Table of Contents
Introduction
The political and legal environment significantly impacts the global business landscape, encompassing factors in both home and host countries, as well as international contexts. Understanding this multifaceted environment is vital for companies seeking to expand internationally.
In the home country, governments may provide incentives for international expansion, and private organizations can support these efforts. In the host country, businesses face political risks, import restrictions, local content laws, exchange controls, and more. The general international environment, including diplomatic and economic relations, international agreements, and cultural factors, also plays a critical role.
In essence, the political and legal environment, coupled with the strategic application of Influence Marketing, exerts a profound impact on international business strategies and operations. Successful global expansion hinges on a company’s ability to adeptly navigate these intricate complexities, ensuring a strategic approach to overcome challenges and thrive on a global scale.
Political and legal environment for Influence Marketing
The aspects of the political and legal environment based on three dimensions as,
- The home country environment
- The host country environment
- The general international environment
1. Home-country political and legal environment
Political and legal environment in domestic country is affected not only the local business as well as the international business environment. It can be a factor for the limitation of international company enter to the foreign market.
In here the companies those who are targeted to enter the foreign market should analyze the home country legal and political environment how it implies to the organization, and if there any corruption.
In analyzing of the home country political environment following criteria need to be considered.
Promotional activities
Some countries governments are launching some promotional activities to the companies which are targeted to enter the foreign market. Organization needs to find out if there any promotion activities that supports for entry to the foreign market in their home country. Some countries are providing regulatory supporting activities to make the country’s product more competitive in the global market. This will lead to the motivation to entry mode of foreign market.
Financial activities
Some government in particular countries are providing credit policy facility to motivate organizations to enter to the export marketing. in the foreign market if supplier may provide the good terms of payment and finance can be taken good opportunity rather than the competitors. Organization needs to check whether how financial risk distributed among their party and government and if it is fixed to the organization firm then they can apply to the credit facilities and other financial activities which is provided by the government. This is basically done through the credit insurance.
Information services
In here companies need to find out the information services from themselves or else hiring by outside researchers and do the relevant research according to the business and carried out the information that they needed. This information can be vary according to the country and relevant to the business but as a nutshell organization needs to find out the economic, sociology and political culture, relevant opportunities for exporting, government regulations, transactions of global marketing and so on.
Export-facilitating activities
Organization needs to find out how the government stimulate the export facilitating activities what are the facilities that the government offers towards to this. some of the export facilitating activities can be identified as,
trade fairs and exhibitions that sponsors by government, functioning in permanent trade center which objected to the one particular industries, sponsoring the people who are going to spread the products in foreign market. These are providing the low cost of entrance to finding buyers and sellers to the companies.
Promotion by private organizations
In some country’s promotions are holding by the private organization as well. Companies needed to be analyzed if there any non-government organization which is providing such facilities as a support of enter to the foreign market.
Asa example chambers of commerce, trade associations, trade promotion, association of trading houses can be identified.
2. The Host Country Environment
The understanding of host country environment helps them to understand limitations and restrictions they might face due to the legislations such as on what they import, the prices, and the labors.
Political risks
In every country, political risk can be seen but the level of risk is varied from country to country. There are 3 major risks can be identified based on the political environment as,
- Ownership risk – this revealed the property and life
- Operating risk – factors can be interrupted to the ongoing activities in firm
- Transfer risk – this can be occurred when company needs to distribute and transfer the capital among countries
This political risk can be caused due to the government as well as outside controls and some factors are mentioned below.
Import restrictions
Some countries are restricted to import some products, raw materials, machine and equipment from foreign countries on behalf of improve the local businesses. Before taking decision to the international marketing company needs to find out if their any import restriction in targeted foreign country based on the product that they are supposed to promote in that country.
Local content laws
Some countries are governed to add the require percentage of local content on any product sell within the country. That means it needs to contain local made parts. This portion of local content can be vary to country to country and it is based on the product category.
Ex: For foreign-owned assemblers, the European Union (EU) has a 45% local content criterion. For automobile manufacturers in the Far East, these requirements were critical.
Exchange controls
Based on the control on exchange foreign investor can be in risk in transferring investments and profit to the home country currency. A government with a shortage in its foreign currency can choose between controlling all foreign investments or retaining its foreign currency for vital purposes.
Market control
Sometimes government control some countries company based on any reason to compete with the market. Some countries boycott products of certain countries and control their market.
Price controls
Most of the countries are providing price control for essential products such as medicine, foods. Before moving to the country company needs to clarify about the items that control the prices in that targeted country.
Tax controls
Tax is another risk for foreign investments and some countries raise their taxes without any warning. So company need to conduct a research based on the tax control history of that targeted country and have a better understanding before moving to the country otherwise it would be a huge impact to the current business.
Labour restrictions
When considering the labour restrictions, labour union hold a key place of affecting to the political environment. That may lead to the very strict restrictions in high cost labour in to the business.
Change of government party
In some countries when the changes in government party the previous agreement with the old government is not that much considered by this government. This is very common thing in developing countries.
Nationalization (Expropriation).
