1. Welcome to class of political and legal forces by Dr
Welcome to class of political and legal forces by Dr. Satyendra Singh University of Winnipeg Canada

2. Objectives: Learning Objectives
Ideological forces that affect business
Governments own businesses/privatization
Government stability and policy continuity
Risk assessment by international businesses
International legal forces
Importance of foreign law
Protection of intellectual properties
Accounting law
Antitrust law

3. Ideological Forces… Communism Expropriation and Confiscation
The belief that the government should own all the major factors of production
Production in these countries is at state-owned factories and farms (some exceptions)
Labor unions are government-controlled
Expropriation and Confiscation
Government seizure of property within its borders owned by foreigners, followed by prompt, adequate, and effective compensation to the former owners
Generally expropriated becomes confiscation (no compensation)

4. Ideological Forces… Capitalism
An economic system in which the means of production and distribution are for the most part privately owned and operated for private profit
Government restricted to functions that the private sector cannot perform
National defense
Police, fire, and other public services
Government-to-government international relations

5. Ideological Forces Socialism Socialism in Developing Countries
Government typically owns and controls most of the factors of production
Many European countries have practiced socialism: Great Britain, France, Spain, Greece, Germany
Socialism in Developing Countries
Shortages of capital, technology, and skilled management and labor are characteristic
Many of the educated citizens connected with government

6. Ideological Forces… Conservative Liberal
A person, group, or party that wishes to minimize government activities and maximize private ownership and business
Liberal
A person, group, or party that urges greater government involvement in business and other aspects of human activities

7. Government Ownership of Business
Why firms are nationalized
To extract more money from the firms
To increase the firm’s profitability
For ideological reasons
To preserve jobs
To follow previous government support (control follows money)

8. Unfair Competition?
Private-owned companies complain that government owned companies
Can cut prices unfairly
Get cheaper financing
Get government contracts
Get export assistance
Can hold down wages with government assistance

9. Privatization…
The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases, and the contraction out of activities previously conducted by the state
Airports, garbage, postal services frequent examples
Trend all over the world  India, Brazil, China…

10. Privatization
Not always ownership transfer from government to private entities
Activities previously conducted by the state may be contracted out
Governments may lease state-owned plants to private entities
Governments may combine a joint venture with a management contract with a private group to run a previously government-operated business

11. Government Stability Stable Government Unstable Government
Maintains itself in power and whose fiscal, monetary and political policies are predictable and not subject to sudden, radical changes
Unstable Government
Cannot maintain itself in power or makes sudden, unpredictable, or radical policy changes

12. Country Risk Assessment
An evaluation that assesses the country’s economic situation and policies and its politics to determine how much risk exists of losing an asset or not being paid
Types of Country Risks
Political  Wars, revolutions, coups
Economic  Financial, BOP deficits
Labor  Low productivity, militant unions
Legal  Laws may be changed

13. ICs and Political Forces
International Companies (ICs)
Make decisions about where to invest, where to conduct research and development, and where to manufacture products
The financial size of many ICs provides them with a strong negotiating position

14. Legal Forces

15. International Legal Forces
Rule of law allows foreign businesses to know interests will be protected
The most important source is found in bilateral and multilateral treaties between nations
United Nation’s International Court of Justice creates law when it decides disputes

16. Performance of Contracts…
United Nations Solution
Many countries have ratified the UN Convention on Contracts for International Sales of Goods (CISG)
CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller
CISG is automatically applied to all contracts

17. Enforcement of Foreign Arbitration Awards
The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Most UN member-countries have ratified this convention
Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards

18. Intellectual Property
Patents
European Patent Organization (EPO)
World Intellectual Property Organization (WIPO)
Trademarks
Madrid Agreement of 1891
Trade names
Convention for the Protection of Industrial Property
Copyrights
Berne Convention of 1886 adhered to by 77 countries
Universal Copyright Convention of 1954 adopted by 92 countries

19. Legal System: Europe vs. USA
Legislation is rarely amended and regulations are rarely revised
Courts are not as often asked to give their interpretations
If they are, the decisions are rarely appealed
United States
Laws and regulations are constantly being amended or revised by legislatures and the agencies

20. Legal System: England vs. U.S.
England has a split legal profession with barristers and solicitors
England has no jury for civil court actions
Contingency fees less common in England
Award of costs to the winner in civil litigation standard in England
Pretrial discovery differs

21. Standardizing Laws
Many attempts have been made to standardize laws among various countries
International business flows much better with a uniform set of rules
Attempts include
Tax conventions and treaties
Antitrust cooperation
International Center for Settlement of Investment Disputes
UN Convention on International Sale of Goods
International Organization for Standardization (ISO)
International Electrotechnical Commission (IEC)

22. Taxation Tax Treaties or Conventions
Treaties between countries that bind the governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions
The U.S. has tax treaties with over 50 countries

23. Accounting Law Sarbanes-Oxley Act (SOX)
Brings major changes to the regulation of corporate governance and financial practice
New reporting requirements
Officer and director responsibilities
Auditor independence
Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934

24. Antitrust Laws Antitrust laws Competition policy
Laws to prevent price fixing, market sharing, and business monopolies
Competition policy
The European Union equivalent of antitrust laws
The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially
Japan’s Fair Trade Commission
Japanese companies are incorporating antitrust thinking into strategy

25. Torts Product Liability Strict Liability
Standard that holds a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage
Strict Liability
Standard that holds the designer or manufacturer liable for damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture