Ch 6-- Political Environment Flashcards
What is sovereignty?
Right that every country has to be ruled and independent of external influences
(when a country is sovereign, others are NOT allowed to interfere with local politics)
Under what conditions do nations give up part of their sovereignty?
When they enter treaties, join supra-national organizations (WTO, IMF, NAFTA)
What is extraterritoriality?
When a country wants to make its laws apply OUTSIDE of its territory
Name 4 U.S. laws that are extraterritorial.
- Sherman antitrust act
- U.S income tax code
- Helms Burton Act
- Foreign Corrupt Practices Act
What is the Sherman Antitrust Act?
Prohibits monopolies + attempts to monopolize. The U.S applies this to ANY company overseas that influences business in the U.S
An extraterritoriality law
What is the U.S income tax code?
Wherever you go, you have to pay taxes. Sometimes this results in paying double: country of residence + U.S
An extraterritoriality law
What is the Helms Burton Act?
Any investment by foreign company into property formerly owned by American org. or person in Cuba is prohibited under penalty
The idea is to prevent foreign investments in Cuba + scare ppl off
An extraterritoriality law
What is the Foreign Corrupt Practices Act?
Strongest anti-bribery law in the world
An extraterritoriality law
What is the main political condition Multi-National Corporations (MNC’s) want when working overseas?
Predictability and stability/consistency of foreign politics
Know the laws + keep them the same once entered the Mkt
Analysis of political parties
- are they nationalistic (favoring local»_space; foreign)
- favor free trade?
What are risks companies run when doing international business/
Confiscation
Expropriation
Domestication
What is confiscation
No payment
Foreign gov. takes over property + does NOT make payment for it
What is expropriation
Some reimbursements
- alternative to confiscation
- can be paid w. $$ or bonds (worthless)
- can be put off ( as a promise on a piece of paper –>worthless)
What is domestication
transfer to national control
- every company in country HAS to be owned by nationals
- forces company to find local buyers (can drive price down)
- take foreign company and make it local
What is privatization
revert national owned companies –> private ownership
- OPPOSITE of domestication
- local company and make it foreign
When do countries use exchange controls and how are they applied?
Reasons: a country might be low on foreign exchange, might have multiple exchange rates
Applied bc countries are low on foreign exchange
how: apply for exchange permit to the national bank, they deny it
What are exchange controls?
multiple rates to regulate trade in specific commodities + block repatriation of profits
What is a local-content law?
part of the product MUST be manufactured in the LOCAL market
(Ford sold in Mex– must have a Ford plant in Mex. Encourages local jobs)
What is an import license and when do countries require them?
Permission to import a product
acts as a non tariff trade barrier
When do countries use price controls and how are they applied?
Price controls: maximum prices
used in times of inflation ( very rapid increase in prices bc too much $ in economy)
What types of products are more at risk politically in a foreign country?
Any product that has or is perceived to have an effect on
- environment
- exchange rates
-national + economic security
- welfare of ppl
- publicly visible or subject to public debate
What are some of the strategies that you can follow to lessen political risk overseas?
joint ventures
investment base expansion
control of Mkt and distribution
licensing
planned domestication
political Payoffs
What is investment base expansion
borrow money from local banks/investors
What is control of mkt and distribution
only YOU use that product – not of value for a foreign country to take the plant over
What is licensing
give permission for someone else to produce your product
What is planned domestication
for you to get AHEAD of domestication, go to local investors and ask them if they want to buy into the company
What is political payoffs
donate to party in power
What is joint venture
do not go in by yourself, partner with someone politically influential
What agencies provide political-risk insurance to U.S. companies working overseas?
Foreign Credit Insurance Association
Agency for International Development (AID)
Overseas Private Investment Corporation (OPIC)
What type of political risk insurance does the Foreign Credit Insurance Association offer
Agency of export-import bank, insures against nonpayment risk caused by financial, economic, or political uncertainties
What type of political risk insurance does the Agency for International Development offer
limited protection on certain projects + products
What type of political risk insurance does the Overseas Private Investment Corporation offer?
Risk insurance for companies investing in less- developed countries
What are som pol risks?
Boycotts, Political + social activists, violence +terrorism, cyber- terrorism
