Onkvisit S., Shaw J. International Marketing: Analysis and Strategy
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HNSC is equipped with modern production technology and a modern assembly-line process for producing
genuine and artificial leather gloves, safety gloves, leather bags, leather briefcases, and women’s shoes. All the
sewing machines used in the production of these items are used for products exported to Eastern Europe. Although
the sewing machines are part of the older technology in HNSC, equipping production with modern sewing machines
is not HNSC’s first priority right now.
For production, HNSC’s partnering firms are responsible for supplying materials, distributing and selling
HNSC’s products. The partners will help HNSC with technology and training for the more complex products.
However, partners usually contract with HNSC to produce products that are suitable for its machines, facilities,
and the skill level of HNSC’s production labor.
HNSC is increasing its efforts to enter into cooperative or other join-venture arrangements with multi-sector
companies in both local and foreign countries. Currently, however, HNSC has no marketing department. The role
and importance of marketing is not understood clearly, and HNSC still has no real marketing strategy for the
local consumer market. As a result, it has only just started to attend a few local exhibition or trade shows, but
has not had a visible presence at the important Consumption Goods exhibition. Conversely, other shoe companies
such as Legamex, Thang Long Shoe Company, Thuong Dinh Shoe Company, and Vina Shoe Company participate
in almost all the local exhibitions. As an example of HNSC’s lack of domestic focus, when it was possible to
celebrate HNSC’s thirtieth anniversary, the company did nothing to publicize this event or to promote its name
and products to the domestic market. HNSC said that it did not want to “raise a ballyhoo about the company,”
and that current customers are already clearly aware of Hoa Ni Shoe; therefore promotional activities were neither
necessary nor effective.
The way HNSC acquires its domestic customers is through one of three ways: (1) its relationship with LEFASO
(Leather and Footwear Association), (2) by direct contact with HNSC from customers approaching HNSC, or
(3) contact with other companies through the international trade shows where HNSC exhibits.
LEFASO
LEFASO has three main purposes: it represents the leather and footwear industry within Vietnam, it supports
individual companies in their efforts to become competitive, and it also represents the entire Vietnamese leather
and footwear industry to similar international and national associations in other countries.
The year 1998 was a turning point for HNSC. At that time, it completed its fully subscribed issue, with all of
the stock offering purchased only by employees of HNSC. Although this represented a certain measure of success
for HNSC, it also signaled challenging times for the company. Two major directions became clear. First, because
domestic markets are estimated as high potential markets, HNSC would like to develop the domestic market and
design styles suited to the Vietnamese consumers’ taste. To do that, Hoa Ni Shoe has to overcome many obsta-
cles. Currently, the domestic market is full of inexpensive Chinese leather products affordable by most Vietnamese.
In addition, many kinds of Italian and French shoes are becoming popular in Vietnam. However, despite this market
penetration by foreign companies, HNSC has competitive potential. Vietnamese consumers’ confidence in domes-
tic firms’ ability to produce high-quality shoes and other products has increased in recent years.This is manifested
by the increased sales of such products produced by domestic companies. The second direction HNSC also needs
to take is action to obtain more control over foreign markets in order to decrease dependence and improve ever
smaller profit margins. Doing this would also increase employees’ confidence in HNSC and their trust in man-
agement that HNSC is looking out for their interests.
Besides producing leather shoes, leather briefcases and so forth for the domestic market, HNSC wants to
become a supplier of material and equipment used in the leather and shoe industry. HNSC plans to increases its
overall domestic market share by about 3 to 10 percent for its total product line. Developing the domestic market
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POLITICAL ENVIRONMENT
will improve HNSC’s production effectiveness and efficiency from increased production volume and increased
savings from using scrap materials.
Currently the domestic market is dominated by several large, well-known and experienced firms: Vina Shoes
Company, Legamex, and Hanoi Leather Shoes Company. Unlike HNSC, these competitors produce mainly for
domestic consumption. In addition, their products are generally highly esteemed by consumers. Their distribution
channels are well established and widespread. As a result, their products are represented in most of the large
local markets, such as Hanoi, Ho Chi Minh City, Hue, and so on. These firms are also members of LEFASO.
