Legal, Technological, and Political forces

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.

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

Countries Using Common Law
•United States
•Canada
•Australia
•India
•New Zealand
•Barbados
•Saint Kitts
•Nevis
•Malaysia

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

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

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

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

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?

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


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.

Intellectual Property
•Patents
•Copyrights
•Trademarks
•Brand names

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

Table 3.2 Examples of Political Risk
•Expropriation
•Confiscation
•Campaigns against foreign goods
•Mandatory labor benefits legislation
•Civil wars
•Inflation
•Kidnappings, terrorist threats
•Repatriation
•Currency devaluations
•Increased taxation

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?

Insurance Against Political Risks
•Overseas Private Investment Corporation (OPIC)
•Multilateral Investment Guarantee Agency (MIGA)