Region (APEC). The principal aim in the early days of GATT was to cut tariffs and to this end average tariffs have fallen from almost 40% to 4. touches on more than four billion Sterling Pounds worth of International Trade. US Largest number of world's 500 biggest global companies. GATT has.1 billion overall gain. manufacturing. The proposed effects are shown in figure 4. manufacturing ($7. Aerospace computer software. the so called Uruguay Round. GATT basically stands to defuse trade tension between countries and smaller countries enjoy better access to larger countries' markets through GATT than they could if they had negotiated by themselves. which were still under way in 1979.3 billion) and textile ($21. $7. but is yet to be ratified by all signatories. was to achieve another 35 percent tariff reduction. many thought the Uruguay round would never be concluded. the Tokyo Round made it harder for countries to manipulate technical standards. the World Trade Organisation (WTO) to police world trade and act as a bulwark against a return to the economic protectionism which proceeded war in the 1930s. Total gain: $36 billion a year by 2002. Africa will be a net loser. import licences and customs regulations in order to keep imports out. over the years. The target in these negotiations. $1. was long held up over subsidy wranglings between the EU and the USA. When the European Union and the USA agreed to bury their differences (primarily over subsidies and trade in television and films) on Tuesday 14 December 1992. Economists reckon that the Uruguay Round will add about $270 billion to world income within a decade and boost global trade by more than 12%. gradually gone into other areas. agriculture ($9. 4. The Kennedy Round introduced rules against dumping exports.2 billion). However. The new package. Whilst only 20 countries took part in the first round signed in Geneva in 1947.3 through farm liberalisation. Total gain: $61. Other fears are that Africa will lose out on agricultural prices but textiles will get a boast. Asian Tigers Gain $3.6 billion) all set to gain-but prospects differ in each country.7% and now it will be as little as 3% if the Uruguay round succeeds.0 billion.5 billion through textile liberalisation. helped focus the minds of the negotiators. the current round boasts 116 participants. However in early 1994. Total gain $27 billion a year by 2002.A second "Tokyo Round" of trade negotiations was undertaken by the 97 nation GATT in the 1970s.

. Tariffs imposed by the big economies on some important items will be eliminated altogether. and South Africa loses $0. with Nigeria alone down $1. The estimates take no account of social costs arising from the structural adjustment of economies in the wake of trade liberalisation. import licensing. but the principles are clear: replace quotas with tariffs.6 billion. and cut subsidies. which can collect higher royalties. • Forge a comprehensive agreement in GATT's biggest exception. • Cut tariffs by at least a third.insurance.1 billion). • Try to curb the misuse of rules on dumping. • Try to prevent the uses of voluntary export restraints-a sort of import quota which is operated by an exporter under pressure from an importing country. 6.0 billion. • Protect all kinds of intellectual property.0 billion. but some of the developing countries might lose. China Set to gain $37 billion a year by 2002. That would be good for developed countries. Special attention has been given to a few very high tariffs and to helping developing countries by cutting tariffs on tropical products. but also the $3 trillion worth of services that are provided domestically around the world . for example. farm trade. Africa (excluding Egypt and Libya) The continent as a whole is set to lose $2. especially on Africa and the Far East. The details are unresolved.4 billion. such as the requirement that foreign investors buy supplies locally. This is almost impossible. • Build on earlier agreements in government procurement and civil aircraft. Tariffs will be cut. copyright and trademarks. 10. not only of the $900 billion worth of services that cross borders.0 billion). The modest progress sought in this round would supply a platform for more liberalisation on future rounds. This will be difficult to enforce.6 billion a year by 2002. • Phase out trade-related investment measures. A framework would exist for the liberalisation. Algeria and Tunisia together lose $0. 8.6 billion. technical standards and rules of origin. textile ($1. Former Soviet Union set to gain by some $13 billion from liberalisation of services. especially export subsidies. 7. Morocco. as follows: • For the first time. South America Set to gain $8. • Tidy up rules on shipment.4 billion. Developing countries should benefit. Australia/New Zealand Large gains from liberalisation of agriculture ($1. customs. Total gain: $37 billion a year by 2002. 9.Textile services sectors likely to benefit. Total gain $2 billion a year by 2002. including patents. The main provisions of the 450 pages long document covering 28 separate agreements are according to "The Economist" (December 1993)1. • Try to reform the rules against subsidies. a written set of rules to cover trade in services. India Set to gain $4. with Brazil on its own up $3. including inspection. • Phase out over ten years of bilateral quotas which make up the multifibre arrangement for textiles and clothing.

