Chapter 1 Introduction to International Business

1999 West Educational Publishing2 Managing the Risks of International Business “THE MANAGEMENT OF INTERNATIONAL BUSINESS IS THE MANAGEMENT OF RISK”

1999 West Educational Publishing3 Implications for International Business Political, economic, and legal environments of a country Affect risks -- influence attractiveness raise ethical issues Attractiveness balance long-term risks with short-term benefits of doing business in a foreign country benefits depend on: size, wealth, future economic growth costs are affected by: political payoffs economic sophistication (may be more costly to operate in LDCs, no infrastructure) legal framework impact on costs

1999 West Educational Publishing4 Forms of International Business Trade International licensing of technology and intellectual property (trademarks, patents and copyrights) Foreign direct investment

1999 West Educational Publishing5 Trade Exporting Importing Trade in services - increasing

1999 West Educational Publishing6 Trade Risks Subject to government controls over trade: Tariffs Non tariff barriers Currency/Exchange Rate Risks Transaction Risks *credit / payment / delivery risk *marine (transit) risk *litigation risk

1999 West Educational Publishing7 Intellectual Property and Licensing Intellectual Property Rights: Copyrights: legal rights to an artistic or written work Trademarks: the legal right to use a name or symbol; that identifies a firm or its product Patents: governmental grants to inventors assuring them of the legal right to produce, use and sell their invention for a period of years

1999 West Educational Publishing8 Risks in Intellectual Property Piracy Controlling Actions of Licensee Limiting Access – Protecting Proprietary Information Misuse of Intellectual Property Create Potential Competitors Government Restrictions on Transfer or Requiring Granting Access

1999 West Educational Publishing9 Foreign Direct Investment Ownership and active control of ongoing business concerns including investment in manufacturing, mining, farming and other production facilities Wholly owned foreign subsidiary Joint venture Mergers and acquisitions

1999 West Educational Publishing10 FDI Risks Political risk nationalization / expropriation risk of hostilities Risk of foreign law and courts language and cultural differences Currency and exchange rate risk Fluctuations Transfer restrictions

1999 West Educational Publishing11 Managing Risk Market entry strategy Shifting the risk Using the contract to fix responsibility, allocate risk and price accordingly Payment and credit risk Managing distance and communications

1999 West Educational Publishing12 The Legal Environment in Developing Countries How different? Examples: foreign exchange, controls on trade, licensing and investments Bhopal discussion Reform and privatization Transition to market economies

1999 West Educational Publishing13 Ethical Issues “The law is a floor…but ethical codes and personal values call on us to exceed that which is required by law.” Do you agree? Source of ethics?

1999 West Educational Publishing14 Ethical Issues Bribes? Child labor? Different working conditions and wages? Corporate response?

1999 West Educational Publishing15 Conclusion Global knowledge Trade, licensing and investment How to manage risk? Good research, understand risk, know the law and use contract to protect you and help you manage risk.

1999 West Educational Publishing16 Web Sites

1999 West Educational Publishing17 Cases First Flight v. Pro Golf – p. 14 Raymond Dayan v. McDonald’s – p.16 In re Union Carbide – p. 22 Gaskin v. Stumm Handel – p. 33 DIP Spa. V. Commune di Bassano – p.38

1999 West Educational Publishing18 First Flight v. Pro. Golf Facts: Pro Golf negotiated with Wynn to act as sales representative in Japan. Wynn incorporated FFA in Japan. ProGolf entered into an agreement where FFA could use First Flight trademark. FFA tried to sublicense the trademark. Pro Golf Case

1999 West Educational Publishing19 Pro Golf Case Progolf terminated the agreement. Pro Golf learned that they had not properly registered their trademark in Japan. FFA sued for breach of contract and Pro Golf counterclaimed for royalties. Holding: Pro Golf was permitted to terminate its Japanese sales agency with FFA because it was terminable at will.

1999 West Educational Publishing20 Pro Golf Case (cont.) However Pro Golf was not entitle d to royalties because they had not perfected their rights to the trademark under Japanese law.

1999 West Educational Publishing21 Raymond Dayan v. McDonald’s Facts: Dayan had franchise to operate McDonald’s in Paris. There was a serious problem with QSC (quality, service and cleanliness standards. McDonald’s wanted to terminate the franchise but Dayan objected.

1999 West Educational Publishing22 Dayan v. McDonald’s Corp. Holding: After much legal maneuvering on two continents, McDonald’s was able to terminate the franchise. Dayan was able to continue his restaurants under a different name. What is the impact of this on the franchiser?

1999 West Educational Publishing23 In re Union Carbide Gas Bhopal gas plant disaster Why are victims seeking to sue in US? Why is U.C. seeking to have claims tried in India? Can claims for the victims be brought in US courts? Forum non conveniens Factors considered in choice of forum?

1999 West Educational Publishing24 DIP SpA v. Commune di Bassano “…it is sufficient to observe that rules such as those contained in the Italian Act make no distinction according to the origin of the goods distributed by the businesses concerned, that their purpose is not to regulate trade in goods…

1999 West Educational Publishing25 DIP SpA v. Commune di Bassano And that the restrictive effect which they might have on the free movement of goods are too uncertain and indirect for the obligation which they impose to be regarded as hindering trade between member states.”

1999 West Educational Publishing26 Gaskin v. Stumm Handel Facts: Issue: Is the forum selection clause in the contract which had been written in German designating the courts of Germany enforceable thus precluding the plaintiff from proceeding in a U.S. Court? Yes

1999 West Educational Publishing27 Gaskin v. Stumm Handel Why did the court rule for the defendant? What circumstances might have altered the result? What advice do you have for the plaintiff for the future?