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Host Country Political and Legal Environment

The host country's political and legal environment can significantly impact international business operations. Managers must understand the existing political parameters and anticipate changes to work effectively within the system. Political risk includes instability and policy changes that negatively affect business, such as restrictions on capital movement. Countries also differ in their laws and legal traditions, which international marketers must consider. While understanding an entire foreign system can be difficult, managers should be aware of political and legal issues and work with experts who understand how to operate successfully within the system. This may include lobbying efforts to present corporate concerns and influence policymakers.

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128 views1 page

Host Country Political and Legal Environment

The host country's political and legal environment can significantly impact international business operations. Managers must understand the existing political parameters and anticipate changes to work effectively within the system. Political risk includes instability and policy changes that negatively affect business, such as restrictions on capital movement. Countries also differ in their laws and legal traditions, which international marketers must consider. While understanding an entire foreign system can be difficult, managers should be aware of political and legal issues and work with experts who understand how to operate successfully within the system. This may include lobbying efforts to present corporate concerns and influence policymakers.

Uploaded by

ASAD ULLAH
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Host Country Political and Legal Environment

The host country environment, both political and legal, affects the international marketing
operations of firms in a variety of ways. A good manager will understand the country in
which the firm operates so that the manager is able to work within the existing parameters
and can anticipate and plan for changes that may occur.

 Political Action and Risk


Firms usually prefer to conduct business in a country with a stable and friendly government,
but such governments are not always easy to find. Managers must therefore continually
monitor the government, its policies, and its stability to determine the potential for political
change that could adversely affect corporate operations. Political risk is defined as the risk of
loss when investing in a given country caused by changes in a country’s political structure or
policies, such as tax laws, tariffs, expropriation of assets, or restriction in repatriation of
profits. Host governments that face a shortage of foreign currency sometimes will impose
controls on the movement of capital in and out of the country. Such controls may make it
difficult for a firm to remove its profits or investments from the host country. Clearly, the
international marketer must consider the likelihood of negative political factors in making
decisions on conducting business overseas. On the other hand, host country political and legal
systems can have a positive impact on the conduct of international business. Many
governments, for example, encourage foreign investments, especially if they believe that the
investment will produce economic and political benefits domestically.

 Legal Differences and Restraints


Countries differ in their laws as well as in their implementation of these laws. For example,
the United States has developed into an increasingly controversial society, in which
institutions and individuals are quick to take a case to court. As a result, court battles are
often extended and costly, and simply the threat of a court case can reduce marketing
opportunities. In contrast, Japan’s legal tradition tends to minimize the role of the law and of
lawyers. Many countries prohibit specific claims by marketers comparing their product to
that of the competitors implemented by the legal requirements in host country. In many
countries, governments require a firm to join the local chamber of commerce or become a
member of the national trade association. These institutions in turn may have internal
regulations that set standards for the conduct of business and may be seen as quite confining
to the international marketer.

 Influencing Politics and Laws


To succeed in a market, the international marketer needs much more than business knowhow.
The marketer must also deal with the details of national politics and laws. Although a full
understanding of another country’s legal and political system will rarely be possible, the good
manager will be aware of the importance of this system and will work with people who do
understand how to operate within the system. Typical providers of legal assistance are
lobbyists. Usually, these are well connected individuals and firms that can provide access to
policymakers and legislators. Lobbying firms tend to be located in state, national or regional
capitals. Their experience and networks can help in presenting corporate concerns to decision
makers. Lobbying is very valuable to the international marketer, as is evidenced by the large
number of lobbyists and their high compensation. A key factor in successful lobbying is the
involvement of local citizens and companies. To remove area off negative legislation it may
be helpful to point out how many jobs are created by a firm’s foreign investment. Although
representation of the firm’s interests to government decision makers and legislators is entirely
appropriate, the international marketer must also consider any potential side effects.

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