Welcome to class of political and legal forces by Dr. Satyendra Singh University of Winnipeg Canada.
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Transcript of Welcome to class of political and legal forces by Dr. Satyendra Singh University of Winnipeg Canada.
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Welcome to class of political and legal forces
byDr. Satyendra Singh
University of WinnipegCanada
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Learning Objectives Ideological forces that affect business Governments own businesses/privatization Government stability and policy continuity Risk assessment by international businesses International legal forces Importance of foreign law Protection of intellectual properties Accounting law Antitrust law
Objectives:
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Ideological Forces… Communism The belief that the government should own all the major factors of production Production in these countries is at state-owned factories and farms (some exceptions) Labor unions are government-controlled
Expropriation and Confiscation Government seizure of property within its borders owned by foreigners, followed by prompt, adequate, and
effective compensation to the former owners Generally expropriated becomes confiscation (no compensation)
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Ideological Forces…
Capitalism An economic system in which the means of production
and distribution are for the most part privately owned and operated for private profit
Government restricted to functions that the private sector cannot perform
– National defense– Police, fire, and other public services– Government-to-government international relations
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Ideological Forces Socialism
Government typically owns and controls most of the factors of production
Many European countries have practiced socialism: Great Britain, France, Spain, Greece, Germany
Socialism in Developing Countries Shortages of capital, technology, and skilled
management and labor are characteristic Many of the educated citizens connected with
government
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Ideological Forces…
Conservative A person, group, or party that wishes to minimize government
activities and maximize private ownership and business
Liberal A person, group, or party that urges greater government
involvement in business and other aspects of human activities
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Government Ownership of Business
Why firms are nationalized– To extract more money from the firms– To increase the firm’s profitability – For ideological reasons– To preserve jobs– To follow previous government support (control follows
money)
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Unfair Competition?
Private-owned companies complain that government owned companies – Can cut prices unfairly– Get cheaper financing– Get government contracts– Get export assistance– Can hold down wages with government assistance
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Privatization…
The transfer of public sector assets to the private sector, the transfer of management of state activities through contracts and leases, and the contraction out of activities previously conducted by the state
Airports, garbage, postal services frequent examples
Trend all over the world India, Brazil, China…
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Privatization
Not always ownership transfer from government to private entities Activities previously conducted by the state may be contracted
out Governments may lease state-owned plants to private entities Governments may combine a joint venture with a management
contract with a private group to run a previously government-operated business
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Government Stability
Stable Government Maintains itself in power and whose fiscal, monetary and
political policies are predictable and not subject to sudden, radical changes
Unstable Government Cannot maintain itself in power or makes sudden,
unpredictable, or radical policy changes
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Country Risk Assessment
An evaluation that assesses the country’s economic situation and policies and its politics to determine how much risk exists of losing an asset or not being paid
Types of Country Risks Political Wars, revolutions, coups Economic Financial, BOP deficits Labor Low productivity, militant unions Legal Laws may be changed
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ICs and Political Forces
International Companies (ICs) Make decisions about where to invest, where to
conduct research and development, and where to manufacture products
The financial size of many ICs provides them with a strong negotiating position
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Legal Forces
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International Legal Forces
• Rule of law allows foreign businesses to know interests will be protected
• The most important source is found in bilateral and multilateral treaties between nations
• United Nation’s International Court of Justice creates law when it decides disputes
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Performance of Contracts…• United Nations Solution
– Many countries have ratified the UN Convention on Contracts for International Sales of Goods (CISG)
– CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller
– CISG is automatically applied to all contracts
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Enforcement of Foreign Arbitration Awards
• The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards
– Most UN member-countries have ratified this convention
– Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards
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Intellectual Property Patents
European Patent Organization (EPO) World Intellectual Property Organization (WIPO)
Trademarks Madrid Agreement of 1891
Trade names Convention for the Protection of Industrial Property
Copyrights– Berne Convention of 1886 adhered to by 77 countries– Universal Copyright Convention of 1954 adopted by 92
countries
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Legal System: Europe vs. USA Europe
Legislation is rarely amended and regulations are rarely revised
Courts are not as often asked to give their interpretations If they are, the decisions are rarely appealed
United States Laws and regulations are constantly being amended or
revised by legislatures and the agencies
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Legal System: England vs. U.S.
England has a split legal profession with barristers and solicitors
England has no jury for civil court actions Contingency fees less common in England Award of costs to the winner in civil litigation standard
in England Pretrial discovery differs
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Standardizing Laws• Many attempts have been made to standardize
laws among various countries• International business flows much better with a
uniform set of rules• Attempts include
– Tax conventions and treaties– Antitrust cooperation– International Center for Settlement of Investment
Disputes– UN Convention on International Sale of Goods– International Organization for Standardization (ISO)– International Electrotechnical Commission (IEC)
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Taxation
Tax Treaties or Conventions– Treaties between countries that bind the
governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions
– The U.S. has tax treaties with over 50 countries
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Accounting Law
• Sarbanes-Oxley Act (SOX)– Brings major changes to the regulation of corporate
governance and financial practice• New reporting requirements• Officer and director responsibilities• Auditor independence
– Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934
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Antitrust Laws
• Antitrust laws – Laws to prevent price fixing, market sharing, and
business monopolies
• Competition policy– The European Union equivalent of antitrust laws
• The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially
• Japan’s Fair Trade Commission – Japanese companies are incorporating antitrust
thinking into strategy
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Torts
Product Liability– Standard that holds a company and its officers and directors
liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage
Strict Liability– Standard that holds the designer or manufacturer liable for
damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture