International business 5th griffin chapter 03

legal, technological,
and political forces

international business, 5th edition

chapter 3


Chapter Objectives 1
• 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

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Chapter Objectives 2
• Describe the impact of the host country’s
technological environment on
international business
• Explain how firms can protect themselves
from political risk

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The Legal Environment

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

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Legal Systems

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Common Law

Civil Law

Religious Law

Bureaucratic Law


Common Law
• Based on wisdom of judges’ decisions on
individual cases through history
• Cases create legal precedents

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Countries Using Common Law
• United States

• Barbados

• Canada

• Saint Kitts

• Australia

• Nevis

• India

• Malaysia

• New Zealand

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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

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Hong Kong follows many traditions of the
British Common Law legal system.

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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

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Bureaucratic Law
Bureaucratic
law is the legal
system in
communist
countries and
in dictatorships.

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Laws Affecting
International Business Transactions
Sanction
Embargo
Extraterritoriality

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Laws Directed Against Foreign Firms

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Nationalization

Expropriation

Confiscation

Privatization


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

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• Disadvantages

– 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

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• Disadvantages


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?

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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
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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.

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The Technological Environment

Agricultural
land

Infrastructure

Low-cost
labor

Resources

Skilled
labor
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Rich
natural
resources


Intellectual Property
• Patents
• Copyrights
• Trademarks
• Brand names

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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
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Political Risk Assessment

Ownership
risk

Operating
risk

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Transfer
risk


Table 3.2 Examples of
Political Risks
• Expropriation
• Confiscation

• Inflation

• Kidnappings,
terrorist threats
• Campaigns against
foreign goods
• Repatriation
• Mandatory labor
• Currency
benefits legislation
devaluations
• Civil wars
• Increased taxation

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Levels of Political Risk

Macropolitical
risk

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Micropolitical
risk


Basic Country Knowledge
• Is the country a democracy or dictatorship?
• Does country rely on free market or government

controls?
• Does government view foreign firms as positive
influence?
• Are firm’s customers private or public?
• Does government act arbitrarily?
• Is existing government stable?

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