textiles and in the effect of services and intellectual property provision. The cost of not agreeing a round will have been enormous. EU. In fact. . public or private. will be cut. Non-tariff barriers With the success of the Uruguay Round tariff negotiations. A non-tariff trade barrier is defined by economists as any measure. Suggestions are that it would cost the world economy some extra $213 . film. Whilst opening up the world's shopping malls for agriculture products. In communist countries all commodities are monopolised. lead to a gradual erosion of the open trade mechanism. The major non-tariff trade barriers are as follows: Quotas and trade control: These are specific limits and controls. 81 countries and territories. Potential real-world income is the attainable level when resources are allocated in the most economically efficient manner. Japan was the first country to ratify the agreement on 30 December 1994. "State trading" refers to the practice of monopolising trade in certain commodities.274 billion each year and worst of all. and so will have to operate at greater volumes with lower prices. Protectionism would once more raise its head and the whole multilateral trading system would eventually seize up and fall apart. representing over 90% of international trade became founder members of the World Trade Organisation (WTO). the price mechanism is not allowed to operate. attention has naturally turned to the remaining non-tariff obstacles to trade. Significantly. To the businessman a non-tariff barrier is any measure. China is not included as it failed to convince the "big four" (USA. and the French government controls all imports of coal.• Speed up the arbitration of disputes between GATT members. In January 1995. China and India may be the principle benefactors in textile products due to lower unit cost production structures. It is expected that 50 more nations will eventually ratify the treaty and altogether some 155 states including Hong Kong and Macau will eventually sign up. The good is simply unavailable at any price. and subsidies. box and television programmes are likely to be more expensive as manufacturers begin to apply the fine detail of the GATT services and intellectual property claims. The WTO will administer the new trade treaty and take its place along side the World Bank and the International Monetary Fund as the "third pillar" of the post World War II economic system. Discriminatory government and private procurement policies: These are the rules and regulations that discriminate against foreign supplies and are commonly referred to as "Buy British" or "Buy American" policies. often from each other. Whilst the multinationals in computers and electronics etc are definitely likely to gain most. including the United States. that causes internationally traded goods and services to be allocated in such a way as to reduce potential real-world income. • Clarify raft of GATT rules. What is sure is that tariffs will replace quotas. Imported products like drugs. particularly export. which will absorb the 48 year old GATT over the duration of 1995. but there are many examples of non-communist government monopolies: the Swedish government controls the import of all alcoholic beverages and tobacco products. for developing countries the principle effects are likely to be in farm products. Restrictive customs procedures The rules and regulations for classifying and valuing commodities as a basis for levying import duties can be administered in a way that makes compliance difficult and expensive. other than tariffs. that provides a barrier or obstacle to the sale of his products in a foreign market. European Union and Canada. The new trade treaty came into force on 1 January 1995. The trade distortion of a quota is even more severe than a tariff because once the quota has been filled. • Transform GATT from a provisional agreement (it was never ratified by America) into a full institution called the World Trade Organisation. Japan and Canada) that it had opened up its economy enough. developing countries are likely to face fierce competition. Countries will also find it harder to dissent from judgements.

Some of these regulations are intended to keep out foreign foods while others are directed towards legitimate domestic objectives. The regulations provided that mature green tomatoes (those that ripen after they are picked) could not be sold unless they measured more than 2-9/32" in diameter. In 1969 GATT published a 276 page report listing non-tariff barriers to trade.Selective monetary controls and discriminatory exchange rate policies Discriminatory exchange rate policies distort trade in much the same way as selective import duties and export subsidies. But the Mexicans pointed out that the regulations were more lenient on green than ripened tomatoes. The Mexicans could protest the decisions of the US Department of Agriculture. These regulations in effect raise the price of foreign goods by the cost of money for the term of the required deposit. Restrictive administrative and technical regulations These include anti-dumping regulations. has been to make it so expensive to comply with US safety requirements that they have withdrawn from the market. many countries from time to time require importers to place on deposit at no interest an amount equal to the value of imported goods. is already out of date. or try to appeal directly to consumers and thereby influence legislative and administrative action in government. were extremely complex. For example. the safety and pollution regulations being developed in the United States for automobiles are motivated almost entirely by legitimate concerns about highway safety and pollution. which listed such obscure items as an Italian sanitary tax on foreign snake poison. Florida growers contended that the regulations were not discriminatory because they applied to both the Mexican and the US crops. particularly those in Europe and Latin America. Tariff administration has been simplified by the adoption by a large number of countries of the Brussels nomenclature . While US consumers saw prices rise as much as 30 percent. If this is the case. Tariff classification Before World War II specific duties were widely used and the tariffs of many countries. Packaging or pesticide regulations often erect a hurdle for exports. "The whole of Mexico feels stabbed in the back". the US Department Of Agriculture put a set of minimum size restrictions on all tomatoes sold in the US market. For example. Mexican tomato farmers were outraged because the regulations barred almost 50 percent of their crop from the US market. An important test of a ruling or regulation is whether it has a greater impact on foreign producers.2. The Mexican growers could influence this decision by pressuring the US government through diplomatic channels. Selective monetary policies are definite barriers to trade. Producers of restrictive administrative regulations are incredibly creative in establishing barriers to trade. This can be seen in the following case3: Case 4. size regulations and safety and health regulations. but not insurmountably so. an effect of the regulations. but the mechanism for hearing this case did not really exist. A strong case could be made for the harm done by these regulations to Mexican growers and US consumers. particularly on smaller foreign manufacturers. wrote their own regulations. Rod Batiz. Mexican tomato framers were enraged while they watched tons of their tomatoes being fed to cattle or simply rotting in heaps along the highway. Since the war the trend has been toward the conversion to ad valorem duties. Vine ripened tomatoes were required to measure at least 2-17/32" in diameter. in effect. The example illustrates how difficult it is to deal with non-tariff barriers to trade. They maintained that the regulations worked for the benefit of everyone: growers on both sides of the border and the consumer. and there is no apparent social benefit for consumers. Green tomatoes accounted for approximately 85 percent of the Florida tomato crop and only 10 percent of the Mexican crop. but the Florida growers who were competing with the Mexican growers. the ruling is a non-tariff barrier. was quoted in the "Wall Street Journal" as saying. However. Mexican Tomatoes In 1969. The EU has strict hygiene requirements for imports of horticultural produce for Africa which require strict observance. This report. president of the 20 thousand member Confederation of Agriculture Association.

Coupled with schemes like the CAP of the EU (Common Agricultural Policy of the European Union) which produced "mountains" of butter. Health and Safety Standards. The growth of economic unions like the EU which are limited multilateral organisations have undermined the strength of GATT agreements but only in so far as non-tariff barriers are concerned. it is important to bear in mind the enormous problems posed by classification and recognize that the numbers in trade reports may often reflect hasty and arbitrary classifications that distort the true picture of the trade flow. Evidence of the inaccuracy of grade classification practices is provided by frequent failure of import and export figures of the same commodity to reconcile between two countries.(BTN). producing from inside the market or self regulation. The BTN groups articles mainly according to the material from which they are made. They can be fined and therefore be driven away and as a result consumers will suffer. Even a tariff schedule of several thousand items cannot clearly describe every product that enters into international trade. options include avoiding certain commodities or industries. that among major trading nations neither the USA nor Canada uses the BTN. A common basis for the classification of goods facilitates comparison of duties applied by different countries and simplifies international tariff negotiations. it is both easy to use and applicable to the goods they produce. the task of administrating a tariff presents an enormous problem. sugar. volume (voluntary restraints) and uncertainty ("proved" dumping cases) or they reduce opportunities by affecting the attractiveness of your offer to end users (cancelling out price advantages). etc. The first is that exporters should seek the most favourable classification for their products in order to minimise the duty levied in the importing country. Anyone entering the industry after a charge of dumping against it will face the highest rate of levy. Anti-dumping is the worst form of protection because anti-dumping creates uncertainty for producers and intermediaries. which in 1955 produced a convention that entered into force in 1959. In effect free trade was reversed. teaming up with local contacts. harmed the balance of payments of the Western economies. The main non-tariff barriers of recent times have been countervailing duty and anti-dumping. Such non-tariff barriers may merely be devices to soften up foreign rivals and force them into regulatory voluntary restrictions on trade. In order to circumvent protection. Protectionist measures like these can reduce global opportunities in direct ways (imposition of quotas. however. The constant flow of new products and new materials used in manufacturing processes introduces new problems. The second is that the difficulties of classification raise serious questions about the accuracy of data on international trade patterns. affect the attractiveness of marketing offers to intermediaries by affecting market price (tariffs). coupled with more trade between developing countries. In spite of the progress made in simplifying tariff procedures. one needs not be "guilty" to be penalized for it. It is significant. The classification of a product can make a substantial difference in the duty applied. Approximately two-thirds of all world trade is now conducted under tariffs based on the BTN system. it was patchy and therefore in some sectors excess occurred. . attitudes to trade changed somewhat in the 1980s. Coupled with oil shocks and debt crises. The rules of this convention are now being applied by most GATT countries. For less-developed countries. When using international trade data.). this excess led to downward pressure on prices which newly emerging nations may be better equipped to deal with if raw materials are banned in country. The Industry and Development Global Report (1988/89) made a series of observations showing that whilst expansion of demand was there. Winds of change The emergence of Japan in the 1970s and 80s. two or more alternative classifications must be considered in assessing the rate on a particular article depending upon how it is used or its component material. Some clever marketers seek to get their products reclassified in order to get a lower tariff structure. An additional advantage of the BTN is its widespread use. This nomenclature was worked out by an international committee of experts under the sponsorship of the Customs Cooperation Council. etc.. Often. There are two important implications of this fact for export marketers.

the rules are fairly well defined. with few international standards or regulations to fall back on. The new GATT Round. Although minor in scale. Review Questions Answers 1. Thankfully. operational from 1995 and effected by the newly constituted World Trade Organisation. Why is it important for Government to have a regulatory framework? 2. exchange and distribution activities ii) gives rise to expectations and assurances about the actions of others and iii) gives order and stability to the means of doing business. a) Framework states the political. livestock and so on. Individual country policies. Taking any piece of legislation or example of your choice show how this has been used in either furthering or hindering international agricultural marketing. . On a number of occasions the EU has imposed a ban on beef exports from Zimbabwe because of a so called "foot and mouth" outbreak in Zimbabwe. Laws regarding property rights and regulations regarding permissable and non permissable forms of cooperation and competition are possibly the greatest challenge facing multinational marketers when attempting to cross international boundaries. quantity and so on. social and legal ground rules for doing business between and within countries. are so vital that often expert help is required to deal with them. b) The framework gives: i) the basis for all production. in country. and the increase of duties by 40% by the same country are hitting Zimbabwe's clothing exports there very hard. Give examples. 4. terms of access. The imposition of a transport levy by the South Africans affected Zimbabwe's drought relief programme costs. change can occur very quickly. fish. Marketers are beholden to always keep a constant watch on changes which are and could occur in the legal/political environment. Key Terms Arbitration Dumping Duty Expropriation Ideology Levy Quota Tariff Nationalism Terms of access Review Questions 1.The legal/political system is a minefield. For any product or service of your choice. for many agricultural products and agribusinesses like timber. the most important "Environmental variables" are the political and legal aspects. 3. show how the main provisions of the new GATT agreement (1995) will affect its trade internationally. Chapter Summary Probably. Important to have a regulatory framework for the following reasons. its consequences can be major for the industry. tariff and non tariff barriers. However. Zimbabwe and Botswana. is one of the most far reaching trade agreements to date and proposes to boost world trade considerably over the next decade. who enjoy large beef quotas with the EU. and rules and regulations regarding standards of quality. Describe the major tariff/duties and non tariff barriers which can be used in international trade as barriers to entry. can be affected overnight by a ban.

1 Algodon International 1 It was November 4. (phyto sanitary requirements). Non tariff barriers a) Quota and trade controls. Students may be free to select any tariff on non tariff example or any other form. the domestic consumption also increased substantially from 5. Cotton prices had shown a downward trend for over 12 months. compensatory. 2. They had peaked at $0. b) Establishing rules and conventions defining allowable and non allowable forms of cooperation and coordination (standards. alternative. packaging standards. rules of conduct. The increase in local consumption is due to vigorous expansion of textile spinning sector. anti-dumping. temporary. c) Restrictive customs procedures.variable. Mr. These include hygiene standards. What marketing strategies should be considered. the first week of LATINA's major export season of raw cotton (see Annex 1). e) Restrictive administrative and technical regulations. in which the firm could serve customers for its own account. Exercise 4. and wondered how he could apply some new ideas he had learned. c) Import charges . Tariff barriers/duties (terms of access) a) Tariffs . b) Duties . (See Annex 3). Trading positions had to be taken and risks calculated. He had just returned from a cotton trading seminar in Geneva. Latina has established itself as one of the growing producers in the region. fair trading etc). The country produced just over 8 million bales of 480 pounds each in 1987/88 with a forecast for 1988/89 of 11.2 million in 1988. the United States (California and Arizona) and Pakistan which tended to flood the market at times. quality and size standards. two column. b) Discriminatory Government and private procurement policies. With the increase in production. At the same time new strains and the installations of lint-cleaners have resulted in improvement in both staple and grade.86 a pound in mid 1987 but had since fallen. compound.2 million bales. Latina's principal shipping months corresponded with those of India.6 million bales in 1985 to 6. d) Selective monetary control and discriminatory exchange rate policies. The increase in production has been the result of an increase in sowing area as well as improvement in availability of fertilizers and pesticides and in farming techniques. Pablo Funtanet. This was the first private trading season for his firm since the government's new policy of deregulation on 1 July 1988. Country profile Thanks to remarkable increases in yields since a major crop failure in 1986/87.single column. He knew that the first free trading season was also the time to establish a respectable market share against Latina's competitors as well as against cotton suppliers outside Latina. (See Annex 2).The most important rules are these: a) Defining. 3. allocating and enforcing property rights. Turkey. Today's average spot price was $0.ad valorem. certificates of origin. An excellent example would be the regulatory framework imposed by the EU on the import of horticultural produce from developing countries. preferential. partner and principal trader in the firm looked pensively out the 7th floor window of the Stock Exchange Building of Latina where the firm's office were located.55 a pound. Most available new lint crop in 1988/89 is rapidly being taken up by the domestic mills and stocks are not being . specific.