The Director of HNSC is contemplating how he should go about moving in these two directions, the timing of
each and where to concentrate the most effort. He is also wondering how independently he will be able to act
without the formal approval of LEFASO for major and less than major decisions. As the markets become more
dynamic and more competitive, being able to act quickly and take advantage of opportunities will become a com-
petitive edge.Yet LEFASO, as the major regulator in the Vietnamese leather and footwear products industry, can
have a significant effect on member behavior. What should he do?
Obstacles facing LEFASO and Ha Noi Shoes Co.
Most of the leather product companies in Vietnam that export mainly do so with very small profit margins. HNSC
is no exception. Foreign partners have integrated themselves into the basic functioning of these leather and foot-
ware production firms in Vietnam. They supply materials for the Vietnamese leather and footwear manufacturers
and also purchase their products. In general, the shoe industry in Vietnam has been equipped with modern
technology from Germany, Italy, and Japan as part of the partnering agreement to produce for them.
The leather industry is also equipped with modern facilities and machinery from France and Italy with similar
arrangements. The foreign partners aid in the style and design of the leather goods produced to sell in foreign
markets. They also act as distributors and marketers for the Vietnamese leather and footwear industry. The con-
sequence of this foreign dependence is that it is difficult for Vietnamese companies to negotiate with foreign part-
ners in order to get lower supply prices or to increase the price of the finished product being sold to the foreign
partners.This leads to imposed prices by the distributors and reduces the productivity of most Vietnamese state-
owned firms from 80 percent to 30 percent. The productivity of Hiep Ha Shoe Company (HHSC) – one of the
largest companies – was reduced to 19 percent, or 50 percent in special cases, as foreign firms became more inte-
grated into the supply chain affecting HHSC.The total yield of the shoe industry in Ho Chi Minh City has decreased
by 12 percent. According to Leaprodexim, the former owner of HNSC, in the first nine months of 1998 there was
a decrease of 9.72 percent in the total export of Leaprodexim’s units.
The units in Leaprodexim do not want to continue to do business if they only process products for foreign part-
ners who control much of their operation and profits.They no longer want to be dependent on foreign partners.
Points to consider
1 How should the two directions HNSC has identified as its major needs be approached? Should both be pursued
equally?
2 What will be the main sources of resistance?
3 What is the role of marketing in the pursuit of the two objectives?
4 Overall, what would be your strategic plan to help HNSC accomplish its goals?
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POLITICAL ENVIRONMENT
QUESTIONS
1 Explain the multiplicity of political environments.
2 Distinguish between parliamentary (open) and absolutist (closed) governments.
3 Distinguish among these types of governments: two-party, multi-party, single-party, and dominated one-party.
4 Distinguish among these economic systems: communism, socialism, and capitalism.
5 Is country stability a function of (a) economic development, (b) democracy, (c) capitalism?
6 Explain: confiscation, expropriation, nationalization, and domestication.
7 What is creeping expropriation? What is its economic impact on foreign investors?
8 What are the potential sources and indicators of political instability?
9 How can a company do country-risk analysis for investment purposes?
10 Explain these methods of political-risk management: avoidance, insurance, negotiating the environment, and
structuring investment.
11 What measures can be undertaken to minimize political risk?
12 What is OPIC and how can it assist US investors abroad?
13 What is FCIA and how can it assist US investors abroad?
14 What is MIGA and how can it assist international marketers?
DISCUSSION ASSIGNMENTS AND MINICASES
1 According to Harvey E. Heinbach, a vice-president of Merrill Lynch, “You’re better off making any car in
Japan than in the US. But the political realities don’t allow that.” Discuss this comment from both economic
and political perspectives and as related to the USA and Japan.
2 Why is a host country (including the USA) not always receptive to foreign firms’ investment in local pro-
duction facilities?
3 Once viewing each other with great distrust, the USA and China have dramatically improved their economic
and political ties. What are the reasons for this development?
