Management of Business risks Paulius Čerka

How do you manage the risks of international business? Consider “ The management of international business is the management of risk.”

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

Ways to go international

Trade Exporting: shipment of goods or the rendering of services to a foreign buyer Importing: process of buying goods from a foreign supplier and entering them into the customs territory of a different country

CONTRACTS OF WHOLESALE PURCHASE-SALE Concept of Contract of Wholesale Purchase-Sale 1. Under the contract of wholesale purchase-sale the seller who is the person engaged in trade, or his agent obligates himself to deliver on the fixed date things manufactured or purchased by him into the ownership (trust) of the buyer for the latter’s business needs or other needs not related to personal, family or household need whereas the buyer obligates himself to pay the price.

DISTRIBUTION Concept of a contract of distribution 1. Under a contract of distribution, one party – distributor – shall take an obligation within a fixed period or with no term being determined, to purchase in his name and at his expense from the other party – producer (supplier) – goods (services) and sell them to the final consumer or to other distributors, as well as to perform other work related with the reselling of goods (services) while the producer (supplier) shall undertake the obligation to sell goods (services) to the distributor, as well as to perform other work related with the distribution of goods (services).

Intellectual Property and Licensing Definitions 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

International Licensing Agreements International licensing agreements: contracts by which the holder of intellectual property will grant certain rights in that property to a foreign firm to use for a period of time under certain conditions in return for a licensing fee How does this work as a business model? Technology transfer: exchange of technology and know how between firms in different countries through licensing

FRANCHISE Concept of a contract of franchise 1. Under a contract of franchise, one party (franchiser) shall take an obligation to grant to the other party (franchisee) for remuneration for a certain period or without specifying the period the right to use in the business activity of the franchisee a complex of exclusive rights which belong to the franchiser (right to the firm name, right to the trade or service mark, right to protected commercial (industrial) information, etc.), while the other party shall be obliged to pay for that the remuneration determined in the contract. 2. A contract of franchise shall provide for the use of a complex of exclusive rights, business reputation and commercial experience of the franchiser to a determined extent (by establishing the minimum and maximum amount of use, or any other form). A contract of franchise may also determine the territory of use applicable to such exclusive rights, business reputation or commercial experience, or the commercial activity within which that will be used (sale of goods, rendering of services, etc.).

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

COMMISSION Concept of a contract of commission 1. Under a contract of commission, one party (commission agent) shall be obliged to conclude upon mandate of another party (committent) for remuneration one or several transactions in his own name but at the expense of the committent. 2. A commission agent shall acquire the rights and duties in respect of the transaction concluded by the commission agent with a third person, even though the committent was also named to the third person or entered into direct relations with the third person in regard to the performance of the transaction. 3. A contract of commission may be concluded for a fixed or indeterminate term. 4. A contract of commission may be concluded with or without specifying the territory of the performance thereof, likewise with or without a duty of the committent not to grant to third persons the right to conclude a contract in his interests and at his expense, the conclusion of which has been entrusted to the commission agent. 5. A contract of commission may or may not specify the things that are the subject matter of the contract.

MANDATE Concept of a contract of mandate 1. Under a contract of mandate, one party (mandatary) shall take an obligation to perform in the name of and at the expense of another party (mandator) determined legal actions in respect of third persons. 2. The powers granted to the mandatary and the written document confirming thereof shall be called a power of attorney.

JOINT ACTIVITIES (PARTNERSHIP) Article Concept of the agreement on joint activities (partnership) 1. By the agreement on joint activities (partnership) two or more persons (partners), co-operating their property, work or knowledge, undertake to act jointly for a certain goal or certain activities which do not contravene the law. 2. The agreement on joint activities can also serve as the basis for establishment of partnerships. 3. The goal of the joint activities is not related to the seeking of profit, the agreement on joint activities is called the association agreement. 4. The agreement on joint activities (partnership) shall be made in writing, and in the cases prescribed by the law - in notary form. If the requirements set for the form of the agreement are not satisfied, the agreement shall become null and void. Article Contributions of the partners 1. A contribution of a partner shall be deemed everything such partner contributes to the joint activities - money, any other assets, professional or any other knowledge, skills, reputation and business relations.

International Economic Integration Business Links:ownership contract Firm A agent B State X State Y branch/office subsidiary A-1 Licensee/ Franchisee B Supplier B

Double taxation problem 1. Conflict- two residences Persons/companies who are residents of both of the Countries. 2. Conflict- residence v. source Taxation on the basis of source and residence.

PERMANENT ESTABLISHMENT The term "permanent establishment" means 1. A fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. Dependant agent through which the business of an enterprise is wholly or partly carried on.

The term "permanent establishment" includes especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop, and f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months (different terms in different agreements).

CMR v. CISG Seller Carrier Buyer CISG CMR