Welcome to class of political and legal forces Dr Welcome to class of political and legal forces Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg Canada s.singh@uwinnipeg.ca http://abem.uwinnipeg.ca https://www.abem.ca/conference

Objectives: Learning Objectives Ideological forces that affect business Governments own businesses/privatization Government stability and policy continuity Risk assessment by international businesses International legal forces Importance of foreign law Protection of intellectual properties Accounting law Antitrust law

Ideological Forces… Communism Expropriation and Confiscation The belief that the government should own all the major factors of production Production in these countries is at state-owned factories and farms (some exceptions) Labor unions are government-controlled Expropriation and Confiscation Government seizure of property within its borders owned by foreigners, followed by prompt, adequate, and effective compensation to the former owners Generally expropriated becomes confiscation (no compensation)

Ideological Forces… Capitalism An economic system in which the means of production and distribution are for the most part privately owned and operated for private profit Government restricted to functions that the private sector cannot perform National defense Police, fire, and other public services Government-to-government international relations

Ideological Forces Socialism Socialism in Developing Countries Government typically owns and controls most of the factors of production Many European countries have practiced socialism: Great Britain, France, Spain, Greece, Germany Socialism in Developing Countries Shortages of capital, technology, and skilled management and labor are characteristic Many of the educated citizens connected with government

Ideological Forces… Conservative Liberal A person, group, or party that wishes to minimize government activities and maximize private ownership and business Liberal A person, group, or party that urges greater government involvement in business and other aspects of human activities

Government Defense Spending

Ideological Forces

Government Ownership of Business Why firms are nationalized To extract more money from the firms To increase the firm’s profitability For ideological reasons To preserve jobs To follow previous government support (control follows money)

Unfair Competition? Private-owned companies complain that government owned companies Can cut prices unfairly Get cheaper financing Get government contracts Get export assistance Can hold down wages with government assistance

Privatization… The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases, and the contraction out of activities previously conducted by the state Airports, garbage, postal services frequent examples Trend all over the world  India, Brazil, China…

Privatization Not always ownership transfer from government to private entities Activities previously conducted by the state may be contracted out Governments may lease state-owned plants to private entities Governments may combine a joint venture with a management contract with a private group to run a previously government-operated business

Government Stability Stable Government Unstable Government Maintains itself in power and whose fiscal, monetary and political policies are predictable and not subject to sudden, radical changes Unstable Government Cannot maintain itself in power or makes sudden, unpredictable, or radical policy changes

Country Risk Assessment An evaluation that assesses the country’s economic situation and policies and its politics to determine how much risk exists of losing an asset or not being paid Types of Country Risks Political  Wars, revolutions, coups Economic  Financial, BOP deficits Labor  Low productivity, militant unions Legal  Laws may be changed

ICs and Political Forces International Companies (ICs) Make decisions about where to invest, where to conduct research and development, and where to manufacture products The financial size of many ICs provides them with a strong negotiating position

Legal Forces

International Legal Forces Rule of law allows foreign businesses to know interests will be protected The most important source is found in bilateral and multilateral treaties between nations United Nation’s International Court of Justice creates law when it decides disputes

Performance of Contracts… United Nations Solution Many countries have ratified the UN Convention on Contracts for International Sales of Goods (CISG) CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller CISG is automatically applied to all contracts

Enforcement of Foreign Arbitration Awards The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards Most UN member-countries have ratified this convention Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards

Intellectual Property Patents European Patent Organization (EPO) World Intellectual Property Organization (WIPO) Trademarks Madrid Agreement of 1891 Trade names Convention for the Protection of Industrial Property Copyrights Berne Convention of 1886 adhered to by 77 countries Universal Copyright Convention of 1954 adopted by 92 countries

Legal System: Europe vs. USA Legislation is rarely amended and regulations are rarely revised Courts are not as often asked to give their interpretations If they are, the decisions are rarely appealed United States Laws and regulations are constantly being amended or revised by legislatures and the agencies

Legal System: England vs. U.S. England has a split legal profession with barristers and solicitors England has no jury for civil court actions Contingency fees less common in England Award of costs to the winner in civil litigation standard in England Pretrial discovery differs

Standardizing Laws Many attempts have been made to standardize laws among various countries International business flows much better with a uniform set of rules Attempts include Tax conventions and treaties Antitrust cooperation International Center for Settlement of Investment Disputes UN Convention on International Sale of Goods International Organization for Standardization (ISO) International Electrotechnical Commission (IEC)

Taxation Tax Treaties or Conventions Treaties between countries that bind the governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions The U.S. has tax treaties with over 50 countries

Accounting Law Sarbanes-Oxley Act (SOX) Brings major changes to the regulation of corporate governance and financial practice New reporting requirements Officer and director responsibilities Auditor independence Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934

Antitrust Laws Antitrust laws Competition policy Laws to prevent price fixing, market sharing, and business monopolies Competition policy The European Union equivalent of antitrust laws The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially Japan’s Fair Trade Commission Japanese companies are incorporating antitrust thinking into strategy

Torts Product Liability Strict Liability Standard that holds a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage Strict Liability Standard that holds the designer or manufacturer liable for damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture