International bussiness 6th griffin pustay chapter 03
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Legal, Technological, Accounting, and
Political Environments
Griffin & Pustay
3-1
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business, 6th Edition
chapter 3
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
3-2
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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
3-3
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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.
3-4
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Legal Systems
3-5
Common Law
Civil Law
Religious Law
Bureaucratic Law
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Common Law
• Based on wisdom of judges’
decisions on individual cases
through history
• Cases create legal precedents
3-6
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Countries Using Common Law
• United States
• Barbados
• Canada
• Saint Kitts
• Australia
• Nevis
• India
• Malaysia
• New Zealand
3-7
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Civil Law
• Based on codification of what is and is
not permissible
• Originated in biblical times with the
Romans
• Reinforced by French Napoleonic code
• Judge determines scope of evidence
collected and presented
3-8
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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
3-9
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Bureaucratic Law
Bureaucratic
law is the
legal system
in communist
countries and
in
dictatorships.
3-10
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Laws Affecting
International Business Transactions
Sanction
Embargo
Extraterritoriality
3-11
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Laws Directed Against Foreign Firms
3-12
Nationalization
Expropriation
Confiscation
Privatization
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Economic and Political Impacts of
MNCs on Host Countries
• Advantages
– Greater selection
– Competition
– Higher standards
– Job loss
– Job creation
– Dependency on
economic health
of MNC
– Tax benefits
– Technology
transfers
3-13
• Disadvantages
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– Political power
Cultural Impacts of MNCs on
Host Countries
• Advantages
– Improved standard
of living
– Better health care
– Abuse of less
developed policies
in the areas of
safety and
environmental
concerns
– More sanitary food
products
– Negligent product
offerings
– Introduction of
new products
3-14
• Disadvantages
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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?
3-15
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Principle of Comity
• A country will honor and enforce within its
own territory the judgments of foreign courts
• Conditions of the principle:
– Reciprocity is extended
– Defendant is given proper notice
– Judgment does not violate domestic statutes or
treaty obligations
3-16
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Arbitration
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.
3-17
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The Technological Environment
Agricultural
land
Infrastructure
Low-cost
labor
Resources
Skilled
labor
3-18
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Rich
natural
resources
Intellectual Property
• Patents
• Copyrights
• Trademarks
• Brand names
3-19
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Intellectual property
often forms the basis of
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
3-20
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The Accounting Environment
The Roots of National Differences
• GAAP - Generally Accepted
Accounting Principles
3-21
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Figure 3.1 Influences on a
Country's’ Accounting System
3-22
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The Accounting Environment
Differences in Accounting Practices
• Valuation and Revaluation of Assets
• Valuation of Inventories
• Dealing with Tax Authorities
• Use of Accounting Reserves
3-23
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The Accounting Environment
(continued)
Other Differences
• Capitalization of Financial Leases
• Preparation of Consolidated Financial
Statements
• Capitalization of Research and
Development expenses
• Treatment of Goodwill
3-24
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The Accounting Environment
(concluded)
Impact of Capital Markets
• International Financial Reporting
Standards
3-25
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