4 How likely is it for a country to adopt a system of either 100 percent capitalism or 100 percent communism?
5 Is capitalism the best system – economically as well as socially – for all countries?
6 Indonesia is a country of approximately 200 million citizens. This is a land where Islam, Christianity, and
Hinduism coexist. It is a land where there is a huge income gap between the wealthy ethnic Chinese and the
remaining 190 million Indonesians. It is also the land which had been ruled for decades with an iron hand
by President Suharto who was then in his seventies. Suharto, while calling for more political openness, had
ruled like a military strongman. His 1994 crackdown included closures of publications, beatings of demon-
strators, and arrests of labor activists. The country, at the time appeared to be relatively stable.
How should Indonesia’s type of government be classified: two-party, multi-party, single-party, or dominated
one-party? In addition, assess Indonesia in terms of market potential and risks.
NOTES
1 “Panel Supports Tariffs on Steel,”
San José Mercury News
, September 22, 2003.
2 George F. Will, “Steel Industry Extracts Billions from Bush,”
San José Mercury News
, March 8, 2002.
3 “China,”
Business Week
, October 29, 2001, 48–52.
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POLITICAL ENVIRONMENT
4 Richard Tansey and Michael R. Hyman,“Dependency Theory and the Effects of Advertising by Foreign-Based
Multinational Corporations in Latin America,”
Journal of Advertising
23 (March 1994): 27–42.
5 John Kay, “A Poor View of Poverty,”
Financial Times
, July 25, 2001.
6 “Politics and Budgets,”
IMF Survey
, February 17, 2003, 42–3.
7
Freedom in the World 2002: Freedom Gains Despite Global Threats
, Freedom House.
8
Freedom of the Press 2003: A Global Survey of Media Independence
(Freedom House), www.freedom-
house.org/pfs2003/pfs2003.pdf.
9 Fareed Zakaria,
The Future of Freedom: Illiberal Democracy at Home and Abroad
(New York, NY: Norton,
2003).
10 Amy Chua,
World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global
Instability
(New York, NY: Doubleday, 2002).
11 “Fischer Reviews His Eventful Seven-Year Tenure,”
IMF Survey
, September 3, 2001, 278.
12 Gary S. Becker, “As Role Models Go, Sweden Is Suspect,”
Business Week
, July 9, 1990, 14.
13 Alfred D. Chandler, Jr.,
Scale and Scope: The Dynamics of Industrial Capitalism
(Cambridge, MA: Belknap
Press, 1990).
14 “Will China Follow WTO Rules?”
Business Week
, June 5, 2000, 42–3.
15
2003 Index of Economic Freedom
, The Heritage Foundation/
Wall Street Journal
.
16 Pradeep K. Mitra and Marcelo Selowsky, “Lessons from a Decade of Transition in Eastern Europe and the
Former Soviet Union,”
Finance & Development
(June 2002): 48–51.
17 Stanley Fischer and Ratna Sahay, “Taking Stock,”
Finance & Development
(September 2000): 2–6.
18 “Copper Mining in Chile,”
IMF Survey
, June 7, 1999, 191.
19 Franklin R. Root,
Foreign Market Entry Strategies
(New York, NY: AMACOM, 1982), 146.
20 Michael S. Minor, “The Demise of Expropriation as an Instrument of LDC Policy, 1980–1992,”
Journal of
International Business Studies
25 (No. 1, 1994): 177–88.
21
Overseas Private Investment Corporation
(Washington, DC: OPIC), 2.
22 “US Oil Giants Are Slow to Invest in Russia,”
San José Mercury News
, January 13, 2003.
23 “BP to Own Half of New Russian Energy Company,”
San José Mercury News
, August 30, 2003.
24 Ira W. Lieberman, “Privatization: The Theme of the 1990s: An Overview,”
Columbia Journal of World
Business
28 (spring 1993): 8–17.
25 Ravi Ramamurti, “Why Are Developing Countries Privatizing?”
Journal of International Business Studie
s
23 (No. 2, 1992): 225–49.
26 Gary S. Becker, “Rule No. 1 in Switching to Capitalism: Move Fast,”
Business Week
, May 29, 1995, 18.
27 “Reforming Centrally Planned Economies: What Have We Learned?”
IMF Survey
, August 9, 1993, 241,
247–51.
28 Igor Filatotchev
et al
., “Effects of Post-Privatization Governance and Strategies on Export Intensity in the
Former Soviet Union,”
Journal of International Business Studies
32 (fourth quarter, 2001): 853–71.
29 Wroe Alderson,
Dynamic Marketing Behavior
(Homewood, IL: Richard D. Irwin, 1965); Sak Onkvisit and
John J. Shaw, “Myopic Management:The Hollow Strength of American Competitiveness,”
Business Horizons
34 (January to February 1991): 13–19.
30 Janusz Bugajski, “Eastern Europe in the Post-Communist Era,”
Columbia Journal of World Business
26
(spring 1991): 5–9.
31 Yadong Luo, “Toward a Cooperative View of MNC–Host Government Relations: Building Blocks and
Performance Implications,”
Journal of International Business Stu
dies 32 (third quarter, 2001): 401–19.
32 Timothy P. Blumentritt and Douglas Nigh,“The Integration of Subsidiary Political Activities in Multinational
Corporations,”
Journal of International Business Studies
33 (first quarter, 2002): 57–77.
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33 Suk Hun Lee, “Relative Importance of Political Instability and Economic Variables on Perceived Country
Creditworthiness,”
Journal of International Business Studies
24 (No. 4, 1993): 801–12.
34 Jean-Claude Cossett and Jean Roy, “The Determinants of Country Risk Ratings,”
Journal of International
Business Studies
22 (No. 1, 1991): 135–42.
35 Llewellyn D. Howell and Brad Chaddick, “Models of Political Risk for Foreign Investment and Trade: An
Assessment of Three Approaches,”
Columbia Journal of World Business
29 (fall 1994): 70–91.
36 Jennifer M. Oetzel, Richard A. Bettis, and Marc Zenner, “Country Risk Measures: How Risky Are They?”
Journal of World Business
36 (No. 2, 2001): 128–45.
37 Kent D. Miller, “A Framework for Integrated Risk Management in International Business,”
Journal of
International Business Studies
23 (No. 2, 1992): 321.
38 “The Americanization of Toyota,”
Business Week
, April 15, 2002, 52–4.
39 “Report: US Ranks 4th in World for Terror Risk,”
San José Mercury News
, August 17, 2003.
40 Michael G. Harvey, “A Survey of Corporate Programs for Managing Terrorist Threats,”
Journal of
International Business Studies
24 (No. 3, 1993): 465–78.
41 Kit Ladwig, “Political Risk Coverage – Is It Worth It?”
Collections and Credit Risk
, February 2001, 43–5.
42 “Insurance Imitates Art,”
Business Week
, January 22, 2001, 16.
43 Marvin Zonis and Sam Wilkin, “Driving Defensively through a Minefield of Political Risk,”
Mastering Risk,
Financial Times
, May 30, 2000.
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The merchant will manage commerce the better, the more they are left to manage for themselves.
Thomas Jefferson, 1800
CHAPTER OUTLINE
■ Multiplicity of legal environments
■ Legal systems
■ Jurisdiction and extraterritoriality
■ Legal form of organization
■ Branch vs. subsidiary
■ Litigation vs. arbitration
■ Bribery
Legal dimension
Ethical dimension
■ Intellectual property
Categories of intellectual property
Legal rights and requirements
■ Counterfeiting
■ Conclusion
■ Case 5.1 International auto safety and patents
■ Case 5.2 Bribery: a matter of national perspective
Legal environment
Chapter 5
Much like the political environment discussed in
Chapter 4, there are a multiplicity of legal environ-
ments: domestic, foreign, and international.At their
worst, laws can prohibit the marketing of a product
altogether. To most businesspeople, laws act as an
inconvenience. Club Med’s policy of rotating its
international staff every six months, for example, is
hampered by the US immigration law, which makes
the process of rotation both time-consuming and
costly.
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LEGAL ENVIRONMENT
PURPOSE OF CHAPTER
The cases in the marketing illustration below provide examples of the complexity of the legal environment.