In order to boost profits the company entered the business of "resident buying". Being a resident buyer provided the company with some additional autonomy and flexibility. which are due to a great variety in climate and distances from the various growing years Some cotton is harvested as early as October and as late as January with this production mainly moving to domestic mills. the business was simple and it merely resulted "in order taking and execution" on behalf of the Corporation. spinners. more precisely. all of which was exported.e. Export sales are only allowed to be consummated on the prevailing minimum export price of that day. Latina normally produces high grade crop with staple length of 1.5/32" and 1. the government of Latina passed a decree centralizing all cotton marketing. The government from that date on assumed the responsibility of all the export marketing of cotton for which purpose the Cotton Export Corporation of Latina (i. The State Bank of Latina announces daily the minimum export price of the base cotton on FOB basis. On 28 January 1963. Since 1 July 1988. In the Southern area cotton of 1. All cotton is saw-ginned. especially for those merchants. An active demand for longer cotton reflects the short supply of certain cotton qualities during the month of November 1988. Instead of earning a commission through a selling service.3/16" staple is grown. The bank. "the Corporation") was created. the company switched and earned through the provision of buying services. like Algodon International. Rain grown or semi-irrigated areas yield less. Cotton were only allowed to act as export agents for the Corporation rather than acting as merchants which required much more trading skills.3/32". the government has de-regulated the cotton export sector. More importantly. paid by the Corporation. and profit and growth of the company was limited. Yields in such areas are around 2 bales per acre and more.. uses world averages of the previous day. Resident buying forced the company also to pay close attention to the crop . Before the de-regulation of the cotton export. the decontrol has been done with the re-introduction of the Minimum Export Price and Compulsory Contract Registration. Algodon International defined its mission as that of export selling for the Corporation since there was no other way of doing business. the country continued to produce more cotton than the local market could absorb. But despite a substantial increase in domestic consumption.accumulated. The nationalization policy was a serious blow to the private sector. Algodon International would buy on behalf of foreign customers the type of cotton they desired. Quite often.1/16" to 1. The minimum export price policy has been reintroduced in order to ensure that no one can export Latina cotton below the prevalent world level. The total exportable surplus during the year 1987/88 was 4 million bales. The bulk of Latina cotton is still hand-picked but machine-picking is on the increase. which over the years had concentrated on exporting. allowing private enterprises to export raw cotton side by side with the Corporation.e. The task of exporting the surpluses to foreign markets increased therefore each year. the knowledge gained in residence buying had given the company an added experience of knowing the requirements of cotton end-users. in order to calculate the base price. The company would take a standard commission. Most of the cotton in Latina is fully irrigated. However. Algodon International The company was founded in 1959 and has been primarily involved with the trading of cotton. (Case prepared by ITC/UNCTAD/GATT Training Manual on Cotton Trading Operation Geneva 1989) Latina benefits from extended planting and harvesting periods. i. The nationalization of the cotton sector had affected the private sector seriously as its activity was drastically scaled down.

The risk of a merchant is one of being the owner of the cotton with all the responsibilities of storing. the firm would act more as a consultant than as a buying agent. including the interpretation of New York cotton figures. The bank can keep the . Market penetration and Algodon International's competitive positioning will be severely handicapped due to the lack of knowledge people. as long as the price is above government set minimum price. for instance Algodon International would recommend to buy a lot of Indian cotton. the development process of professional staff has been sharply reduced. The end result has been that the banks have also neglected to train professional staff who understand the international cotton business. the firm buys for its own account and can price its cotton at what the market will bear. Sometimes Algodon International is able to provide collateral through equitable security or by pledging cotton stock. through the presence of the private sector. as if it were a Latina transaction. Besides providing its foreign clientele with information about the Latina cotton situation. financing and most of all. but some are likely to remain for some time. a growing demand has occurred in recent years to inform them on the world market developments. Since no training institute in international trade exists in Latina. a large degree of risk which has to be assessed before it can extend credit. By acting as a merchant. Some of them are temporary which could be phased out in due course. The difficulty of obtaining credit for the cotton traders. collateral security or financial structure of the organization. the banks require collateral security or pledges the stock. It is a problem which can cause considerable losses for cotton exporters. documentation and transportation. understanding the international cotton trade. Large amounts of credit are required for cotton operations. it would equally charge a commission. negotiations of prices. Foreign customers wanted to stay informed about the availability of the Latina quantity and quality of cotton in order to be able to buy correctly. If. All credit requirements were met without any consideration of probability. If commissions were charged on foreign cotton. Algodon International has again redefined its business mission and is now acting as an export merchant. the commercial banks were financing the Corporation against government guarantees without hesitancy. are not adequately available. especially for the small and medium size firms. Problem areas for Algodon International in its trading operations Algodon International as a private trader is facing a number of problems. Experienced personnel in the cotton business such as professionals who understand the trading in futures and options as well as marketing. transporting. Algodon International has to consider hedging operations combined with option trading. has not been an exception for Algodon International. Since 1 July 1988. future trend prices. The cotton business climate since 1 July 1988. Never knowing what price movements are going to be. appropriate buying price levels. and on shipment periods.developments in Latina. no immediate remedy to this problem can be envisaged. unscrupulous foreign buyers have not respected agreed upon contracts by failing to perform when lower spot prices offered them large savings. c) Problems of non-performance of cotton importers Increasingly. b) Bank credit Before de-regulation of the cotton export sector. The international merchandising of cotton provides much more opportunity to increase profits than the previous commission based roles of export or buying agents. The major problems can be summarised as follows a) Lack of experienced personnel Since the export trade of raw cotton has been centralized in one organisation for more than 15 years. Instead. has introduced. The firm would provide customers with opinion on cotton quality and quantity availability. Non-performers of contracts have to be explained to the State Bank of Latina where the contract was filed.

