International bussiness 6th griffin pustay chapter 03

Chapter Objectives • Describe the major types of legal systems confronting international businesses • Explain how domestic laws affect the ability of firms to conduct international busi

Chapter Objectives

• Describe the major types of legal systems confronting international businesses

• Explain how domestic laws affect the

ability of firms to conduct international business

• List the ways firms can resolve

international business disputes

Chapter Objectives (continued)

• Describe the impact of the host

country’s technological environment

on international business

• Identify the factors that influence

national accounting systems

• Explain how firms can protect

themselves from political risk

The Legal Environment

While domestic firms must follow laws and customs of the home country, international businesses must obey laws of the home country and all host countries.

Legal Systems

Religious Law Bureaucratic Law

Common Law

• Based on wisdom of judges’

decisions on individual cases through history

• Cases create legal precedents

Countries Using Common Law

• Reinforced by French Napoleonic code

• Judge determines scope of evidence collected and presented

Religious Law

• Based on the officially established

rules governing faith and practice of

a particular religion

• A country that applies religious law

to civil and criminal conduct is called

a theocracy

Laws Affecting International Business Transactions

Sanction Embargo Extraterritoriality

Laws Directed Against Foreign Firms

Nationalization Expropriation

Confiscation Privatization

Economic and Political Impacts of

MNCs on Host Countries

• Advantages

– Greater selection – Higher standards – Job creation

– Tax benefits

– Technology transfers

• Disadvantages

– Competition – Job loss

– Dependency on economic health

of MNC – Political power

• Disadvantages

– Abuse of less developed policies

in the areas of safety and

environmental concerns

– Negligent product offerings

Dispute Resolution

• Which country’s law applies?

• In which country should the issue be resolved?

• Which technique should be used to resolve the conflict?

• How will the settlement be enforced?

Arbitration is the process by which

both parties to a conflict agree to submit their cases to a private individual or body whose decision

they will honor.

The Technological Environment

Resources

Agricultural

land

Rich natural resources Skilled

Low-cost labor Infrastructure

a firm’s competitive advantage!

International Treaties Protecting

Intellectual Property Rights

• International Convention for the

Protection of Industrial Property Rights (i.e., the Paris Convention)

• Berne Convention for the Protection of Literary and Artistic Works

• Universal Copyright Convention

• Trade-Related Intellectual Property

Rights Agreement

The Accounting Environment

The Roots of National Differences

• GAAP - Generally Accepted

Accounting Principles

Figure 3.1 Influences on a Country's’ Accounting System

The Accounting Environment

Differences in Accounting Practices

• Valuation and Revaluation of Assets

• Valuation of Inventories

• Dealing with Tax Authorities

• Use of Accounting Reserves

The Accounting Environment

(continued)

Other Differences

• Capitalization of Financial Leases

• Preparation of Consolidated Financial Statements

• Capitalization of Research and

Development expenses

• Treatment of Goodwill

The Accounting Environment

(concluded)

Impact of Capital Markets

• International Financial Reporting Standards

The Political Environment

Ownership

risk

Transfer risk

Operating

risk

Political Risk

• Repatriation

• Currency devaluations

• Increased taxation

Levels of Political Risk

Macropolitical

risk

Micropolitical

risk

Firms Need to Answer

These Questions

• Is the country a democracy or dictatorship?

• Does the country rely on free market or

government controls?

• Does the government view foreign firms as a positive influence?

• Are the firm’s customers private or public?

• Does the government act arbitrarily?

• Is the existing government stable?

Map 3.3 Countries Relative to

Political Riskiness, 2008

Insurance Against Political Risks

• Overseas Private Investment

Corporation (OPIC)

• Multilateral Investment Guarantee

Agency (MIGA)

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