bus103-ch03-ppp.ppt
TRANSCRIPT
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3-1
chapter 3
Legal, Technological, Accounting, and
Political Environments
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3-2
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
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3-3
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
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3-4
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.
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3-5
Legal Systems
Common Law Civil Law
Religious Law Bureaucratic Law
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3-6
Common Law
• Based on wisdom of judges’ decisions on individual cases through history
• Cases create legal precedents
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3-7
Countries Using Common Law
• United States
• Canada
• Australia
• India
• New Zealand
• Barbados
• Saint Kitts
• Nevis
• Malaysia
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3-8
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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3-9
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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3-11
Laws Affecting International Business Transactions
Sanction
Embargo
Extraterritoriality
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3-12
Laws Directed Against Foreign Firms
Nationalization Expropriation
Confiscation Privatization
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3-13
Economic and Political Impacts of MNCs on Host Countries
• Advantages
– Greater selection
– Higher standards
– Job creation
– Tax benefits
– Technology transfers
• Disadvantages
– Competition
– Job loss
– Dependency on economic health of MNC
– Political power
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3-14
Cultural Impacts of MNCs on Host Countries
• Advantages– Improved standard
of living
– Introduction of new products
– Better health care
– More sanitary food products
• Disadvantages– Abuse of less
developed policies in the areas of safety and environmental concerns
– Negligent product offerings
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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?
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3-16
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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3-17
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
Resources
Agriculturalland
Richnatural
resources
Skilledlabor
Low-costlabor
Infrastructure
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3-19
Intellectual Property
• Patents
• Copyrights
• Trademarks
• Brand names
Intellectual property often forms the basis of a firm’s competitive advantage!
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3-20
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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3-21
The Accounting Environment
The Roots of National Differences
• GAAP - Generally Accepted Accounting Principles
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3-22
Figure 3.1 Influences on a Country's’ Accounting System
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3-23
The Accounting Environment
Differences in Accounting Practices
• Valuation and Revaluation of Assets
• Valuation of Inventories
• Dealing with Tax Authorities
• Use of Accounting Reserves
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3-24
The Accounting Environment (continued)
Other Differences
• Capitalization of Financial Leases
• Preparation of Consolidated Financial Statements
• Capitalization of Research and Development expenses
• Treatment of Goodwill
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3-25
The Accounting Environment (concluded)
Impact of Capital Markets
• International Financial Reporting Standards
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The Political Environment
Ownershiprisk
Transferrisk
Operatingrisk
Political Risk
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3-27
Table 3.2 Examples of Political Risks
• Expropriation
• Confiscation
• Campaigns against foreign goods
• Mandatory labor benefits legislation
• Civil wars
• Inflation
• Kidnappings, terrorist threats
• Repatriation
• Currency devaluations
• Increased taxation
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Levels of Political Risk
Macropoliticalrisk
Micropoliticalrisk
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Firms Need to Answer These Questions
• Is the country a democracy or dictatorship?
• Does the country rely on free market or government controls?
• Does the government view foreign firms as a positive influence?
• Are the firm’s customers private or public?
• Does the government act arbitrarily?
• Is the existing government stable?
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3-30
Map 3.3 Countries Relative to Political Riskiness, 2008
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Insurance Against Political Risks
• Overseas Private Investment Corporation (OPIC)
• Multilateral Investment Guarantee Agency (MIGA)
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