MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 1

ECONOMICS, POLITICAL, AND LEGAL SYSTEMS

• Secondary international market information /data resources

• Brief review of– International economics– Trade policy

• The political environment

• Legal systems

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 2

Useful Periodicals

• Heavily internationally focused– Economist– Journal of

Commerce– Forbes– Business America

(U.S. Dept. of Commerce)

– World Press Review

• Some international coverage– Wall Street

Journal, New York Times, Washington Post

– Business Week, Fortune

– Time, Newsweek

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 3

Other

• Academic country specialists (e.g., anthropologists, economists)

• Consultants• Expatriates• Own experience

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 4

Data Availability and Reliability

• Availability/ ability to collect data

• Motivations for releasing data– Wishful thinking vs. reality– The Web--accessible to any

fool or group• Comparability of

data/Arbitrary differences in measurements

• Recency--is the data up-to-date?

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 5

Cost of Data

• Much “raw” data is free from– U.S. Gvt.– United Nations– Research

institutions• Commercial

directories• Consulting

services

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 6

Library Databases

• Book– Library catalogs (e.g., SDSU

PAC)– Books in Print– Amazon.com

• Indexing• Collaborative filtering

suggestions• Periodical

– Business & Industry– Lexis-Nexis– ABI/Inform– Factiva (formerly Dow Jones)

• Foreign language– HAPI Online (Hispanic

American Periodicals Index) – Lexis-Nexis

• Government reports– Stat-USA

• Other country info– Countrywatch.com– Specialty

• Latin America Database• HAPI Online (Hispanic

American Periodicals Index)

• Academic research (usually theoretical, hard to read)– Behavioral: PsychInfo– Economics: Econlit

See handouts for details

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 7

University of Texas Library Resource Lists

• International business source list: http://www.lib.utexas.edu/subject/business/internat.html

• Marketing source list: http://www.lib.utexas.edu/subject/business/marketing.html

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 8

VERY BRIEF REVIEW OF ECONOMICS

• Exchange rates– Floating (supply and

demand)– fixed

• Trade balances and their impact on exchange rates

• Measuring country wealth– gross domestic product– “purchase parity” vs.

nominal

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 9

U.S./Euro Exhange RateEuros per Dollar

00.20.40.60.8

11.21.4

1/1/

1999

7/1/

1999

1/1/

2000

7/1/

2000

1/1/

2001

7/1/

2001

1/1/

2002

7/1/

2002

1/1/

2003

7/1/

2003

1/1/

2004

7/1/

2004

1/1/

2005

Rate

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 10

Demand for Currency Depends On

• Trade deficit (demand for foreign currency to fund this) or trade surplus (demand for country’s currency)

• Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U.S. bonds and equities)

• Inflation: Reduces the attractiveness of holding the currency

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 11

Nominal vs. Purchase Parity Adjusted GNPs—Examples (2004)

Country Nominal GNP PPA Luxemburg $56,230 $61,220 Norway 52,030 38,550 United States 41,400 41,400 Japan 37,180 30,040

Argentina 3,720 12,460 Czech Republic 9,150 18,400 Mexico 6,770 9,590 China 1,290 5,530

Source: World Bank http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 12

Nominal vs. Purchasing Power Parity GNPs

05,000

10,00015,000

20,00025,00030,00035,00040,000

0 10,000 20,000 30,000 40,000

PPA

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 13

Nominal GNP vs. Ratio

0.001.002.003.004.005.006.007.008.00

0 10,000 20,000 30,000 40,000

Ratio

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 14

Cautions on Interpreting Per Capita Figures

• Averages are not very meaningful!– Regional variations– Socio-economic differences

• Comparison to U.S. dollar and U.S. costs is arbitrary

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 15

Obstacles to Trade: Protectionism

• Differing interests of consumers and manufacturers

• Benefits of trade tend to be more diffused than benefits to specific groups of protectionism

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 16

Approaches to Protectionism

• Tariffs• Quotas• “Voluntary” export

restrictions• Subsidies to

domestic producers/exporters

• Non-tariff barriers– legal obstacles– differential

treatment

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 17

U.S. Protectionism--justified or not...

• Defense industry• Agricultural products--

e.g., beef, sugar• Textiles• Automobiles

(“voluntary” import restrictions)

• Steel

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 18

Justifications for Protectionism

• Protect infant industry• Resist “unfair” or inappropriate

competition• Protect home market (ensure that product

can be produced domestically)--defense• Intervene into temporary imbalance• Maintain domestic living standards• Preserve jobs• Bargaining power/retaliation (Super-301

provision in U.S.)

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 19

Effects of Protectionism

• Reduced competition ---> inflation• More tariffs • Weaken balance of payments

(have to pay more in own currency)

• Reduce choice to consumers • May induce global trade wars

(vicious cycle)

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 20

THE POLITICAL AND LEGAL ENVIRONMENTS

• Political history and stability

• Political relations between countries --impact on business

• Legal differences between countries

• Extra-territorial application of laws

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 21

The Legal Environment

• Which laws apply when doing business between countries?– contractual

specifications– treaties– extra-territorial

applications of laws

– “compulsion” as a defense

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 22

Some Political Risks

• Confiscation, expropriation, and domestication

• Economic risks– Exchange controls– Local content

requirements– Import restrictions– Tax controls– Price controls– Labor problems

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 23

Development of Legal Systems

• Laws on the books vs. laws enforced (transparency)– Japan: “Administrative guidance”

• The ability to sue--a blessing or a curse?– Means of litigation– Implications for contract initiation

and enforcement• Evolving nature of legal systems

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 24

Approaches to Law

• Common law (U.S., Britain, and many English speaking countries)

• Code law (much of Europe and Louisiana)

• Islamic law• Socialist based law• Asian laws

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 25

Common Law

• Gradually evolved in British courts, settling issues as they arose

• Emphasis on precedent• Recognized by U.S. Constitution• Standards

– criminal: “Innocent until proven guilty”

– civil: “Preponderance of evidence”

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 26

Code (Napoleonic) Law

• Law governed by explicit statutory codes--”match” codes to issues as well as possible

• Somewhat different standards in contracts --what constitutes an “act of God” canceling contractual obligations?

• Criminal law: “Guilty until proven innocent” but difficult to bring to trial

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 27

Islamic Law

• Note that different varieties exist• Traditions of Islamic countries are

not all tied to Islamic religion per se

• Purpose of promoting justice– assets are thought to be held in “trust”– interest is frowned upon

• Much wider scope than Western law: Shar’ia: the way

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 28

Socialist Law

• Basis for law in China, former Soviet Republics, and countries influenced by Communist allies

• Based on the view that the government owns productive resources --->– contract and intellectual property laws

are typically not well developed• Legal scholars from the West are

helping to reform

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 29

Asian Law

• Based on compromise and accommodation

• Less emphasis on abstract principles

• Less emphasis on consistent application across circumstances

• Emphasis on informal resolution

MKTG 376 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 30

U.S. Laws of Interest to firms with U.S. Involvement

• Anti-trust• Foreign Corrupt

Influences• Anti-boycott laws• Trading With the Enemy