a competitive strategy would be to apply penetration pricing by cutting one's profit margin and set a price below the competitor's price level. Customer profiles had been developed and computerized. were served by the international merchants located in places such as New York. price competition rather than nonprice competition would be the firm's pricing policy. One disadvantage of buying for the spinners was the shrinkage of the market size of the number of spinners. a network of spinners had been developed and his firm had become informed about the specific criteria each customer looked for. changing demand and weather. Although the minimum price is established on the basis of world parity. Japan and the USA. pricing and promotion strategies.000 bales of 480 lbs each. London or Geneva. Stock position A quantitative sales forecast should be the basis of judging his inventory requirements for the next shipping season. The international merchant buys primarily on price and very little loyalty can be gained. it will be difficult to penetrate new market segments. Being a newcomer in the trade he decided that as an objective he must sell at least last years' export volume of 130. Most of the clients Algodon International served as a resident buyer were in fact the smaller spinners who are most in need of commercial intelligence. His most logical target would be the spinner. He could match his own resources with another 25 per cent with credit. as he merely executed orders. he would be fully exposed to all forces in the market place. When his firm operated as a resident buying agent. Only through merchandising large volumes could his firm maintain its profit objectives. Political changes were very likely through new allocation criteria brought about through the Multi-Fibre Agreement. depending on the credit availability. As potentially new customers tend to be slow to change supply sources. He figured that he could finance 25 per cent of his sales objective on his own. Its profits objectives would have to be more modest as its mark-up would have to be halved. d) The minimum export price policy The introduction by the State Bank of Latina of the minimum export policy seriously limits price competition against foreign traders. stock position. The following elements had to be considered: market target. As a merchant. As a newcomer in the . As the price trend has been downwards since mid-1988. Formulating a marketing strategy Mr. the textile industry was going through a concentration and the number of spinners was declining every month. when his firm operated as a resident buyer. His greatest concern was his financial position. How much credit would his bank provide him? His bales position would have to be either "long" or "short". however. The daily price announced by the central bank is based on the previous day's averages. Various factors played a role in deciding on his purchasing needs. Funtanet realized that the formulation of a marketing strategy for his firm was one of his utmost priorities. If Algodon International would target international merchants as its future clientele. Already some growing areas had started to ship and as a merchant he had to take a stock position or sell short. Market target and channel mix Mr Funtanet realized that he could buy cotton for different customers who may have different objectives for using the cotton. The bigger spinners. channel mix.exporter responsible for non-performance if the problem reoccurs. As a resident buyer. The most indicative index would be his past sales performance as a cotton merchant. including competition. With the State Bank imposed pricing policy it would be difficult for Algodon International to build new clientele through the applying of a penetration pricing policy. The exporter can resort to the Liverpool Cotton Exchange for technical arbitration but in some countries the implementation of the arbitration settlement has been disappointing. his risk was very limited. "yesterday's" average tends to lag with "today's" downward price trends. The spinner made the decisions. the objective of new merchant-entrants in the cotton trade is build up "market share" during the first years of operation. In Europe. where the future is concentrated. Further.

due to its recent reevaluation. This would give him time to train his sales people and switch to a push-pull strategy after the first trading cycle. He realized a lot depended on the future cotton market conditions and the competitiveness of the services his firm could deliver. The remaining questions pertained to his customer's delivery requirements. Polyester prices had all increased over last year's with China (Taiwan Province) quoting. In order to guarantee availability of cotton to his foreign customers Mr. $0. Using his own salesmen would require extensive training as very few knowledgeable commercial cotton people were left in Latina. competitive. and that for 1987/88 crop remnants at $0.4525. The "missionary" type of selling activities would result in promoting his firm as a reliable future supplier. demographic and ecological changes are taking place in the international cotton market. How much should he buy on the spot and how much for future delivery? Further.4825 and $0. Promotion Mr.20 below last year's (see Annex 5). economic. With the provision of credit to his clientele his working capital turnover would most likely be on the low side and not exceed four.4750 per lb FOB. Cultivating new customers required a lot of time without sales guarantee. Sales agents might be more appropriate as "order takers". Mr.46. Funtanet noticed that CIF prices in Europe had increased over last week and over last month but were still almost $0. he also wondered if he could substitute a "sales pull" strategy of trade advertising during the take-off period of his firm.525 a year ago (see Annex 6). should he hedge and what advantages would there be in combining hedging with options trading? He started reading the November 3 cotton supply outlook (see Annex 4) to increase his understanding of future market conditions. Funtanet realized that he had to "cover" his requirement.trade he felt that ample credit availability to his customers would be a competitive requirement. If he utilized agents in the early stages. New York future prices in November showed a slight decrease compared with the quotations listed in the month of October. The respective values a week ago were $0. after initial confidence had been established. social. He wondered if using sales agents would be appropriate for the initial sales push. Tasks a) In what business is Algodon International? b) What are Algodon International's operational objectives for implementing the mission during the next fiscal year? c) What political. he had to expand his customer mix and try to gain acceptance from some large spinning mills. Pricing The minimum export price for 1988/89 crop lint was set by the State Bank on 4 November 1988 at $0. his eye caught an opinion about the state of the textile market abroad (see annex 7) and the futures and options closing for the day (see annexes 8 and 9).73 a pound compared to $0. technological. Instead of using the "sales push". which would affect the mission and objectives of Algodon International? d) What are the strengths and weaknesses of Algodon International to implement its mission and objectives under changing market conditions? e) What is the conflict between Algodon International's combined mission and objectives and the conclusions reached in the environmental analysis and the company's audit? f) What strategic solutions are most appropriate for Algodon International to solve the principle problem? . Funtanet realized that if his firm continued to serve the spinners. When reflecting on the above statistics and calculating a pricing strategy. he wondered how difficult it would be to terminate an agent agreement after some time. The exporting season ran from August through January and on average he could anticipate to deliver 16 per cent of his sales forecast each month.

