The International Legal Environment : Playing by the Rules

The Political Environment :

A CRITICAL CONCERN

Global Perspective

WORLD TRADE GOES BANANAS

Rather than bruising Chiquita Bananas, the wrath of politics instead hammered Prosciutto di Parma ham from Italy, handbags from France, and bath oils and soaps from Germany. These and a host of other imported products from Europe were all slapped with a 100 percent import tariff as retaliation by the U.S. government against EU banana import rules that favored Caribbean bananas over Latin American bananas. Keep in mind that no bananas are exported from the United States, yet the United States has been engaged in a trade war over the past seven years that has cost numerous small businesses on both sides of the Atlantic millions of dollars. But how can this be, you ask? Politics, that’s how!

One small business, Reha Enterprises, for example, sells bath oil, soaps, and other supplies imported from Germany. The tariff on its most popular product, an herbal foam bath, was raised from 5 percent to 100 percent. The customs bill for six months spiraled to $37,783 from just $1,851 a 1,941 percent tax increase. For a small business whose gross sales are less than $1 million annually, it was crippling. When Reha heard of the impending “banana war,”

he called everyone his congress person, his senator, the United States Trade Representative (USTR). When he described his plight to the USTR, an offi cial there expressed amazement. “They were surprised I was still importing,” because they thought the tariff would cut off the industry entirely. That was their intention, which of course would have meant killing Reha Enterprises as well.

In effect, he was told it was his fault that he got caught up in the trade war. He should have attended the hearings in Washington, just like Gillette and Mattel, and maybe his products would have been dropped from the targeted list, just as theirs were. Scores of European products, from clothing to stoves to glass Christmas ornaments, dolls, and ballpoint pens, that were originally targeted for the retaliatory tariffs escaped the tariff. Aggressive lobbying by large corporations, trade groups, and members of Congress got most of the threatened imported products off the list. The USTR had published a list of the targeted imports in the Federal Register, inviting affected companies to testify. Unfortunately, the Federal Registerwas not on Reha’s reading list.

In that case, he was told, he should have hired a lobbyist in Washington to keep him briefed. Good advice but it doesn’t make much sense to a company that grosses less than $1 million a year. Other advice received from an offi cial of the USTR included the off-the-record suggestion that he might want to change the customs number on the invoice so it would appear that he was importing goods not subject to the tariff, a decision that could, if he were caught, result in a hefty fi ne or jail. Smaller businesses in Europe faced similar problems as their export business dried up because of the tariffs.

Culture, Management Style, and Business Systems

Global Perspective

 DO BLONDES HAVE MORE FUN IN JAPAN?

Recounts one American executive, “My first trip to Japan was pretty much a disaster for several reasons. The meetings didn’t run smoothly because every day at least 20, if not more, people came walking in and out of the room just to look at me. It is one thing to see a woman at the negotiation table, but to see a woman who happens to be blonde, young, and very tall by Japanese standards (5'8" with no shoes) leading the discussions was more than most of the Japanese men could handle.”

“Even though I was the lead negotiator for the Ford team, the Japanese would go out of their way to avoid speaking directly to me. At the negotiation table I purposely sat in the center of my team, in the spokesperson’s strategic position. Their key person would not sit across from me, but rather two places down. Also, no one would address questions and or remarks to me to everyone (all male) on our team but none to me. They would never say my name or acknowledge my presece. And most disconcerting of all, they appeared to be laughing at me. We would be talking about a serious topic such as product liability, I would make a point or ask a question, and after a barrage of Japanese they would all start laughing.”

Another example regards toys and consumer behavior. For years, Barbie dolls sold in Japan looked different from their U.S. counterparts. They had Asian facial features, black hair, and Japanese-inspired fashions.

Then about seven years ago, Mattel Inc. conducted consumer research around the world and learned something surprising : The original Barbie, with her yellow hair and blue eyes, played as well in Hong Kong as it did in Hollywood. Girls didn’t care if Barbie didn’t look like them, at least if you believed their marketing research.

It’s all about fantasies and hair,” said Peter Broegger, general manager of Mattel’s Asian operations. “Blonde Barbie sells just as well in Asia as in the United States.”

So Mattel began rethinking one of the basic tenets of its $55 billion global industry that children in different countries want different playthings. The implications were signifi cant for kids, parents, and particularly the company. In the past, giants such as Mattel, Hasbro Inc., and Lego Co. produced toys and gear in a variety of styles. But Mattel went the other direction, designing and marketing one version worldwide. Sales plummeted, forcing a Barbie makeover that most recently includes Hello Kitty clothes and a new video game, iDesign. Now, even at age 50, Barbie is making money again.

Cultural Dynamics in Assessing Global Markets

Global Perspective

EQUITIES AND eBAY CULTURE GETS IN THE WAY

Two trillion dollars! That’s about 200 trillion yen. Either way you count it, it’s a lot of money. American brokerage houses such as Fidelity Investments, Goldman Sachs, and Merrill Lynch rushed new investment products and services to market in Japan to try to capture the huge capital out flow expected from 10 year time deposits, then held in the Japanese postal system. Liberalization of Japan’s capital markets in recent years now gives Japanese consumers more freedom of choice in their investments. Post office time deposits still yield about a 2 percent return in Japan, and bank savings yields have been around 0. ByAmerican e-trading standards, that means an electronic flood of money moving out of the post offices and into the stock markets. Right?

