International Business
Lola2230
Gaspar2eChapter06.pptx© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Chapter 6 The Legal and Political Environment of Global Business
Introduction to Global Business
Provide an overview of the different global political systems and their potential impact on international business.
Explain the differences between communism, capitalism, and socialism and how these different economic ideologies affect the conduct of international business.
Discuss the key political and economic risks and the role of corruption when conducting global business.
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After studying this chapter, you should be able to:
Analyze the different types of legal systems and some key principles involving criminal, contract, tax, product safety, and dispute settlement law.
Discuss the importance of intellectual property protections in today’s global business environment and the major types of intellectual property protections including patents, trademarks, and copyrights.
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After studying this chapter, you should be able to:
Political Systems
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Democracy
Greek for “rule by the people”; form of government in which all citizens have the right to vote
Athenian Democracy
A pure form of democracy, in which all adult citizens vote directly on matters affecting the community
Representative Democracy
Form of government in which citizens vote to elect given individuals to serve as their representatives for a certain period of time
Totalitarian Government
System of government in which individuals govern without the support or consent of the citizenry; for example, a military dictatorship
National Economic Ideologies
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Communism
The government or state owns and controls all major factors of production and is philosophically an economically classless society
Socialism
The government plays a strong role in the economy and may own stakes in certain businesses
Capitalism
Businesses are privately owned, strong individual incentives exist, and the government plays very little role in the economy
Economic Risks
Economic risks are the risks that economic problems or mismanagement in a given country will have a meaningful negative impact on the conduct of business in that country.
Economic risks include:
Restrictions on transfer or exchange of a country’s currency, or devaluation of the currency
Questionable ability to repay loans
Human resource and labor relations problems
Inflation and corruption
Companies can mitigate risks through careful planning.
Economic risks are not independent of political risks.
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Political Risks
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Political Risks
The risks that political forces or problems in a given country will have a meaningful negative impact upon the conduct of business in that country
Micropolitical Risk
A political risk that only affects a certain industry or set of firms in a given country
Macropolitical Risk
A political risk that essentially affects all businesses in a given country
Political Risk and Global Terrorism
Terrorism Risk Insurance Act of 2002
A U.S. law that after a certain deductible provides U.S. businesses government insurance coverage for the risk of terrorism
Overseas Private Investment Corporation (OPIC)
A U.S. government agency that sells political risk insurance to U.S. businesses operating in countries with which the United States has a bilateral investment treaty
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EXHIBIT 6.1 MOST DANGEROUS COUNTRIES IN THE WORLD—2013
| 1. Somalia 2. Afghanistan 3. Iraq 4. Syria 5. Yemen 6. Sudan 7. Haiti 8. Zimbawe 9. Honduras 10. Nigeria |
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Corruption
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Corruption
A situation where businesses are able to illegally alter relevant private and/or public decision making by way of bribes, kickbacks, blackmail, extortion, and related activities
Private Corruption
Business corruption involving other private businesses, individuals, or groups
Public Corruption
The practice of making illegal payments to government officials or engaging in blackmail, extortion, or other related activities to obtain government contracts or governmental approval for business activities
EXHIBIT 6.2 TRANSPARENCY IN INTERNATIONAL BRIBE PAYERS INDEX 2011
| 1 Netherlands 8.8 | 11 France 8.0 | 19 India 7.5 |
| Switzerland 8.8 | 11 Spain 8.0 | 22 Turkey 7.5 |
| 3 Belgium 8.7 | 13 South Korea 7.9 | 22 Saudi Arabia 7.4 |
| 4 Germany 8.6 | 14 Brazil 7.7 | 23 Argentina 7.3 |
| 4 Japan 8.6 | 15 Hong Kong 7.6 | UAE 7.3 |
| 6 Australia 8.5 | 15 Italy 7.6 | 25 Indonesia 7.1 |
| 6 Canada 8.5 | 15 Malaysia 7.6 | 26 Mexico 7.0 |
| 8 Singapore 8.3 | 19 South Africa 7.6 | 27 China 6.5 |
| 8 United Kingdom 8.3 | 19 Taiwan 7.5 | 28 Russia 6.1 |
| 10 United States 8.1 | ||
| (Scores range from 0 to 10. The higher the score for the country, the lower the likelihood of companies from this country to engage in bribery when doing business abroad. Based on Transparency International’s 2011 Bribe Payers Survey of senior business executives from 28 developed and developing countries, selected on the basis of the size of their imports and foreign direct investment inflows.) |
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The Legal Environment: Legal Systems
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Civil Law
Based on a comprehensive listing of legal rules in sets of written codes of law
Common Law
Legislative bodies enact less specific legal rules giving judges/courts considerable authority in interpreting these rules based on precedent and other factors
Theocratic Law
Based on a religious document and religious teachings
Types of Laws
Criminal Law
Contract Law
Tax Law
Antitrust Laws
Product Safety Law
Dispute Settlement Law
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Criminal Law
Criminal law establishes which violations of a nation’s laws are crimes punishable by possible incarceration.