1995. Free Online Articles Directory • • • • • Find more articles. W. Terpstra. 15 December.J. "The Guardian". 1987. 6.g) What actions must be considered in order to implement the strategic plan? References 1. (Zimbabwe) January 19. V. "The Economist". 1993 pp 12." Prentice Hall International Edition. 4th December 1993 2. 1990. 4. Keegan. "Business Herald". "International Marketing." University of Hall MBA notes. type yo Search Top of Form • • • • • • Why Submit Articles? Top Authors Top Articles FAQ ABAnswers Publish Article Bottom of Form • . 1989. Smith. 4th ed. 5. The Dryden Press. P. "Global Marketing Management. "International Marketing". pp 25 3.

• • • • • Hello Guest Login Login via Register Home Page > Marketing > FORCES IN THE RETAILERS MACRO ENVIRONMENT FORCES IN THE RETAILERS MACRO ENVIRONMENT Posted: Jul 04.com WLC College Management Courses in Mktg/Fin/HR/ Prjct Fin/Contract Mgmt/Talent Mgmt www. It is now recognized by all that even a well concerned marketing plan may fail if adversely influenced by uncontrollable factors (demographic. Therefore the external macro environment must be continually monitored and its effects incorporated into Retailer's marketing plans. Take Tour & Get Free 30Day Trial! www. and the basis of authority for government to regulate business Syndicate this Article FORCES IN THE RETAILERS MACRO ENVIRONMENT Various elements such as demographic. 2009 | Comments: 0 | Views: 10. legal. social. legal etc. The External Environment of Retail Marketing Demographic Environment Technological Environment Social Environment Political / Legal Environment Economic Environment .wlci. the sources of american law. economic and technological variables affect an organisation and its marketing efforts. Manage Many Projects.).in/MBA Top of Form Ask a question 200 Characters left • Related Questions Bottom of Form Describe the legal environment of business.Wrike.208 | Share Ads by Google Free Trial: Project Mgmt Easy-to-use.

tell lies in their advertising. they are totally unpredictable and secondly. adoption of new technology often is prevented by constraints imposed by internal and external resources. would adulterate their products. ECONOMICENVIRONMENT Retail markets consist of purchasing power as well as people. These changes in economic conditions provide marketers with new challenges and threats. The first is to protect from each others. mass media. In short. savings and credit availability. Retail firms.DEMOGRAPHICENVIRONMENT The first environmental fact of interest to retailers is population because people make up markets. The legislation has a number of purposes. age distribution and social ethnic and religious structure. social workers. it should be remembered that technological progress creates new avenues of opportunity and also poses threat for individual firms. no economy is free from the tendency of variation between boom and depression. There are innumerable pressure groups such as consumer activists. will have a direct impact in the retailer'sbusiness. Retailers are keenly interested in the size of the population. First. How effectively these challenges could be converted into opportunities depend on well-thought-out marketing programmes and strategies. This environment is composed of laws. respond to complaints and make sure that the firm operates properly. because they affect purchasing power. POLITICAL / LEGAL ENVIRONMENT Retail marketing decisions are substantially impacted by developments in the political / legal environment. At the same time. in turn. density. the concept of social responsibility has entered into the marketing literature as an alternative to the marketing concept. Demographic structure is seldom static for long and changes in its composition often test the residency of a marketing firm. Earlier. prices. The society that people grow up in shapes their basic beliefs. The second purpose of Government regulation is to protect consumers from unfair retail practices. government agencies and pressure groups that influence and constrain various organisations and individuals in society. economic swings affect marketing activity. they have used . The ripples of these changes will reach the organisation forcing it to alter or amend the existing marketing practices in vogue. Marketers should be cognizant of major trends in the economic environment. Further. Economic forecasters looking ahead through the next decade are likely to find their predictions clouded by the recurrent themes of shortages. its geographical distribution. So laws are passed to prevent unfair competition. professional groups and others who impose restrictions on marketing process and its impact may be felt by retailers in doing their business. a retailer must communicate with consumers. whether it is a free economy or controlled economy. these changes influence the behaviour of consumers which. Some firms. Legislation affecting retail business has steadily increased over the years. Advances in technology are an important factor which affect detail marketers in two ways. values and norms. In any event. mobility trends. TECHNOLOGICAL ENVIRONMENT The most dramatic force shaping people's lives is technology. if left alone. Technology has helped retailers to measure the products with modern weighing machines. The implication of socially responsible marketing is that retail firms should take the lead in eliminating socially harmful products such as cigarettes and other harmful drugs etc. The changes in economic conditions can have destructive impacts on business plans of a firm. deceive through their packages and bait through their prices SOCIAL/ CULTURAL ENVIRONMENT In recent years.qualitative as well as quantitative that are taking place in the population structure. anticipate problems. To avoid negative consequences brought on by active consumer groups. rising costs and up and down business cycles. will have to continuously measure the changes . Total purchasing power is a function of current income. Further.

products can be measured with the result customer satisfaction can be enhanced. Billing.articlesbase.YUVARANI M.balances which could not measure the merchandise correctly. In the following areas where technology have been extensively used.com/marketing-articles/forces-in-the-retailers-macro-environment1014206.html#ixzz0ymkukPN8 Under Creative Commons License: Attribution Indian Political Landscape and its effect on doing business in India by A RU N P RA BH UD ES AI on MAY 23. In 2004. after a long lay-off.Phil Scholar Department of Commerce Periyar University Salem-11 Read more:http://www. 2007 Note: This is the 3rd post in the 30 part series that I am doing on Key success factors for doing business in India – A 30 part series !. 1. .R. Congress returned to power in India (after coalition with left parties)when they were least expected to ! At that time BJP (Bharatiya Janata Party) was nearly sure of .With the help of weighing machine. Packing of the products 2. that I plan to do over next month. Modern refrigerators where merchandise can be used for a long time and 4. Printing the name of the shop on the product visibly 3.