However, Japan is not America. There is no Americanstyle risk taking culture among Japanese investors. The volume of stock trading in Japan is about one-sixth that of the United States. In Japan, only 12 percent of household financial assets are directly invested in stocks and a mere 2 percent in mutual funds. In contrast, about 55 percent of U.S. households own stock. Says one analyst, “Most of the population [in Japan] doesn’t know what a mutual fund is.” So will the flood be just a trickle? And what about online stock trading? Internet use in Japan has burgeoned there are now some 88 million users in Japan. That’s about the same percentage as in the United States. But the expected deluge into equities has been a dribble. Merrill Lynch and others are cutting back staff now as fast as they built it just a couple of years ago.

Making matters worse, for the Japanese, the transition into a more modern and trustworthy securities market has not been a smooth one. In 2005, an astounding transaction took place on the Tokyo Stock Exchange (TSE); instead of placing a small order of 1 share for 610,000 yen of J-Com, a trader with Mizuho Securities Co. mistakenly placed a sell order for 610,000 shares for 1 yen. Mizuho ended up losing 40 billion yen ($344 million) due to a simple computer glitch that ultimately led to the resignation of TSE president Takuo Tsurushima. Ouch!

A French fi rm is trying to break through a similar aversion to both e-trading and equities in France. That is, only about 32 million people use the Internet in France, and one-third of that number own stocks. The French have long shied away from stock market investments, seeing them as schemes to enrich insiders while fl eecing novices. After the Enron (2001) and Lehman Bros. (2008) debacles in the United States, you could almost hear the chortling in the sidewalk cafés there. But even in France, investment preferences are beginning to change, especially since the real estate market has turned. At the same time, the liberalization of Europe’s fi nancial services sector is bringing down transaction costs for institutional and retail investors alike.

eBay, the personal online auction site so successful in the United States, is running into comparable diffi culties in both Japan and France. The lower rate of Internet use in France is just part of the problem. For the Japanese, it is embarrassing to sell castoffs to anyone, much less buy them from strangers. Garage sales are unheard of. In France, eBay founder Pierre Omidyar’s country of birth, the firm runs up against French laws that restrict operations to a few government-certifi ed auctioneers.

History and Geography :

THE FOUNDATIONS OF CULTURE

This story is a good illustration of how history and geography can affect public and political attitudes in the present and far into the future. To the Panamanians and much of Latin America, the Panama Canal is but one example of the many U.S. intrusions during the early 20th century that have tainted U.S.–Latin American relations. For the United States, the geographical importance of the Panama Canal for trade (shipping between the two coasts via the canal is cut by 8,000 miles) makes control of the canal a sensitive issue, especially if that control could be potentially hostile. That a Chinese-owned company has operational control of both the Pacifi c and Atlantic ports and could pose an indirect threat to the Panama Canal Zone concerns the U.S. government. The recent history of U.S. confl ict with China and the history of Western domination of parts of China create in the minds of many an adversarial relationship between the two countries. Furthermore, some wonder if Panama would be reluctant to ask the United States to intervene at some future date, perhaps fearing that the Americans might stay another 98 years. Although the probability of China sabotaging the canal is slim at best, historical baggage makes one wonder what would happen should U.S. relations with China deteriorate to the point that the canal were considered to be in jeopardy.

Here we begin the discussion of the Cultural Environment of Global Markets. Culture can be defi ned as a society’s accepted basis for responding to external and internal events. To understand fully a society’s actions and its points of view, you must have an appreciation for the infl uence of historical events and the geographical uniqueness to which a culture has had to adapt. To interpret behavior and attitudes in a particular culture or country, a marketer must have some idea of a country’s history and geography.

The goal of this chapter is to introduce the reader to the impact of history and geography on the marketing process. The infl uence of history on behavior and attitudes and the influence of geography on markets, trade, and environmental issues are examined in particular.

 

Historical Perspective in Global Business

History helps defi ne a nation’s “mission,” how it perceives its neighbors, how it sees its place in the world, and how it sees itself. Insights into the history of a country are important for understanding attitudes about the role of government and business, the relations between managers and the managed, the sources of management authority, and attitudes toward foreign corporations.

To understand, explain, and appreciate a people’s image of itself and the attitudes and unconscious fears that are refl ected in its view of foreign cultures, it is necessary to study the culture as it is now as well as to understand the culture as it was that is, a country’s history.

Most Americans know the most about European history, even though our major trading partners are now to our west and south. Circa 2008, China became a hot topic in the United States. It was back in 1776 as well. In a sense, American history really begins with China. Recall the Boston Tea Party: Our complaint then was the British tax and, more important, the British prohibition against Yankee traders dealing directly with merchants in Canton. So it is worthwhile to dwell for a few moments on a couple of prominent points in the history of the fast burgeoning market that is modern-day China. James Day Hodgson, former U.S. Labor Secretary and Ambassador to Japan, suggests that anyone doing business in another country should understand at least the encyclopedic version of the people’s past as a matterof politeness, if not persuasion. 1 As important examples we offer a few perhaps surprising glimpses of the past that continues to infl uence U.S.–Asia trade relations even today.