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International business, 5 th edition chapter 3 legal, technological, and political forces.

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Presentation on theme: "International business, 5 th edition chapter 3 legal, technological, and political forces."— Presentation transcript:

1 international business, 5 th edition chapter 3 legal, technological, and political forces

2 3-2 Chapter Objectives 1 Describe the major types of legal systems confronting international businesses Explain how domestic laws affect the ability of firms to conduct international business List the ways firms can resolve international business disputes

3 3-3 Chapter Objectives 2 Describe the impact of the host country’s technological environment on international business Explain how firms can protect themselves from political risk

4 3-4 The Legal Environment While domestic firms must follow laws and customs of home country, international businesses must obey laws of home country and all host countries.

5 3-5 Legal Systems Common LawCivil Law Religious LawBureaucratic Law

6 3-6 Common Law Based on wisdom of judges’ decisions on individual cases through history Cases create legal precedents

7 3-7 Countries Using Common Law United States Canada Australia India New Zealand Barbados Saint Kitts Nevis Malaysia

8 3-8 Civil Law Based on codification of what is and is not permissible Originated in biblical times with the Romans Reinforced by French Napoleonic code Judge determines scope of evidence collected and presented

9 3-9 Hong Kong follows many traditions of the British Common Law legal system.

10 3-10 Religious Law Based on the officially established rules governing faith and practice of a particular religion A country that applies religious law to civil and criminal conduct is called a theocracy

11 3-11 Bureaucratic Law Bureaucratic law is the legal system in communist countries and in dictatorships.

12 3-12 Laws Affecting International Business Transactions Sanction Embargo Extraterritoriality

13 3-13 Laws Directed Against Foreign Firms NationalizationExpropriation ConfiscationPrivatization

14 3-14 Economic and Political Impacts of MNCs on Host Countries Advantages –Greater selection –Higher standards –Job creation –Tax benefits –Technology transfers Disadvantages –Competition –Job loss –Dependency on economic health of MNC –Political power

15 3-15 Cultural Impacts of MNCs on Host Countries Advantages –Improved standard of living –Introduction of new products –Better health care –More sanitary food products Disadvantages –Abuse of less developed policies in the areas of safety and environmental concerns –Negligent product offerings

16 3-16 Dispute Resolution Which country’s law applies? In which country should the issue be resolved? Which technique should be used to resolve the conflict? How will the settlement be enforced?

17 3-17 Principle of Comity A country will honor and enforce within its own territory the judgments of foreign courts Conditions of the principle: –Reciprocity is extended –Defendant is given proper notice –Judgment does not violate domestic statutes or treaty obligations

18 3-18 Arbitration Arbitration is the process by which both parties to a conflict agree to submit their cases to a private individual or body whose decision they will honor.

19 3-19 The Technological Environment Resources Agricultural land Rich natural resources Skilled labor Low-cost labor Infrastructure

20 3-20 Intellectual Property Patents Copyrights Trademarks Brand names Intellectual property often forms the basis of a firm’s competitive advantage!

21 3-21 International Treaties Protecting Intellectual Property Rights International Convention for the Protection of Industrial Property Rights (i.e., the Paris Convention) Berne Convention for the Protection of Literary and Artistic Works Universal Copyright Convention Trade-Related Intellectual Property Rights Agreement

22 3-22 Political Risk Assessment Ownership risk Transfer risk Operating risk

23 3-23 Table 3.2 Examples of Political Risks Expropriation Confiscation Campaigns against foreign goods Mandatory labor benefits legislation Civil wars Inflation Kidnappings, terrorist threats Repatriation Currency devaluations Increased taxation

24 3-24 Levels of Political Risk Macropolitical risk Micropolitical risk

25 3-25 Basic Country Knowledge Is the country a democracy or dictatorship? Does country rely on free market or government controls? Does government view foreign firms as positive influence? Are firm’s customers private or public? Does government act arbitrarily? Is existing government stable?

26 3-26 Map 3.3 Relative Political Riskiness, 2006

27 3-27 Insurance Against Political Risks Overseas Private Investment Corporation (OPIC) Multilateral Investment Guarantee Agency (MIGA)


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