about. In order to make a country less vulnerable, politicians often enact restrictions
on the business environment.
In addition, terrorist risk is difficult to assess in an integrated global economy. If
supply chains are complex and multinational, the effects of terrorism can potentially
spread across the globe from an initially local focus.
An important consideration is that individual assessment of vulnerability changes
based on individual information, experience, and perception of an event. Over time,
these impressions shift, resulting in potentially faulty managerial decisions.
On the supply side, marketers deal with communication with customers and suppliers,
devise campaigns to present information, provide direction, and alter any
misperceptions. Marketers are the experts who implement steps to address imbalances
and create new incentives by changing corporate pricing, packaging, or sizing.
Through their actions, marketers can reverse an emerging softness in demand, rally
joint responses, and avoid the occurrence of unintended consequences. With their
understanding of the long-term repercussions of terrorism, marketers can also be
instrumental in formulating alternative corporate strategies.
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D. Ethical Issues
Corporate governance, responsibility, intellectual property rights, and corruption all fall
under the ethical obligations experienced by multinational enterprises today.
1. Corporate Governance and Responsibility
The relationships among stakeholders that determine and control the strategic
direction and performance of an organization are called corporate governance.
A system of corporate governance must be established to ensure that decisions are
made and interests are represented properly for all stakeholders. The structure,
conduct, and methods used in the assessment of company behavior vary dramatically
Others interpret corporate governance as dealing with stakeholders (such as
employees, customers, banks, etc.) who are affected by corporate decisions.
The separation of ownership from management, and the various cultural views on
stakeholders’ identity and significance, all affect corporate governance and lead to
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In this sense, managers can be seen as marketing their corporate virtue, vision, and
potential for economic gain to potential investors. It is therefore of vital interest to
them that bribery, corruption, and obscurity be eliminated, allowing relationships of
trust and commitment to be forged between firms and individual sources of money.
2. Intellectual Property
The term intellectual property (IP) refers to a legal entitlement of exclusive rights to
use an idea, piece of knowledge, or invention. The subject of such legal claims must
be a product of the mind—an intangible but potentially profitable form of property. In
3. Bribery and Corruption
In many countries, payments or favors are a way of life, and a “greasing of the
wheels” is expected in return for government services. In the past, many U.S.
companies doing business internationally routinely paid bribes or did favors for
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The international manager must carefully distinguish between reasonable ways of
doing business internationally—including compliance with foreign expectations—and
outright bribery and corruption. To assist the manager in this task, revisions were
made in the 1988 Trade Act to clarify the applicability of the Foreign Corrupt
One researcher differentiates between functional lubrication and individual greed.
With regard to functional lubrication, he reports the “express fee” charged in many
countries, which has several characteristics: the amount is small, it is standardized,
and it does not stay in the hands of the official who receives it but is passed on to
others involved in the processing of the documents. By contrast, in the process driven
by “individual greed,” the amount depends on the individual official and is for the
official’s own personal use.
The Sarbanes-Oxley Act of 2002 is intended to protect investors by improving the
accuracy and reliability of corporate disclosures. The act covers issues like corporate
responsibility, financial transparency, and accounting oversight.
There are questions regarding the law’s effectiveness and the cost-benefit rationale for
compliance.
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pollution, and moral behavior.
One major development in Europe, particularly in Germany, is an effort to return to
the concept of ehrbarer Kaufmann (honorable merchant). This concept, which
Key Terms
Environmental superfund: A fund that is imposed on U.S. chemical manufacturers based upon
their volume of production regardless of whether the production is sold domestically or exported.
Intellectual property rights:
Gray market: Distribution channels uncontrolled by producers; goods may enter the market
place in ways not desired by their manufacturer.
Trade sanctions: Governmental actions that distort the free flow of trade in goods, services, or
and cut backs aimed at avoiding punitive trade actions from the host country.
Quota systems: Control of imports through quantitative restrictions.
Downstream change: A change in the import composition brought about by import controls.
Boycotts: Refusing to purchase from or trade with a company because of political or ideological
differences.
Political risk: The risk of loss when investing in a given country caused by changes in a
country’s political structure or policies, such as tax laws, tariffs, expropriation of assets, or
Overinvest: Tendency in the initial acquisition process to buy more land, space, and equipment
than is needed immediately to accommodate future growth.