As may be expected, regulations can sometimes be ambiguous. Because regulations do not allow marketers
to plead ignorance, they must themselves somehow try to take control of the situation. They must attempt
to conform to the legal requirements for each of the product categories they are selling.
The purpose of this chapter is to discuss the impact of the legal environment on business decisions and
to explain how the legal and political dimensions are interdependent. The chapter examines how countries’
varying laws and interpretations affect imports, exports, and the marketing mix. In addition to a look at
the major legal systems, issues discussed include jurisdiction, extraterritoriality, and bribery. A section is
also devoted to discussion of the various legal forms of business organizations.
The European Court of Justice ruled that eight mem-
ber nations of the European Union (Denmark,Sweden,
Finland, Belgium, Luxembourg, Austria, Britain, and
Germany) acted illegally when they signed bilateral air
deals with the USA that offered advantages to their
national flag carriers.The ruling of the EU high court
thus appeared to allow the European Commission to
replace national governments in negotiating air-traffic
agreements with the other nations.
To some shoppers, it is a badge of honor to be able
to “shop till you drop.” It is not easy to “drop” in
Germany, where the 1956 law is supposed to protect
workers from shopkeepers unduly focusing on money
making. Stores are required to close at 8 p.m. during
the week and at 4 p.m. on Saturdays. Sunday opening
is improbable. The country’s powerful trade unions
strongly oppose longer shopping hours. They argue
that longer hours are unhealthy for retail workers
who will be kept away from their families. Besides,
Germans can shop during normal hours since they
enjoy more time off than citizens of other countries.
In addition, longer hours probably do not add jobs
since shoppers would still be spending the same
amount of money.
Until recently, most retailers’ associations did not
support longer hours due to the extra costs and
greater competition. Now they argue instead that
longer opening hours would create jobs; also harried
customers would be more civil for not having to rush
through crowded aisles before closing time. In 2003,
the parliament passed a law that allows more time for
weekend shopping.
Sources:
“EU Court Declares ‘Open Skies’Illegal,”
San José
Mercury News
, November 6, 2002; “German Officials Push
Looser Store Hours,”
San José Mercury News
, September
15, 2000; “Shop Till You Drop? Not in Berlin,”
San José
Mercury News
, March 6, 1999; “More Time Approved for
Weekend Shopping,”
San José Mercury News
, March 14,
2003.
MARKETING ILLUSTRATION THE LONG ARM OF THE LAW
MULTICIPLICITY OF LEGAL
ENVIRONMENTS
There are many products that cannot be legally
imported into most countries. Examples include
counterfeit money, illicit drugs, pornographic mate-
rials, and espionage equipment. It is usually also
illegal to import live animals and fresh fruit unless
accompanied by the required certificates. Further-
more, many products have to be modified to
conform to local laws before these products are
allowed across the border.The modification may be
quite technical from an engineering standpoint or
only cosmetic, as in the case of certain packaging
changes.
A company’s production strategy can also be
affected by the legal environment.The USA bans the
importation of the so-called Saturday night specials
– cheap, short-barreled pistols – because they are
often used in violent crime. Curiously, the gun
control legislation does not prohibit the sale of such
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LEGAL ENVIRONMENT
About 8 percent of Indians are Hindu, and Hindus
revere cows. Cows are sacred due to economic and
religious reasons. There was a time when an entire
village relied on a single cow’s milk. As a result,
McDonald’s refrains from selling beef in India, and
foreigners have been told not to give leather gifts.
Yet India is also a major producer and consumer of
leather (not just from goat, sheep, and buffalo), and
the country actually slaughters fourteen million cattle
a year – the world’s fifth highest. Due to government
tax breaks, leather is one of India’s biggest exports.
Both business and religious needs can be accom-
modated. Cows are usually sent to West Bengal and
Kerala because cow slaughter is legal in these two
communist-influenced states. Muslims do not mind
working in slaughterhouses and butcher shops – as
long as they do not have to skin an animal that dies
naturally. In that case, low-caste Hindus will do the
job because the Hindu religion allows the hide of a
“fallen” cow to be taken. Higher caste Hindus, on the
other hand, operate leather shoe factories. Distance
and middlemen make it possible for Indian leather
magnates to remove themselves from slaughtered
cows and raw cow skins.
