University of Sunderland BM205 Entrepreneurship for MBA Students The International Entrepreneur Lecture 8

University of Sunderland BM205 THE POLITICAL AND LEGAL ENVIRONMENT FACING BUSINESS

University of Sunderland BM205 I - INTRODUCTION Political and Legal Factors often play a critical role in international business marketing activities. Unexpected Political or Legal Influences and failure to anticipate these events. It is useful to understand the complexities of the host country legal system

University of Sunderland BM205 II - HOME COUNTRY POLITICAL AND LEGAL ENVIRONMENT No manager can afford to ignore the policies and regulations of the country from which he or she conducts international marketing transactions. Ex: labour laws, environmental laws. Some legal and regulatory measures are aimed at international activities, designed to help domestic companies. Ex: U.S. government pressuring China to establish safeguards for Intellectual Property Rights A – Policies & Regulations

University of Sunderland BM205 Violations of intellectual property rights occur anywhere. Gray Market: goods enter markets in ways not desired by the manufacturer. Governments may work to reduce trade barriers or to increase or to increase trade opportunities. B – Embargoes and Sanctions Governmental actions that distort the free flow of trade in goods and services. Economic Sanctions can force countries to behave peacefully in international community. Unilateral sanctions may not work and governments often consider them as being free of cost.

University of Sunderland BM205 Export License The international marketing repercussions of export controls are important. One country’s firms are placed at a competitive disadvantage with firms in other countries whose control systems are less extensive. A Changed Environment for Export Controls a) Collapse of the Iron Curtain, Disappearance of the Soviet Union and the Eastern Bloc. b) Today the principal focus of export controls must rest on the Third World. Chemical weapons and nuclear technology c) Loosing of mutual bonds among allied nations d) Increased availability of high technology products. The broad availability makes any denial of such products more difficult to enforce.

University of Sunderland BM205 D – EXPORT CONTROL PROBLEMS AND CONFLICTS a) Continuing debate about what constitutes military use products, civilian use products b) To subject only the export of physical goods to surveillance is insufficient. The transfer of know-how and technology is of equal importance. Books, periodicals, software. Internet. Ex: encryption technology Conflicts in the export control field are unlikely to decrease, but rather will multiply in the future

University of Sunderland BM205 E – IMPORT CONTROLS True of countries that suffer from major balance-of- trade deficits Quota System Policymakers face with several problems: a) such controls exact a huge price from domestic consumers b) Protected groups, biased against consumers, impacts on overall economic efficiency c) Downstream change in import composition

University of Sunderland BM205 F – REGULATION OF INTERNATIONAL BUSINESS BEHAVIOR Home countries may implement special laws and regulations to ensure that the international business behavior of their firms is conducted within the legal, moral, and ethical boundaries considered appropriate. The definition of appropriateness may vary from country to country a) Several major areas in which nations attempt to govern the international marketing activities of its firms are boycotts Any boycott requests must be notified b) Antitrust Laws: Justice Department watches closely foreign acquisitions, joint-ventures, c) Corruption. Foreign Corrupt Practices Act of 1977.

University of Sunderland BM205 d) General Standards of Ethics: child labour, cutting down the Brazilian rain forest, export of U.S. tobacco, safety standards for workers. G – HOST COUNTRY POLITICAL AND LEGAL ENVIRONMENT - Political Action and Risk: consistency and stability - Ownership Risk - Operating Risks - Expropriation - Confiscation; does not involve compensation - Price Controls The Overseas Private Investment Corporation (OPIC) can cover three types of risk: Currency inconvertibility insurance, expropriation insurance, and political violence insurance.

University of Sunderland BM205 H – LEGAL DIFFERENCES The number of lawyers in the U.S. is as much as 48 times higher than in Japan. Common Law bases on tradition, depending more on precedent and customs Code Law: based on a comprehensive set of written statutes.

University of Sunderland BM205 I – THE INTERNATIONAL ENVIRONMENT International Politics Helms-Burton Act: granted individuals the right to sue in U.S. courts subsidiaries of those foreign firms which had invested in properties confiscated by the Cuban government. In addition, managers of these firms were to be denied entry into the U.S. International Law WTO, International Convention for the Protection of Industrial Property and the Madrid Arrangement for International Registration of Trademarks.