Politics is governed by rural population and the leaders like Lalu Prasad Yadav And Rabri Devi ! When it comes to effect of Politics on doing business in India – it is not all that rosy either.In India. in a convincing verdict. to get his 100% EOU (100% export oriented software units need to go through some special process) license. the National Democratic Alliance headed by the Bharatiya Janata Party. liberal policies and popularity of Prime Minister Atal Behari Vajpayee. be sure that some part of that bribe goes to the local corporator and even the the ministers. involving government approvals and paperwork. It was an outcome that upset all calculations of pollsters and media pundits and one that went beyond Congress’s own expectations. Here are some facts about corruption in India:    India ranks 70 in the corruption index 2006 In all public services. However. thought that AB Vajpayee was was making “India Shining” a reality.coming back to power on back of rising economy. He being a Project Manager. each of them have to tackle corruption and beurocracy to a large extent. They either survive or succumb. but . they have to face local corporators and government officers.. a partnership or a corporation. like us.The two main factors are the corruption and Red tape/ bureaucracy both of which are attributed to the Political landscape in India. the world’s largest electorate inflicted a massive defeat on the country’s longest-lasting coalition of disparate political parties. planned out this whole thing quit well – on paper. These voters were in rage that BJP was only making urban people more rich. What was the reason for this upset Victory – It were the same reasons why people expected them to win – most of the urban people that is. He and his friend financed this project through their years of savings. police are perceived to be the worst. It may be a proprietary business. Very soon he found a perfect place to set-up his business too. followed by judiciary Bribe Payer Worst performer among 30 countries in Bribe Payer Index I will give you an example. Everytime. He like many others did not want to through the route of bribery. What everyone of us forgot was the opinion of the rural people. my friend in Pune was planning to start a small 100% export oriented software unit. He literally made 100s of rounds to government offices. Long story short. you bribe a low level government officer. Everything looked great until he witnessed the insane amount of time it took for him to get his paperwork done. who accounted for more than 70% of voters. especially when they are starting something afresh. opening of markets. For small businesses. whereas for big corporations or multinationals. whereas the situation of rural villagers was getting progressively poor. it is the leftist political parties and local lobbies.

A bit old but informative .finally he succumbed to the pressures and spent nearly Rs. Walmart had to fight an uphill battle for nearly couple of years before it had a tie-up with Bharti to make an entry. The one that immediately come to mind is the entry of WalMart in India. corruption and negative political effect are the two major hurdles that need to be tackled. however. Vitthal delivered way back in 2002.000/-($550) and 15 days. The left parties are not only opposed multinationals coming to India. when his work should have been done in only Rs. now not only do you have to deal with corruption but also the politics. but also strongly oppose Free Trade and privatization of public sector companies. I have mostly written about how India. If you are a corporation or a multinational the things just get better. Good resources for reading: Another white paper by Joseph Christie that talks about: Indian scenario – perceived as corrupt and factors which lead to this perception.($4.000/. 1. Recently there have been tons of examples of left parties putting hurdles on multinationals entering India. But even after that left parties argued that Walmart had a “back door entry” in India.S.500) and 60 days.A. I am sure most of us have heard this kind of experience from our aquaintances in one form or the other. and relationship between culture and certain questionable business practices A very good paper on “Corruption in India” by Vigilance Commissioner N. Cultural values which affect their ethical attitudes Comparison of cultures of India and the U.75. Ethical attitudes of business executives in India Factors from external and internal environment which influence their ethical attitudes. 25. as an economy is moving forward and the factors leading to it. On this blog.

