THE LEGAL AND REGULATORY ENVIRONMENT: HOW DOES IT

AFFECT GLOBAL BUSINESS EXPANSION?

Group C:Aimee Churchill

Georgiana MurariuAdrian Ruse

Oksana Zaborska

GLOBALISATION: CONCEPT AND ORIGINS movement of capital, goods and people

development of technology

creation of international companies

departure from the nation state with closed borders, migration is necessary for survival

creation of supranational bodies and supranational regulatory organisations

INTRODUCTION TO THE LEGAL AND REGULATORY SYSTEM

Is closely linked and stems from the political and cultural attitude towards business.

The importance of the legal system is to give order and stability to the means of doing business

Includes two key aspects:

Local Domestic Law- important to understand home laws as well as international as there may be a limit to what can be exported.

International Law- there are a number of international laws that will affect a company’s activity abroad.

A BRIEF OVERVIEW OF SOME LEGAL BODIES

The International Court of Justice, situated in The Hague, Holland has been seen as being the key place for international disputes. Other bodies include:FCN (Friendship, Commerce and Navigation)

Give protection of trading rights and avoides double taxation.

IMF and GATT International trade restrictions and dumping

UNCITRAL (UN) intent to provide a uniform commercial code for the whole world

ISO (International Standards Organisation)

Technical committees working on uniform standards.

A patent cooperation treaty (PCT)

Gives patent protection

IATA (International Air Transport Authority)

The transportation of good through air.

WHAT TYPES OF COMMERCIAL LEGAL SYSTEMS ARE THERE?

Common Law

Civil/code law

Islamic Law

COMMON LAW Also called Anglo-American law, having

originated in England in the Middle Ages.

Used in the UK, the United States, New Zealand, and other countries previously part of the British Commonwealth, as well as some Asian countries (Malaysia, Pakistan). (Encyclopaedia Britannica, 2010)

Disputes are settled based on past judicial decisions/cases. (Keenan & Green, 2010)

CIVIL/CODE LAW Used by some European and Latin American

countries: France, Germany, Italy, Chile, Brazil, as well as some Asian countries – Japan, China, Thailand. (Merryman and Perdomo, 2007)

Older and more widely distributed than common law. (Merryman & Perdomo, 2007)

This system reflects the concepts and principles of the Roman Empire in the 6th century. (Keegan & Green, 2010)

Judge actively participates in examining witnesses and seeking evidence.

ISLAMIC LAW/SHARIA LAW A distinct legal environment, with laws that affect

both business, and other issues such as divorce and inheritance.

- (USA International Business Publications, no year)

Applies both to Muslims and non-Muslims, thus it is imperative for any marketer doing business in countries like Malaysia to have a basic understanding of this set of laws. - (BBC Religions, 2010)

Originates from a combination of sources: The Qur’an (the Muslim holy book), Hadith (sayings of the prophet Muhammad), and fatwas (rulings of Islamic scholars).

MARKETING IMPLICATIONS

A country’s commercial legal system can have an impact on several aspects of marketing.

Business Freedom

Investment Freedom

Property Rights

Trade Freedom

BUSINESS FREEDOM “The overall freedom to start, operate, and

close a business…” – (The Heritage Foundation, 2010)

Average duration of opening a business: 35 days

Variables: Time, cost, minimum capital, number of procedures, obtaining a licence, recovery rate when closing a business.

-(2010 INDEX OF ECONOMIC FREEDOM)

BUSINESS FREEDOM CONTINUED: SINGAPORE VS. BRAZIL

SINGAPORE BRAZIL

Starting a business: 3 days

Starting a business: around

110 daysObtaining a business

licence: less than world average (218 days)

Obtaining a business licence: much more

than the world average

Economic liberalisation (democratic state)

Prudent fiscal and monetary policies (Luiz Inacio Da Silva)

Foreign & domestic businesses treated

equally

Brazilian nationals must constitute at least 2/3

of all employees

- 2010 INDEX OF ECONOMIC FREEDOM

INVESTMENT FREEDOM Questions to be asked:

1. Are foreign investors treated equally?

2. Are investment laws transparent and efficiently implemented?

3. Are foreign purchases of real estate allowed? To what extent?

4. Are foreign exchange controls tightly regulated?

INVESTMENT FREEDOM CONT.

People (human beings) and companies (artificial persons) invest their capital on

a multinational level.

Democratic states are more the attractive option for investment

There is a separation of powers: judiciary (Court), legislative (Parliament) and

executive (Minister) and any investment will be more secure.

INVESTMENT FREEDOM CONTINUED

Japan Russia

Economic freedom score: 72.9, ranked 5th out of 41 countries in the Asia–Pacific region

Economic freedom score: 50.3.Russia is ranked 41st out of 43 countries in Europe

Foreign investment is officially welcomed.

The 1999 Investment Law: national treatment for foreign investors.

Need for government approval in many sectors: agriculture, forestry.

A list of 42 “strategic-sectors” that must be approved by the government.

Few controls on the holding of foreign exchange accounts

Residents and non-residents may hold foreign exchange accounts, subject to restrictions.

INTELLECTUAL PROPERTY RIGHTS

Patents

Trademarks

Copyrights

Counterfeiting

INTELLECTUAL PROPERTY RIGHTS CONTINUED

It is widely accepted that intellectual property rights should be strengthened.

For every $2 worth of software purchased, $1 worth of software is obtained illegally. (Bird & Jain, 2008)

The Paris Convention, The Berne Convention and ‘TRIPS’ were put in place to protect intellectual property rights internationally. (Bird & Jain, 2008)

Examples:

Tom Waits (singer/songwriter)

“Champagne only comes from Champagne, France.”

TRADE FREEDOMTerms of access:

Refers to all of the conditions that affect the importation of goods.

These conditions include the following:

Tariff systems: there are two types of systems. These are:

Single column tariff - the simplest type of tariff, the rate applies to imports from all countries on the same basis.

Two column tariff- duties is supplemented by a second column of "conventional" duties which show reduced rates agreed through tariff negotiations with other countries

TERMS OF ACCESS CONTINUEDA custom duty is a tariff or tax on the importation of

goods

Types of Duty- there are two types:

Ad Valorem Duties - This duty is expressed as a percentage of the value of goods.

Specific Duties - Expressed as a specific amount of currency per unit of weight, volume, length or number of other units of measurements

‘RED TAPE’ Origin : In 17th century legal documents were covered in red cloth

By 19th century red tape was used as a term for any legal complications

The administration of government paperwork and procedures that are time consuming and costly to businesses

Seen as meaningless and unnecessary

Average cost of red tape to business is around £3 billion / year.

Highest contributors of these costs is Data Protection costing £600 Million.

Provides protection against arbitrary, regulates aspects of business activities that citizens do not trust, and ensures fairness and equity in treatment of bureaucratic clients

IMPORT AND EXPORT POLICIES Import Policies include:

Customs Entries Products need to be entered and declared to Customs and Excise as they arrive

Import Declaration Gives information about the products and what is happening to the shipment

Economic Operator Registration Identification

A unique number throughout the European community. A way of communicating to everyone who has the same number

Licences There are many licences that may affect a business or may not

IMPORT AND EXPORT POLICIES Export policies include:

Duties and VAT Different products have different rates so is important a company is paying correct rates.

Export Declaration

Data is put into a computer system, permission must then be granted to progress

Customs Procedure Code

The procedure under which the goods are to be exported needs to be indicated.

Commodity Codes

Need to know the correct code so can fill out customs paperwork accurately

TAXATION AND

PRICING REGULATIO

NS

•Corporate Tax Rates

•Border Taxes

•How tightly are prices regulated?

TAXATION ON FOREIGN INVESTMENTS

• a political risk when used as a means of controlling foreign investments.• In order to control foreign investments governments use: corporate tax, income tax, value-added tax, special consumption tax, acquisition tax, registration tax, property tax and aggregate land tax

BRAZIL AND THAILAND

18th of October this year Brazil's Finance Minister Guido Manteg increased the financial transaction

tax on foreign investments in fixed income to 6%.

From 13th of October Thailand imposed a 15 percent withholding tax on interest and capital gains for foreigners holding Thai bond.

A stronger currency makes the country`s exports more expensive in dollar terms, hurting companies that rely on making sales abroad.

SHARIA LAW (ANALYSIS AND CASE STUDY)

Adherence varies from region to region

Example: Instead of paying interest, banks may share profits with the borrower in an agreed proportion

Young Muslims are a desirable market for mainstream brands as they are loyal and becoming more progressive (Marketing Week, 2010)

A BRIEF CASE STUDY :

HSBC AMANAH

Mohammed Ismaeel, Head

of Global Marketing -

HSBC Amanah

- Marketing Week, 2010

NAFTA North American Free Trade Agreement: free trade

between the USA, Canada and Mexico, signed in 1992. (www.naftaworks.org)

Helped eliminate some non-tariff measures affecting agricultural trade between the US and Mexico.

Ensures that North American producers receive the primary benefits of recently established tariff preferences. (US Department of Agriculture, 2008)

Example: only American/Mexican milk can be used to make dairy products traded under NAFTA preferential rates. (US Department of Agriculture, 2008)

EEA Stands for European Economic Area

Members today: the 27 EU countries + 3 EFTA countries (Iceland, Liechtenstein, Norway) (www.efta.int, 2009)

4 freedoms: I. freedom of movement of goods II. Freedom of movement of capitalIII. Freedom of movement of personsIV. Freedom of movement of services

IN CONCLUSION…

Legal aspects need to be planned when planning the marketing mix (ahead of time) and legal advice needs to be sought well in advance.

Better consumer education is a measure that can benefit businesses, as it teaches consumers why they should not buy fake goods, or download illegally, etc.

4 POSSIBILITIES…Alter: bargain to get the government to alter its policy or actions

Ally: avoid risk of government actions by seeking strategic alliances

Avoid: make strategic moves that bypass the impact of a government’s action

Accede: adjust operations to comply with a government requirement

THE END

Thank you for listening.

We welcome any questions you might have.