Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. CHAPTER 1 Introduction to International Business

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2 Economic Interdependence In the new global economy, almost no businesses are purely “local.” Factors: technology, communication, natural resources, move towards free markets, growing demand of Latin America and Asia. America in International Markets. Education of American Managers.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 Forms of International Business Trade. –Comparative Advantage. –Recent Trends in U.S. Trade. –Trade in Goods: Impacts U.S. trade deficit. –Trade in Services: accounts for 20% of world trade. Exporting. –Having an export plan. –Direct Exporting: manufacturer assumes responsibilities for all aspects. –Indirect Exporting. –Export Trading and Management Companies.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 Exports v. Imports 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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Government Controls Over Trade Tariffs: import duties or taxes imposed on goods entering the customs territory of a nation. Reasons for Imposing Tariffs: –Revenue collection. –Protection of domestic industry. –Retaliation against another country. –Political control. Most tariffs are determined by treaties.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Government Controls Over Trade Non-tariff Barriers: all barriers to importing or exporting other than tariffs ex. product standards. Quotas: restrictions imposed by law on the numbers or quantities of goods or of a particular type of good. Embargoes: a total or near total ban on trade with a particular country e.g. used against Iraq in Boycotts: refusals to do business with certain firms on political or other grounds.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 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?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 International Licensing Agreements Technology transfer: exchange of technology and know how between firms in different countries through licensing. See the First Flight Associates v. Professional Golf, Inc. (1975) case.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Protecting Intellectual Property is a Key Issue for Your Business Inventory and secure your intellectual property as you would a building. Costs of Counterfeit Products is passed to consumers. Laws are Difficult to Enforce. Why? What is piracy?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 Intellectual Property and U.S.-Chinese Relations Despite treaties and its own IP laws, China has generally failed to enforce protection. During the 1990’s “trade wars” with China were threatened. More recently, China has created specialized courts to handle IPR cases. However, an estimated 80% of counterfeit goods imported into the U.S. comes from China.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 International Franchising Franchising is a business arrangement that utilizes an agreement to license, control, and protect the use of the franchisor’s (example McDonalds or Nike) intellectual property. What are a few of the issues regarding the legal aspects of franchising? See the Raymond Dayan v. McDonald’s Corp. (1984) case.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Multinational / Transnational Corporations Firms with significant foreign investments, assets, or operations; they move technology, factories, and capitals with most favorable economic conditions. UNCTAD’s Report on Transnational Corporations. Transnational Corporations and Development. What about Subsidiaries, Joint Ventures, Mergers, and Acquisitions?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 Conducting Business in Developing and Newly Industrialized Countries Difference between a “developed” and “developing” country? –Banking and finance, law enforcement, energy, health, poverty, political instability, protectionist policies. Controls on Investment in Developing Countries. –Local Participation requirements. –Repatriation and Transfer of Technology. –Nationalization, Expropriation, and Privatization. –See the In re Union Carbide Corporation Gas Plant Disaster at Bhopal (1987) case.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 The Road to Free Markets, Consumer-Based Economics, and Private Ownership Developing countries are passing and enforcing laws to protect intellectual property. Privatization: governmental sells/transfers public sector assets to private business. What about the People’s Republic of China? Transition from Communism to Free Markets and Private Enterprise. –Easter Europe, formerly Soviet Union or countries dominated by SU.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 Managing the Risks of International Business Risk Assessment and the Foreign Market Entry strategy. Transaction Risks in Contracts for the Sale of Goods. –Planning for International Transactions. –Payment or Credit Risk. –Delivery Risk. –Property or Marine Risk. –Pilferage and Containerized Freight.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18 Managing the Risks of International Business Managing Currency and Exchange Rate Risks. –Exchange Rate Risk. –Methods of Managing Exchange Rate Risk. Hedge Funds. –Currency Control Risks. Managing Distance and Communications. –Selling Face-To-Face. –Attendance at International Trade Shows.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 Managing the Risks of International Business Managing Language and Cultural Differences. –See the Gaskin v. Stumm Handel GMBH (1975) case. Managing Political Risk. –Causes of Political Risk. –Risk of Wars and International Hostilities. –How does a Company handle Political Risk? Risks of Exposure to Foreign Laws and Courts. –See the DIP SpA v. Commune di Basano del Grappa (1995) case.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 Receiving Professional Assistance in Going International The International Attorney. Freight Forwarder/Customs Broker. International Banker.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21 Ethical Issues Bribes? Child labor? Different working conditions and wages? Corporate response?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22 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?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23Conclusion Knowledge of global environment: stay current by reading from many sources Trade, licensing and investment How to manage risk? Good research, understand risk, know the law and use a contract to protect you and help you manage risk.