Source:
“How Many Ways Can You Skin a Cow? In Hindu
India, Plenty,”
Asian Wall Street Journal
, July 17, 2001.
CULTURAL DIMENSION 5.1 SKINNING A COW: THE LANGUAGE OF RELIGION
To help the US motorcycle industry, the US govern-
ment has requested Japan to implement several
reforms. In response, Japan instituted motorcycle
operator license reforms that improved training and
removed restrictive testing requirements, leading to a
large increase in the number of qualified riders and a
30 percent increase in sales of US motorcycles. In
2000, Japan agreed to raise the motorcycle highway
speed limit to equal the automobile speed limit, allow-
ing motorcycles to move legally at the same speed as
other traffic and thus enhancing safety.
Japan, however, continues to prohibit motorcycle
tandem riding (carrying a passenger) on expressways.
No other country in the world has this kind of ban.
Safety research data have shown that expressways are
by far the safest roads for motorcycles.
In the case of Taiwan, there is a ban on motor-
cycles over 150cc. While the ban applies to both
domestic and imported products, it has a dispropor-
tionate effect on the US motorcycle industry since all
American motorcycles are larger than the permitted
size. In addition,Taiwan’s environmental laws do not
take account of the unique pollution signature of these
large motorcycles.
Source:
“US Consumer Goods,”
Export America
, August
2001, 18–23.
IT’S THE LAW 5.1 EASY RIDERS
inexpensive weapons; only the import of such
weapons is banned. As a result, Beretta, an Italian
gun maker, is able to overcome the import ban by
setting up a manufacturing operation in the state of
Maryland.
There is no international law per se that pre-
scribes acceptable and legal behavior of international
business enterprises.There are only national laws –
often in conflict with one another, especially when
national politics is involved (see Marketing Ethics
5.1). This complexity creates a special problem
for those companies that do business in various
countries, where different laws may demand contra-
dictory actions. For example,Wal-Mart Canada, to
comply with the demand of the US government,
removed 10,000 pairs of Cuban-made pyjamas.
Canada was not pleased and ordered the Canadian
branch of Wal-Mart to put the pyjamas back on the
shelves.
1
LEGAL SYSTEMS
To understand and appreciate the varying legal
philosophies among countries, it is useful to distin-
guish between the two major legal systems:
common law and statute law.
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LEGAL ENVIRONMENT
In the USA, most cattle ranchers use hormones to
speed up beef production. In fact, 63 percent of all
cattle and 90 percent of cattle fattened on feedlots
are nurtured with hormone to hasten growth. The
hormone implants are placed under the skin behind an
animal’s ear. Unlike American consumers, Europeans
simply do not trust the use of hormones for this
purpose. For years, the EU has banned hormone-
treated beef.The US Trade Representative states that
the EU’s position on biotechnology is “immoral” as it
deprives poor African countries of badly needed food.
To the EU, the US claim is nothing but self-serving.
Under international trade agreement, countries
can impose trade restrictions based on health con-
cerns only if such concerns are supported by scientific
evidence. A panel of the WTO has outlawed the EU’s
ban on hormone-treated beef because the ban has no
scientific evidence that hormones endanger human
health. In spite of the WTO’s ruling, the EU contin-
ues to ban beef produced with growth hormones. A
member of the WTO does not have to abide by the
WTO’s ruling if it either negotiates compensation with
an aggrieved party or otherwise absorbs the WTO’s
trade sanctions. The USA then prepared a list of
European goods worth $900 million that could be
subjected to 100 percent tariffs. The WTO subse-
quently allowed the USA to impose punitive tariffs of
$117 million a year, the amount equal to the loss of
US beef exports.
The USA and the EU have negotiated how to label
the hormone-treated beef so as to inform European
consumers who may be concerned about this kind of
beef. The USA has offered to label its beef exports as
being produced in the USA, but the EU has refused
to go along with this because of its high degree of sen-
sitivity to the issue involving altered or adulterated
foods.
The dispute has also extended to other farm prod-
ucts. The EU has a long-standing ban on genetically
modified food. In the USA, corn and soybeans have
been genetically designed to tolerate Monsanto’s
Roundup herbicide, and they are widely grown. Some
biotech crops are resistant to common field pests and
have improved yields. The United states, contending
that such food is safe, accuses the EU of violating
international trade agreements.
The USA and the EU later toned down their
rhetoric; both realized that their two-way trade worth
$770 billion was at stake.
Sources:
“US and EU Trade Shots in Beef War,”
International Herald Tribune
, June 4, 1999; “Europe Keep
Ban on Beef with Hormones,”
San José Mercury News
, May
25, 2000; “US, EU Tone Down Rhetoric in Trade Fight,”
San
José Mercury News
, March 4, 2003.
MARKETING ETHICS 5.1 IMMORAL TRADE
There are some twenty-five common law or
British law countries. A common law system is a
legal system that relies heavily on precedents and
conventions. Judges’ decisions are guided not so
much by statutes as by previous court decisions and
interpretations of what certain laws are or should
be. As a result, these countries’ laws are tradition
oriented. Countries with such a system include the
USA, Great Britain, Canada, India, and other British
colonies.
Countries employing a statute law system, also
known as code or civil law, include most continen-
tal European countries and Japan. Most countries –
over seventy – are guided by a statute law legal
system. As the name implies, the main rules of
the law are embodied in legislative codes. Every
circumstance is clearly spelled out to indicate what
is legal and what is not. There is also a strict and
literal interpretation of the law under this system.
In practice, the two systems overlap, and the dis-
tinction between them is not clear-cut.Although US
judges rely greatly on other judges’ previous rulings
and interpretations, they still refer to many laws that
are contained in the statutes or codes. For statute
law countries, many laws are developed by courts
and are never reduced to statutes. Therefore, the
only major distinction between the systems is the
freedom of the judge in interpreting laws. In a
common law country, a judge’s ability to interpret
laws in a personal way gives that judge a great deal
of power to apply the law as it fits the situation. In
contrast, a judge in a civil law country has a lesser
role in using personal judgment to create or inter-
pret laws because that judge must strictly follow the
“letter of the law.”
There are four sources of European Community
law: treaties, regulations, directives, and European
Court of Justice case law. Member states are bound
by European law, and their adopted measures must
conform with it. The European Court of Justice
ensures that Community law is observed in the
interpretation and application of treaties. Treaties
are “primary” Community law. Regulations and
directives, as “secondary” Community law, expand
the treaties and make them more specific.Directives
are measures taken by the Community to harmo-
nize the laws of the member states. Directives
are binding. Member states’ national courts and
tribunals must apply Community law alongside
provisions of their own national law.
2
JURISDICTION AND
EXTRATERRITORIALITY
There is no international law per se that deals with
business activities of companies in the international
arena. There are only national laws that vary from
one country to another.The EU area, for example,
has high minimum wages, generous unemployment
benefits, and employment protection measures.
Dismissal restrictions include notice and severance
pay requirements, and they can affect labor pro-
ductivity.Among the advanced economies, Portugal
is most restrictive in employment protection, and it
has particularly stringent dismissal restrictions.
3
In preparing a contract, a seller or buyer should
stipulate a particular legal system that is to take
precedence in resolving any contract dispute. The
court to be used for legal remedy should also be
specified. The company must keep in mind that to
earn a legal victory in its home court is one thing,
but to enforce a judgment against a foreign party is
something else altogether. Enforcement is difficult
unless that foreign party has the desire to continue
to do business in the country where the judgment
is obtained. Given the disparity of national laws, an
international marketer will need to seek assistance
from either a local lawyer or an international law
firm (see Figure 5.1).
It is often necessary to file a lawsuit in the
defendant’s home country. To make certain that
the foreign court will have jurisdiction to hear the
case, the contract should contain a clause that
allows the company to bring a lawsuit in either the
home country or the host country. According
to Article 17 of the Brussels Convention on
Jurisdiction and the Enforcement of Judgments,
the place where the matter in controversy is located
is the exclusive forum for disputes regarding
real property, status of a corporate entity, public
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125
LEGAL ENVIRONMENT