Price controls: Government regulations that set maximum or minimum prices; governmental
imposition of limits on price changes particularly in sectors that are considered to be highly
individuals and firms that provide access to policymakers and legislators.
Stateless corporations:
Chill effect: This phenomenon occurs when buyers become uncertain about the state of their
nation’s economy, and a sharp reduction in demand for both consumer and industrial goods
follows.
Ehrbarer Kaufmann: This is a German concept of an honorable merchant. This concept focuses
on maintaining long-term successful international trade efforts with distant and often unfamiliar
people. Key requirements are a good understanding of other cultures, dedicated research and
planning for opportunities, and scrupulous honesty so that there always would be the ability to
return for more business. There is no room for bribery and corruption with the honorable
merchant.
Questions for Discussion
1. Discuss this statement: “High political risk requires companies to seek a quick payback on
their investments. Striving for such a quick payback, however, exposes firms to charges of
exploitation and results in increased political risk.”
A firm beginning to do business in an unstable and changing political environment may want
to establish itself quickly, generate revenues to offset the costs of organization, and quickly
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2. Can countries effectively control using prices of domestic agricultural production through
export controls?
Export control systems are designed to deny or at least delay the acquisition of strategically
important goods by adversaries. Most of these systems make controls the exception rather
3. How appropriate is it for governments to help drum up business for their companies abroad?
Should commerce be completely separate from politics?
Commerce and politics are inevitably linked by the need for trade agreements. Policymakers
can appropriately promote firms doing business abroad by carefully formulating domestic
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4. Discuss this statement: “The national security that export control laws seek to protect may be
threatened by the resulting lack of international competitiveness of U.S. firms.”
Export controls are designed to control the flow of strategically important goods to certain
countries. With the end of the Cold War, the Export Commodity Control List (products for
which an export license is required) has been significantly reduced. However, concern about
terrorism has heightened the control stance of the United States. Certain measures like
5. After you hand your passport to the immigration officer in country X, he misplaces it. A
small “donation” would certainly help him find it again. Should you give him money? Is this
a business expense to be charged to your company? Should it be tax deductible?
6 Discuss the advantages and disadvantages of common versus code law for the international
marketer.
Common law, which originated in England and later used in the United States, is based more
7. Are global corporations subject to international law?
8. The United States has been described as a litigious society. How does frequent litigation
affect the international marketer, particularly in comparison with the situation in other
countries?
The litigious nature of the U.S. business environment increases costs for international
marketers besides causing extensive delays in marketing opportunities in the United States.
9. What are your views on lobbying efforts by foreign firms?
Answers will vary.
For better or worse, American society is influenced by the lobbying efforts of foreign firms
in the American political system. The number of lobbyists for foreign parties in the U.S. has
10. Discuss how changes in technology have affected the effectiveness of U.S. export control
policy.
The ability of the U.S. to enforce its export control laws and gain the intended results is
increasingly challenged by technological advances. On the other hand, enforcement is more
difficult by the ease with which certain technologies, such as software, can be transferred
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11. What attributes should an “ehrbarer Kaufmann” possess today?
Ehrbarer Kaufmann is the German concept of an honorable merchant. This concept focuses
Internet Exercises
1. Summarize the U.S. export licensing policy towards Cuba. (Go to www.bis.doc.gov).
The Department of Commerce requires a license for the export to Cuba of virtually all
commodities, technology and software, except:
(1) technology generally available to the public and informational materials;
(2) some types of personal baggage, crew baggage, vessels and certain aircraft on
http://www.bis.doc.gov/pdf/fp8embar.pdf
2. What countries are the most restricted destinations for U.S. exports? (Go to
Cuba, Iran, North Korea, Sudan, and Syria
3. What are the key components of the anticorruption agreements passed by the European
The European Commission adopted in May 1997 a Communication to the Council and the
European Parliament on a Union Policy Against Corruption.
The Inter-American Convention Against Corruption, negotiated in 1996 by delegates to a
Specialized Conference of the Organization of American States (OAS) and which entered
4. What are the key provisions of the U.K, Bribery Act of 2010? (Go to
5. What South American countries are currently rated as high-risk countries for payment
transfers and payment default? (Consult Euler Hermes, the leading German credit insurer, at