It entails transfer of property from a private company to a host nation state. Sometimes finance may be generated for the owners through expropriation, and this can be identified as a tool of controlling the foreign marketers.
Domestication
By the use of domestication, it is partially transferring the ownership and motive to give priority to local manufacturing and to maintain a significant percentage of the earnings within the domestic nation. This can be impact to the reduce the control of owners.
Trade barriers from home country to host country
Trade barriers means the laws of trade which is favorable for local firms and against for the foreign marketing firms. there are two types of trade barriers as tariff barriers and non tariff barriers. There are two main reasons why countries impose tariffs.
- For protecting domestic producers and manufacturers
because import tariff causes the effective cost of the products that are imported so then buyers are trying to avoid those due to the price and try to buy products which are domestically made.
- For generating revenue
In less developed countries tariff are the one main source of government revenue.
Tariff barriers
The tariff can be considered as the direct tax or charges that affects to the import products. In underdeveloped countries this is the one main source of collecting revenue and these charges of tariffs are based on relevant to the product, weight, volume or any other specific factor.
Here mentioned the common tariffs as,
- Specific – tariffs are based on relevant to the product, weight, volume and charges are mentioned in local currency.
- Ad valorem – direct percentage of the value of the product (the import price).
- Discriminatory – charged against according to the domestic country’s trade imbalance
Non-tariff barriers
Non-tariff barriers are comparatively more complex and easier to cover. In some respects, though, the effect may be more destructive since it is far less predictable and unknown. These non-tariff barriers can be identified as
- Quotas – restriction amount of an item that may enter or depart a country during a period (measured in units or weight).
- Embargoes – fully banned on import and export in products specific country
- Administrative delays – regulatory restrictions that limit speedy import flow
- Local-content requirements – laws which demand that manufacturers in the home market provide a specific quantity of goods or services
3. General International Environment
Not only the political and legal environment of domestic and host countries, but the company also needs to be concern about the general international environment as well. Relationship between the countries needed to be identified and through that company can take the advantage of identifying the high potential countries to enter to the foreign market and selling the products.
One element of the international relations of a country is its connections with the country of origin. The host country’s ties with other countries are a second key aspect shaping the political climate. When a nation, for example the European Union or ASEAN, is a part of a regional organization, this will impact the country’s rating.
Many additional international conventions enforce their members’ norms. For example, influence the international marketer’s patents, communication and transport and other things of importance. In general, the more international organizations, the more rules a country adopts, the more reliable is its conduct.
Sociological culture
Culture is the collective programming of the mind that differentiate one group from another. in the same country there can be a different culture based on the nations and the religions of that country’s citizens. Not only that according to the region culture can be different than another region. Due to that reason foreign marketer should be identified what are the factors that affected to the culture and what are the preferences of particular culture according to that how to adapt the product and marketing strategies and is it capable of doing that.
Herewith mentioned the commonly agreed characteristics of culture,
- It is learned from generation to generation through the members of the family, friends and society.
- It is interrelated from the parts of the culture and human life.
- It is shared almost among the people and member of those culture through family, friends and society
Culture is like a ice burg some part is visible and if you go down deeply then only the rest of culture values and characteristics can be identified.
As shown in the image the body language of different culture, clothing, habits of consumption of foods and lifestyle is clearly visible in culture. But the values and social morals and basic cultural assumptions is not visible that much to the outsiders, so the foreign marketer need be researcher on the culture of the targeted country and region. Because these hidden factors are affected to the daily behavior of the people in real life.
According to the Hall’s Communication Context culture can be categorized in to two approaches as,
- High context culture
- Low context culture
The examination of cultures through a high context/low context analysis is one way of approaching the investigation of cultural influences. Since languages are an essential element of culture and a vital mode of communication, we shall consider both languages well-spoken silent.
Cultures in the low context depend on the language of meaning being spoken and written. Messaging senders encode messages, in order to have a clear comprehension of the intended meaning, the receivers expected to decode correctly the words used.
In order to improve their message understanding, high-context cultures utilize and further analyze the components around the communication. Social significance and social knowledge add additional information in high-context societies and is interpreted by the receiver of the communication.
As shown in the above image national culture, business culture and organizational culture affected with the core of individual behavior.
Culture affects to the individual behavior in different ways as religion, values and attitudes, education, social organization, technology and materialistic, law and politics, aesthetics and language.
According to the Hofstede’s model of national cultures, culture consist of 5 components as,
- Individualism vs Collectivism – Individualism bough what they want and collectivism think about what other think about
- Masculinity vs Femininity – Masculinity based on money is so important behavior and femininity based on the entertainment in life
- Uncertainty avoidance
- Power distance
- Time perspective
Conclusion
The complex and interconnected political and legal environment, spanning home and host countries and the broader international context, holds paramount importance for companies venturing into the global marketplace. It shapes the strategies and operations of international businesses. Understanding and effectively navigating this multifaceted landscape are imperative for achieving success on a global scale. Companies must adapt to diverse cultural contexts, comply with regulations, and mitigate political risks to thrive in the global business arena.
