1. Chapter 3 Politics, Law, and Business Ethics

2. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 2 Do You Know? 1. How do politics affect international trade and foreign investment? 2. Can you distinguish between different types of political risk? 3. How can an MNE engage the political organizations that most affect its operation and performance?

3. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 3 Do You Know? 4.What are the challenges of working in countries whose legal systems are different from that of the MNE’s home country? 5. What levels of jurisdiction need an MNE be concerned with? 6. How do laws regarding competition, product liability, and the like affect the MNE’s operations and competitive advantage?

4. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 4 What We Are Striving To Accomplish 1. To understand the importance of the political and legal environments in both domestic and overseas markets. 重要性 2. To learn how governments affect business through legislation and regulations. 法律法规 3. To see how the political actions of countries expose firms to international risks. 4. To examine the differing laws regulating international trade in different countries. 5. To understand how international political relations, agreements, and treaties affect international business. 6. Explain how firms can protect themselves from political risk.

5. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 5 INTRODUCTION This chapter considers the basic differences between political and legal systems around the world. Disputes grounded in political and legal matters affect business activities, but companies can manage the associated risks.

6. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 6 The Political Environment Politics plays an important role in international business An important part of any business decision is assessing the political environment in which the firm operates. Civil wars, assassinations, kidnapping of foreign businesspeople, and expropriation of a firm’s property are dangerous to the viability of a firm’s foreign operations.

7. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 7 POLITICAL RISK Political risk is the likelihood that a government or society will undergo political changes that negatively affect local business activity. It can threaten an exporter’s market, manufacturing facilities, and the ability to repatriate profits. Political risk arises from:

8. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 8 Causes of Political Risk Conflict and violence Policy changes Terrorism and kidnapping Local content requirements Property seizure

9. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 9 Arises from:  People’s resentment toward government  Territorial disputes between nations  Ethnic, racial, or religious disputes Reduces ability to:  Obtain materials and equipment  Manufacture and distribute products  Protect employees’ lives and firm’s assets Conflict and Violence

10. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 10 Fly nonstop when possible and avoid unsecured areas of airports During your stay, vary your routines and means of transportation Keep a low profile and refrain from loud, flashy behavior Give friendly but cautious answers to personal questions Know local emergency procedures before trouble strikes Security checklist for managers on business abroad: Terrorism and Kidnapping

11. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 11 The Type of Political Risks Most political risks can be divided into three categories: - Ownership risk, where the property of the firm is threatened through confiscation or expropriation - Operating risk, in which the ongoing operations of the firm and/or the safety of its employees are threatened - Transfer risk, in which the government interferes with the firm’s ability to shift funds into and out of the country

12. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 12 Political Risk Three Major Types of Risk Ownership Operating Transfer Possible outcomes Violence and Conflict Expropriation Confiscation Domestication Weakening of Intellectual Property Rights

13. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 13 Managing Political Risk Adaptation Incorporate risk into business strategies Adaptation Incorporate risk into business strategies Localization Development assistance Local equity / debt Insurance Partnerships

14. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 14 Managing Political Risk Agencies specializing in political-risk services Current employees with relevant information Information gathering Information gathering Gather data to better predict and manage risk Information gathering Information gathering Gather data to better predict and manage risk

15. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 15 Managing Political Risk Corruption Foreign Corrupt Practices Act Lobbying Influencing local lawmakers Influence local politics Influence local politics Present firm’s views on political matters Influence local politics Influence local politics Present firm’s views on political matters

16. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 16 Strategies for Managing Political Risk  Minimize outright investment.  Sign treaties that encourage and protect mutual investment.  Create settings where investment can be seized when threatened.  Avoid acquisition of national icon stature firms.  Utilize host country financing.  Accelerate profit repatriation.  Create staggered technology transfer policies.  Create local sourcing arrangements.

17. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 17 World’s Legal Systems Common Law Tradition, precedent, and usage Civil Law Codified rules and statutes Theocratic Law Religious teachings form law

18. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 18 Common Law Common law is the foundation of the legal systems in the United Kingdom and its former colonies, including the United States, Canada, Australia, India, New Zealand, Barbados, Saint Kitts and Nevis, and Malaysia. Common law is based on the cumulative wisdom of judges’ decisions on individual cases through history. In addition to evolutionary differences in case law, statutory laws—those enacted by legislative action—also vary among the common law countries.

19. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 19 Civil Law Civil law, the world’s most common form of legal system, is law based on a codification, or detailed listing, of what is and is not permissible. The roles of judges and lawyers demonstrate an important difference between common law and civil law systems. A common law judge serves as a neutral referee ruling on motions by the opposing parties’ lawyers. A civil law judge takes on many of the tasks of the lawyers, determining, for example, the scope of evidence to be collected and presented to the court.

20. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 20 Laws Affecting International Business Transactions Sanction Embargo Extraterritoriality

21. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 21 Laws Directed Against Foreign Firms NationalizationExpropriation ConfiscationPrivatization

22. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 22 Global Legal Issues I Intellectual property - Result of intellectual talent and abilities - Piracy/counterfeits a serious problem  Patent Excludes all but the inventor from making, using, or selling the invention (WTO = 20 years)  Trademark Words or symbols that distinguish a product and its manufacturer ("Coca-Cola")  Copyright Freedom of creator to publish or dispose of original works as they choose ("Happy Birthday to You")

23. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 23 Global Legal Issues II  Standardization - Interpreting and applying laws uniformly  Product safety and liability - Responsibility for damage, injury, or death  Antitrust (antimonopoly) laws - Prevent market sharing, price fixing, and unfair advantage  Taxation - Income, sales, consumption and VAT

24. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 24 Dispute Resolution in International Business Which country’s law applies? In which country should the issue be resolved? What technique should be used to resolve the conflict—litigation, arbitration, mediation, or negotiation? How will the settlement be enforced? Typically, four questions must be answered for an international dispute to be resolved:

25. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 25 Personal behavior in accordance with rules or standards for right conduct or morality Ethical Behavior Ethical relativism When in Rome, do as the Romans Ethical relativism When in Rome, do as the Romans Ethical absolutism Import ethics from home Ethical absolutism Import ethics from home Enron Tyco Worldcom Parmalat (Italy)

26. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 26 Respect consumers’ rights Guard workers’ rights Protect the environment Preserve employment Encourage development Improve health Support education Social Responsibility Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies

27. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 27 International Relations  Stable business environments  Improved business communications  Efficient distribution systems  Prompt and equitable dispute resolution  Expanded opportunities  Diminished risk levels Favorable international political relations foster:

28. 2016-6-6© Prentice Hall, 2008 Prentice Hall 2003International Business 4e Chapter 3 - 28 Describe the three types of political systems Discuss each cause of political risk and how firms can manage them Identify how the three legal systems are unique Identify global legal issues facing companies Discuss the roles of ethical behavior and social responsibility in international business Chapter Review