Chapter 5 International Business

 Government and International Business  Government policies and regulations affect all aspects of importing and exporting  Legal systems regulate trade  Companies must be able to work within various political and legal systems to be competitive internationally  You must be aware of the ways governments shape economic policies and practices that affect international commerce

 Types of Governments  Democratic Government where the nations citizens hold political power Rights, freedom, and responsibilities of the individual Use an economic system based on supply and demand, a market economy.  Totalitarianism Government controls all aspects of life Including attitudes, values and beliefs Can be theocratic or secular Theocratic – Religious leaders are the political leaders  Theocracy – government whose leader claims to be inspired by divine guidance ( Iran, Afghanistan) Secular – Comes from the military or moves up through the single political party

 Mixed System A combination of both types Citizens are free to trade and create companies, though the government still directs the economy.  Political Environments  Isolationism A foreign policy that combines an avoidance of political and military alliances. Government protects its economy by closing its borders Discourages immigration and trade

 Conservative Attitudes Favors limits on government activities and promotes private ownership and business domestically and internationally Allows marketplace to operate as freely as possible  Liberal Attitudes Favors more government involvement in business Impose strong quality and safety regulations Important to know its laws and policies regarding liability

 Economic Policies and Practices  International Taxes Income Tax Annual Tax on individual’s or corporation’s net profit Progressive (higher taxes for higher salaries), regressive (higher taxes for lower salaries), flat (everyone pays the same %) Sales Tax Tax on sale of the products Excise Tax Levied on specific goods and services Included in the price of the product Payroll Tax Tax employers are required to withhold from employee’s paycheck Value Added Tax Sales tax paid on the increased value of a good.

 Trade Barriers (Discourage International Trade) Duties Taxes on goods that cross national borders Tariffs Import tax Quotas, embargoes, licensing requirements, exchange rate controls  Free Trade (Increase Trade) Can improve the economic well being of people in the country Trade can bring in goods and services that otherwise would not be available Trade can build political alliances

 Political Risk  Trade Sanctions The use of tariff, boycott, or embargo to make a political statement  Expropriation Act of taking control and ownership of a foreign owned company or operation  Economic Nationalism Practice of discouraging the importing of goods in order to protect a domestic product.  Political Turbulence Disruptions such as protests, strikes, other social disorder  War

 Choose two countries with different forms of government (Not U.S.)  Create a Chart:  Compare and contrast the governments policies as they relate to: importing exporting international trade  Explain which country would be better to do business with.

 Legal Systems and International Business  Laws and Regulations Common Law Set of Laws based on local customs, traditions, and precedent  Legal history, previous cases and national customs serves as guides  Precedent – Something that has come before. Look at previous decisions when making judgments. Civil Law Set of Codes based on broad legal principals Decisions are based on codes written over time Must understand countries codes when doing business in that country Theocratic Law Set of laws based on religious teachings Regulates moral behavior

 Laws and Regulations Product Safety and Consumer Protection Each country has differing laws about product safety, liability and consumer protection. They apply to manufactures and purchasing companies Must consider importance of making safe products. Liability – legal responsibilities for the financial cost of another person’s losses or injuries Labor Laws Vary from country to country, they regulate:  Minimum wage rates  Length of the work week and overtime  Hiring, firing, and layoff policies  The age at which a person can work  The right to form a labor union  The right to strike

 Labor Laws Many countries are at a disadvantage because of strict labor laws, WHY?  Intellectual Property An original work fixed in a tangible medium of expression Copyright – legal protection of a creator’s intellectual property or product Trademark – A device that legally identifies ownership of a registered brand or trade name Patent – Gives an inventor exclusive rights to manufacture, sell, or use an invention

 Licensing Requirements Multinational companies must comply with licensing requirements of other countries and international organizations Issues that businesses must address Knowing the requirements Meeting the requirements in a cost-effective way Successfully completing the paperwork Licensing Requirements can become a trade barrier between two countries

 Resolving Legal Disputes  Litigation Legal process used to resolve a dispute through the court system  Mediation Process of intervention between conflicting parties that promotes resolution of their conflict outside the court system  Arbitration Process to resolve disputes in which each side presents its case to an independent individual. Arbitrator makes decision which is binding