Actions that constitute crimes may differ widely in countries throughout the world, and may also change considerably over time in any specific country.
During Prohibition Era of the 1920s and 1930s, sales of alcohol were unlawful, but no restrictions exist today.
Historically, possession and sale of marijuana were crimes, but today about half of the states in the United States have legalized sale and use of marijuana.
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Contract Law
Contract law is the body of law governing legally enforceable agreements between parties to engage in economic exchange.
Contracts are essentially meaningless unless they can be successfully enforced.
Companies and individuals engaging in global business need to become familiar with the contract law in the countries where they may operate.
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Tax Law
Tax law is the body of law dealing with governmental levying of taxes on individuals and corporations.
Tax rates and regulations vary widely throughout the world and play a considerable role in location decisions by global businesses.
Some companies establish operations in tax haven countries that have little or no tax transparency as a way of avoiding taxes.
Tax haven countries include Mauritius, Belize, the Cayman Islands, Antigua, Barbuda, and the Isle of Man.
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Antitrust Law
Antitrust laws are designed to promote “fair competition” among businesses.
Antitrust laws typically prohibit companies from engaging in collusion, the practice of companies acting in a manner which secretly thwarts competition amongst themselves.
Antitrust laws are also known as “antimonopoly laws.”
Monopoly is a situation where there is only a single seller of a product in an industry and there are very high barriers to enter that industry.
Other countries may be far less aggressive than the United States in antitrust regulations.
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Product Safety Law
Product safety law establishes the standards of product safety to which the manufacturers and sellers of products are held.
Caveat emptor (“buyer beware”)
Places the burden of determining product safety on consumers
Caveat venditor (“seller beware”)
Places on manufacturers or sellers the burden of making sure their products are safe or at least clearly and explicitly warning consumers about the potential safety risks of their products
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Dispute Settlement Law
Dispute settlement law governs how disputes that arise in the course of global business are settled.
The public option is to resolve a case through litigation by bringing a dispute to a publicly or governmentally run court of law.
An alternative dispute resolution process involves arbitration, where disputing parties designate a neutral private person or group of persons to hear and decide the case.
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Intellectual Property Protections
Intellectual property is the product of intellectual rather than physical activity.
Intellectual property protections
The limited monopoly rights legally granted by a nation to the creator of intellectual property
Intellectual property protections include
Patents
Trademarks
Copyrights
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Protecting Intellectual Property
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Patent
The right granted to the inventor of a product or process that excludes others from selling, making, or using the invention for a certain period of time
Trademark
A distinctive phrase, name, word, picture, symbol, or design, or a combination of these, that identifies a given business’s service or product and is owned by said business
Copyright
The exclusive legal right that authors, playwrights, publishers, artists, and composers have to publish and disseminate their work as they see fit
Loss of Intellectual Property Protection
Genericized trademark
A trademark that has become so well known or colloquial that it now describes a general class of product or service, as opposed to a specific product or service as intended by the trademark’s owner
For a list of genericized trademarks, click on the following link:
Generic and genericized trademarks
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democracy
Athenian democracy
representative democracy
totalitarian government
communism
socialism
capitalism
economic risks
political risks
micropolitical risk
macropolitical risk
terrorism
Terrorism Risk Insurance Act of 2002
Overseas Private Investment Corporation (OPIC)
corruption
private corruption
public corruption
Foreign Corrupt Practices Act (FCPA)
civil law legal system
common law legal system
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Key Terms
theocratic law legal system
criminal law
contract law
tax law
tax haven countries
antitrust laws
collusion
monopoly
product safety law
caveat emptor
caveat venditor
dispute settlement law
litigation
arbitration
intellectual property
intellectual property protections
patent
trademark
genericized trademark
copyright
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Key Terms (continued)
