Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127

Consumer Psychologist Facebook Forum

Political and Legal Influences

The political situation.  The political relations between a firm’s country of headquarters (or other significant operations) and another one may, through no fault of the firm’s, become a major issue.  For example, oil companies which invested in Iraq or Libya became victims of these countries’ misconduct that led to bans on trade.  Similarly, American firms may be disliked in parts of Latin America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former shah.

Certain issues in the political environment are particularly significant.  Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means.  Some countries have little tradition of democracy, and thus it may be difficult to implement.  For example, even though Russia is supposed to become a democratic country, the history of dictatorships by the communists and the czars has left country of corruption and strong influence of criminal elements.

Laws across borders.  When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable.  Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application).  By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able to claim as a defense that it was forced to do so by the local government; such violations must, however, be compelled—that they are merely legal or accepted in the host country is not sufficient.

The reality of legal systems.  Some legal systems, such as that of the U.S., are relatively “transparent”—that is, the law tends to be what its plain meaning would suggest.  In some countries, however, there are laws on the books which are not enforced (e.g., although Japan has antitrust laws similar to those of the U.S., collusion is openly tolerated).  Further, the amount of discretion left to government officials tends to vary.  In Japan, through the doctrine of administrative guidance, great latitude is left to government officials, who effectively make up the laws.

One serious problem in some countries is a limited access to the legal systems as a means to redress grievances against other parties.  While the U.S. may rely excessively on lawsuits, the inability to effectively hold contractual partners to their agreement tends to inhibit business deals.  In many jurisdictions, pre-trial discovery is limited, making it difficult to make a case against a firm whose internal documents would reveal guilt.  This is one reason why personal relationships in some cultures are considered more significant than in the U.S.—since enforcing contracts may be difficult, you must be sure in advance that you can trust the other party.

Legal systems of the World.  There are four main approaches to law across the World, with some differences within each:

U.S. laws of particular interest to firms doing business abroad.

Anti-trust.  U.S. antitrust laws are generally enforced in U.S. courts even if the alleged transgression occurred outside U.S. jurisdiction.  For example, if two Japanese firms collude to limit the World supply of VCRs, they may be sued by the U.S. government (or injured third parties) in U.S. courts, and may have their U.S. assets seized.