MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 1 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Brief review of –International economics –Trade policy The political environment Legal systems The California “Win-Win” Project

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 2 VERY BRIEF REVIEW OF ECONOMICS Exchange rates –Floating (supply and demand) –fixed Trade balances and their impact on exchange rates Measuring country wealth –gross domestic product –“purchase parity” vs. nominal

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 3

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 4 Demand for Currency Depends On Trade deficit (demand for foreign currency to fund this) or trade surplus (demand for country’s currency) Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U.S. bonds and equities) Inflation: Reduces the attractiveness of holding the currency

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 5 Nominal vs. Purchase Parity Adjusted GNPs— Examples (2004) Source: World Bank

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 6

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 7

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 8 Cautions on Interpreting Per Capita Figures Averages are not very meaningful! –Regional variations –Socio-economic differences Comparison to U.S. dollar and U.S. costs is arbitrary

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 9 Obstacles to Trade: Protectionism Differing interests of consumers and manufacturers Benefits of trade tend to be more diffused than benefits to specific groups of protectionism

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 10 Approaches to Protectionism Tariffs Quotas “Voluntary” export restrictions Subsidies to domestic producers/exporters Non-tariff barriers –legal obstacles –differential treatment

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 11 U.S. Protectionism--justified or not... Defense industry Agricultural products--e.g., beef, sugar Textiles Automobiles (“voluntary” import restrictions) Steel

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 12 Justifications for Protectionism Protect infant industry Resist “unfair” or inappropriate competition Protect home market (ensure that product can be produced domestically)--defense Intervene into temporary imbalance Maintain domestic living standards Preserve jobs Bargaining power/retaliation (Super-301 provision in U.S.)

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 13 Effects of Protectionism Reduced competition ---> inflation More tariffs Weaken balance of payments (have to pay more in own currency) Reduce choice to consumers May induce global trade wars (vicious cycle)

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 14 THE POLITICAL AND LEGAL ENVIRONMENTS Political history and stability Political relations between countries -- impact on business Legal differences between countries Extra-territorial application of laws

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 15 The Legal Environment Which laws apply when doing business between countries? –contractual specifications –treaties –extra-territorial applications of laws –“compulsion” as a defense

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 16 Some Political Risks Confiscation, expropriation, and domestication Economic risks –Exchange controls –Local content requirements –Import restrictions –Tax controls –Price controls –Labor problems

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 17 Development of Legal Systems Laws on the books vs. laws enforced (transparency) –Japan: “Administrative guidance” The ability to sue--a blessing or a curse? –Means of litigation –Implications for contract initiation and enforcement Evolving nature of legal systems

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 18 Approaches to Law Common law (U.S., Britain, and many English speaking countries) Code law (much of Europe and Louisiana) Islamic law Socialist based law Asian laws

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 19 Common Law Gradually evolved in British courts, settling issues as they arose Emphasis on precedent Recognized by U.S. Constitution Standards –criminal: “Innocent until proven guilty” –civil: “Preponderance of evidence”

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 20 Code (Napoleonic) Law Law governed by explicit statutory codes--”match” codes to issues as well as possible Somewhat different standards in contracts --what constitutes an “act of God” canceling contractual obligations? Criminal law: “Guilty until proven innocent” but difficult to bring to trial

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 21 Islamic Law Note that different varieties exist Traditions of Islamic countries are not all tied to Islamic religion per se Purpose of promoting justice –assets are thought to be held in “trust” –interest is frowned upon Much wider scope than Western law: Shar’ia: the way

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 22 Socialist Law Basis for law in China, former Soviet Republics, and countries influenced by Communist allies Based on the view that the government owns productive resources ---> –contract and intellectual property laws are typically not well developed Legal scholars from the West are helping to reform

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 23 Asian Law Based on compromise and accommodation Less emphasis on abstract principles Less emphasis on consistent application across circumstances Emphasis on informal resolution

MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 24 U.S. Laws of Interest to firms with U.S. Involvement Anti-trust Foreign Corrupt Influences Anti-boycott laws Trading With the Enemy