There must be local marketing to appeal to the local consumers and also to build relationships and trust (Bateman & Scott. Diversity. This will be accomplished by explaining how McDonald’s deals with each of the external and internal factors. employees. This is a good marketing strategy for recruiting employees. integrating people from these communities into the company. religion or ethnicity on earth. and the Circle of Inclusion Award. which means franchise owner/operators. Global marketing decisions are no different than those made domestically but the decisions are unique to each country (Sister & Sister.000 restaurants around the world. The first factor is globalization. if the relationships are negative. www. In the United States alone. the non-vegetarian menu includes chicken and fish items only (Welcome. McDonald’s has a global core curriculum for its restaurant management (McDonald’s. the strategic planning for marketing has to be effective. This paper explains how the McDonald Corporations uses the factors to conduct business around the world.mcdonlads. McDonald’s has won numerous awards and received national recognition for diversity. and customers represent just about every culture. As a leading food service retailer. McDonald’s commitment to diversity is established on the foundational belief that diversity is not just a moral and ethical issue. By the end of the twentieth century.).External and Internal Factors Affecting McDonalds . result in a rewarding venture. McDonald’s has over 30. 2005). mutual understanding and friendship between "world citizens". Knowing and understanding the local customs and traditions of the communities where McDonald’s has established businesses. McDonald’s promotes the use of local suppliers and based on their policies of diversity. but also a business issue (McDonald’s. Diversity is a direct reflection of a company’s interpersonal relationships. Corporate Vision Award. which can be defined as a set of principles of right conduct. “I’ve had incredible experience in different countries and…cultures…as a trainee manager – from Poland to Israel to the Philippines and more. the list of Fortune 500 companies was no longer only United States corporations due to an increase in international companies joining the list (Global Capitalism. n. In today’s society. For example. Conversely. These relationships. the difference among people and cultures. corporations and enterprises are expanding their businesses in the global markets.com. According to McDonald’s website. operating on a global scale allows a company’s employees to experience working in different cultural environments. expects and retains suppliers that have a similar diversity culture. Due to the global expanse of McDonald’s business. PUSH-Excel Corporate Partner Award. McDonald’s joins those corporations with restaurants in 119 countries (McDonald’s. 2004). Important strategic decisions are a key factor to their success with consideration for both internal and external factors. 2004).uk/?f=y). diversity has become an integral part of the internal company culture. 2004). Corporate Achievement and Image Award. a general manager states. with increasing possibilities of personal exchange. The final factor is ethics. Doing the job successfully has given me a real sense of achievement” (http://www.mcdonalds. is the second factor discussed in the paper. McDonald’s realizes that having diversity as an asset greatly enhances the profitability of the company. 2005). however. Furthermore. In addition. 2005).d.co. Globalization is necessary for success and survival in the worldwide market. These awards and recognitions are not the result of a surface attempt to appease the critics. Therefore. companies need to consider there are risks. This business strategy speaks to their commitment to a diverse workforce. and adapting locally to the tastes and cuisines of the community. Paula Doherty. There were three factors that were chosen to outline the success of McDonald’s corporation. in India. 2004). global competition is not easy (Bateman & Scott. Nullities Corporate Award. which is define as closer contact between different parts of the world.Management Theory Paper The purpose of this paper is to discuss external and internal factors affecting McDonald’s management functions. has made McDonald’s the leader in their industry. McDonald’s caters its menu in other countries to the cultures of the regions. awards include. if positive. Beef is not on the menu in India because are considered sacred. the company’s morale declines and if not . They are the result of McDonald’s embracing and integrating diversity into their company ethos as an asset and an ally. When considering the foreign market.

W. harassment and bullying.com/ourfood/nonveg/index. McDonald’s became involved with a lot of charity work.A. talents. and the U. from http://www. NY: McGraw-Hill Company.ColumnPar. Conservation International. and performance. which is free from unlawful discrimination. age or disability. the National Recycling Coalition. 69(3). The Human Resources department monitors the effectiveness of the discrimination policies at regular intervals and takes corrective action as necessary to ensure that they being complied with (www. As an equal opportunity employer McDonald’s ensures that employees and job applicants are selected.com. McDonald's is also an equal opportunity employer. as well as their strategies for globalization and diversity are instrumental to the overall success of the company. 2005 www. Retrieved October 10. Sustar. Science & Society. (2004). This deterioration directly impacts the company’s income and the community’s acceptance of the business. 2005 www. The environmental achievements of this corporation have been recognized by organizations such as the Audubon Society. Ronald McDonald House Charities. Management: The New Competitive Landscape (6th ed).mcdonalds. and promoted without discrimination to race. (2005).html www..0001. There are many different values to the dollar around the world. more than 10 million families around the world benefited from the comfort provided by Ronald McDonald Houses (www.mcdonalds). 2005. Environment. Retrieved October 9. 302. believed in giving something back to the community in order to make the world a better place. Managing marketing standardization in a global context.S. Founder Ray Kroc. McDonald’s proven success with leveraging the advantages of diversity can be attributed to their core value of ethics. New York. McDonalds showed ethics by being an active leader in the communities. The paper illustrates how globalization is necessary for success and survival of McDonalds in the worldwide market. and ethics.mcdonalds). from ProQuest database. & Sustar. Global capitalism: the new transnationalism and the folly of conventional thinking. gender. McDonald’s leadership encourages diversity through their policies and programs.RowPar. Journal of American Academy of Business: Cambridge. T. Retrieved October 10. 2005. from McDonald’s website: http://www.rmhc. 7(1). McDonald’s. This was achieved by explaining what the factors are where and how McDonald’s dealt with each of the external and internal factors. McDonald’s has based its reputation on trust and dependability. Restaurants around the world have innovative programs for recycling. Since the 70s.com/corp/values/diversity/supplierdiversity/commitment. References Bateman. The purpose of this paper was to discuss external and internal factors that have affected McDonald’s.S. from ProQuest database. The factors discussed were globalization. and about 119 countries served by McDonald’s that rely on the functions of management to succeed. However. Throughout the 1970’s..com/usa/good/report. I.com.pdf Robinson.mcdonalds). leads to the deterioration of the company. Welcome to McDonald’s India. Employees are regarded as members of a team where everyone's opinion is valued and respected.0002. (2005). People. from http://www. McDonald’s ethical standards. S. Employees who feel that they have been treated unfairly are encouraged to use the remedies outlined in the Company's handbooks. (2005). R.com.ContentPar.mcdonalds.mcdonalds.File. The paper also shows how diversity integrated people from different communities into the company. In 1974 established a charity called Ronald McDonald House. The company promotes their employees based on their relevant skill.mcdonlads. 2005. trained. and their commitment to the community made them a household name. resource conservation. 2005. From the beginning. & Snell.tmp/USA %20Report%20Layout%20(No%20Back%20Cover)%20(12-1-04). Environmental Protection Agency (www. In support of this McDonald's promotes and sustains a working environment. McDonald's has a long-standing commitment to environmental protection. (2004). sexual orientation. B.rhmc).mcdonaldsindia. Keep America Beautiful. In addition to their community involvement. 2005.html McDonald’s USA corporate responsibility report: 2004.addressed. Retrieved October 9. and adapted tastes and cuisines of the community. The purpose of this program was to provide temporary housing for the families of seriously ill children receiving treatment at nearby hospitals. many issues that have occurred in many of those regions/websites.0002. 2005 Bookmark/Search this post with: . and waste reduction. McDonald’s success is built on the foundation of personal and professional integrity (www. Retrieved October 10. diversity. 316.

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