Chapter 5 The International Political and Legal Environment

Chapter 5 The International, Political, and Legal Environment Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Political and Legal Environment Home country political and legal environment • The Environmental Superfund • Intellectual property rights • Gray markets Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Political and Legal Environment • Embargoes and sanctions – “…government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Export Control • U. S. export control systems – Export Administration Act (Commerce Department) – Munitions Control Act (State Department) – Determinants for export controls • National security, foreign policy, short supply, nuclear nonproliferation. • Dual-Use Items – Goods used for both military and civilian purposes. – Controlled for other purposes. • Export license Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

The U. S. Export Control System Determinants for Export Controls • National Security • Foreign Policy Decision Steps in the Export Licensing Process Should a Given Product Be Exported To a Given Country • Short Supply • Nuclear Nonproliferation To a Given End-user? For a Particular End-user? Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Export Controls New Environment • Foreign availability of high technology products. • Export controls have moved from a “strategic balance” to a ‘tactical balance” approach. • Increase in the speed and dissemination of information and innovation. • Issue of equipment size. • How much of the latest technology is required before a country may engage in dangerous activities. • Loosening of mutual bonds between allied nations. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Import Controls • Tariffs • Voluntary restraint agreements • Quota systems – Administrative problems • Monetary and social costs to consumers while benefiting protected groups. • Downstream change in the composition of imports to circumvent narrowly defined protectionist measures. • The failure of protected firms become more efficient and competitive. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

International Business Behavior and Regulations • • Regulating international business behavior – Home countries may implement special laws and regulations to ensure that the international business behavior of firms headquartered within them is conducted within moral and ethical boundaries considered appropriate. Methods – Boycotts – Antitrust Laws – Bribery and Corruption Laws Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Risk • Political risk – The risk of loss when investing in a given country caused by changes in a country’s political structure or policies. • Types of political risk – Ownership risk (property and life) – Operating risk (ongoing operations interference) – Transfer Risk (in shifting funds between countries) Go Home Foreigners Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Political Risk Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Forms of Host Country Controls • Expropriation – Taking of private property with compensation. • Confiscation – Taking of private property without compensation. • Domestication – To gain control over foreign investment through demanding partial transfer of ownership and imposed regulations. – Raise tax rates. – Price controls. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Legal Differences and Restraints • The two major legal systems – Common law • Based on tradition and less dependent on statutes and codes than on precedent and custom. – Code law • Based on a comprehensive set of written statutes that spell out legal rules explicitly. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.

International Environment • International Politics – Political relations and conflicts between countries can have a profound impact on firms trying to do business internationally. – If relations between countries improve, business can benefit. • International Law – No enforceable body of international law exists. Firms are subject to home and host-country laws. – Areas of cooperation among nations • bilateral treaties guaranteeing fair treatment • patent and trademark protection Developed by Cool Pictures & Multi. Media Presentations Copyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved.