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BUSI 338 > Chapter 5: The Political and Legal Environment > Flashcards

Chapter 5: The Political and Legal Environment Flashcards

1
Q

While deciding upon a firm’s international marketing activities the manager needs to concentrate on three areas:

A
  • The political and legal circumstances of the home country
  • The political and legal circumstances of the host country
  • The bilateral and multilateral agreements, treaties, and laws governing the relations between host and home countries, and ethical issues.
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2
Q

What are firms affected by, and how does it impact a firm?

A

Firms are affected by government policies and the legal system, and this has a major impact on a firm’s opportunities abroad

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3
Q

Gray market goods

A

Are products that enter markets in ways not desired by their manufacturers

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4
Q

Minimum wage legislation

A

Affects the international competitiveness of a firm using production processes that are highly labor-intensive

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5
Q

Cost of domestic safety regulations

A

May significantly affect the pricing policies of firms in their international marketing efforts
- Environmental superfund

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6
Q

Areas of governmental activities which are of major concern to the international marketer are:

A
  • Embargoes and trade sanctions
  • Export controls
  • Import controls
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7
Q

Embargoes and sanctions

A

Government actions to distort the free flow of trade in goods, services, or ideas for decidedly adversarial and political purposes, rather than strictly economic purposes.

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8
Q

What are some reasons for the impositions?

A

Reasons for the impositions are varied, ranging from human rights to nuclear nonproliferation to terrorism

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9
Q

Export control

A
  • Designed to deny or delay the acquisition of strategically important goods by the adversaries
  • The exporter must obtain an export license, which consists of written authorization to send a product abroad
  • Restricts the flow of materials and helps avoid the proliferation of weapons of mass destruction
  • Reduces flows of technological knowledge
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10
Q

Import controls

A

Either all imports or imports of particular products are controlled through tariff and nontariff mechanisms

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11
Q

Tariffs

A

Taxes imposed on imports, which subsequently increase the price of the imported product in the domestic market

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12
Q

Voluntary restraint agreements

A

Nontariff trade barriers in the form of self-imposed restrictions and cutbacks
Aimed at avoiding punitive trade actions from the host country

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13
Q

Quota systems

A

Reduce the volume of imports accepted by a country

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14
Q

Political risk

A

Risk of loss when investing in a given country caused by changes in a country’s political structure or policies, such as tax laws, tariffs, expropriation of assets, or restriction in repatriation of profits.

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15
Q

What are areas of political risk?

A
  • Expropriation
  • Confiscation
  • Domestication
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16
Q

Expropriation

A

Seizure of foreign assets by a government with payment of compensation to the owners

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17
Q

Confiscation

A

Transfer of ownership from a foreign firm to the host country without compensation for the firm

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18
Q

Domestication

A

Whereby the government:
- Demands partial transfer of ownership and management
- Imposes regulations to ensure that a large share of the product is locally produced and major profit is retained in the country

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19
Q

Legal differences and restrainants

A

Countries differ in their laws as well as in their implementation of these laws

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20
Q

Two major legal systems popular worldwide are

A
  • Common law
  • Code law
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21
Q

Common law

A

Based on tradition and depends less on written statutes and codes than on precedent and custom

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22
Q

Code law

A

Based on a comprehensive set of written statutes that spell out legal rules explicitly

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23
Q

Antidumping laws

A

Prohibit below-cost sales of products

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24
Q

International politics

A
  • Political relations and conflicts between countries can have a profound impact on firms trying to do business internationally
  • If bilateral political relations between countries improve, business can benefit
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25
Q

International law

A

Firms are restricted by both home- and host-country laws

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26
Q

The ethical obligations faced by multinational enterprises include:

A
  • Corporate governance and responsibility
  • Intellectual property rights
  • Bribery and corruption
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27
Q

Corporate governance and responsibility

A
  • Corporate governance: Relationships among stakeholders that determine and control the strategic direction and performance of an organization
  • Other issues: environmental safety and efficiency, reasonable working conditions and wages, concerns about layoffs, health care, and family care.
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28
Q

Intellectual property

A

Legal entitlement of exclusive rights to use an idea, piece of knowledge, or invention

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29
Q

Bribery and corruption

A
  • The Foreign Corrupt Practices Act (FCPA) was passed in 1977 to disallow U.S. firms to bribe foreign officials for business purposes
  • In Canada: The Corruption of Foreign Public Officials Act
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30
Q

What is the FCPA?

A

The Foreign Corrupt Practices Act

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31
Q

What is the FCPA in Canada?

A

The Corruption of Foreign Public Officials Act

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32
Q

Environmental Superfund

A

Requires payment by chemical firms based on their production volume regardless of whether the production is sold domestically or exported.
As a result, these firms are at a disadvantage internationally when exporting their commodity-type products because they must compete against foreign firms that are not required to make such a payment in their home countries and therefore have a cost advantage.

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33
Q

How may a government work to reduce trade barriers or to increase trade opportunities?

A

Through bilateral and multilateral negotiations

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34
Q

What are examples of economic sanctions and embargoes?

A

Elimination of credits and prohibition of financial transactions.

35
Q

What was the basic idea of economic sanctions?

A

That economic sanctions could force countries to behave peacefully in the international community.

36
Q

Embargoes and sanctions: How have sanctions been frequently imposed?

A

Sanctions have frequently been imposed unilaterally in the hope of changing a particular country’s government, or at least its policies. Unilateral imposition, however, tends to have major negative effects on the firms in the country that is exercising sanctions because the only result is often a simple shift in trade.

37
Q

What is another problem with the unilateral imposition of sanctions?

A

That they typically do not produce the desired result.

38
Q

How would sanctions need to be imposed in order for them to work?

A

They need to be imposed multilaterally. y. Only when virtually all nations in which a product is produced agree to deny it to a target can there be a true deprivation effect. Without such denial, sanctions do not have much bite.

Somalia is a poignant example of the importance of a unified sanctions regime. For years, news of persistent violence, acts of piracy, and armed robbery at sea have been splashed across TV screens all over the world. The United States imposed sanctions, effective in May 2010, with a trade embargo and an asset freeze against Somalia. The goal was to reduce the Somali crime wave against the shipping industry and to encourage the country to develop law and order.

39
Q

What is a concern with sanctions in regard to governments?

A

One key concern with sanctions is the fact that governments often consider them as being free of cost. However, even though they may not affect the budget of governments, sanctions imposed by governments can mean significant loss of business to firms.

40
Q

Dual-used items

A

Goods useful for both military and civilian purposes

41
Q

What is NLR?

A

No license required

42
Q

What does NLR provide?

A

NLR provides blanket permission to export. Products can be freely shipped to most trading partners provided that neither the end user nor the end use involved are considered sensitive

43
Q

Export license

A

Consist of written authorization to send a product abroad.

44
Q

Export control system: Determinant for export controls

A
  • National security
  • Foreign policy
  • Short supply
  • Nuclear nonproliferation
45
Q

Decision steps in the export licensing process

A
  • Should a given product be exported?
  • To a given country?
  • To a given end user?
  • For a particular end-use?
46
Q

Nowadays, where does the principal focus of export control rest?

A

The principal focus of export controls rests on the Third World.
A number of countries from this region want chemical and nuclear weapons, as well as the technology to make use of them. Even if a country already has dangerous weaponry, export controls can reduce the opportunity for its deployment.

47
Q

What is the final effect of tariffs, voluntary restraint agreements, and quota systems?

A

A quantitative reduction of imports.

48
Q

What can be a possible impact of import control on the international marketer?

A

For the international marketer, such restrictions may mean that the most efficient sources of supply are not available because government regulations restrict importation from those sources. The result is either second-best products or higher costs for restricted supplies. This in turn means that the customer receives inferior service and often has to pay significantly higher prices and that the firm is less competitive when trying to market its products internationally.

49
Q

What are three problems that policymakers face when trying to administer import controls?

A
  1. Most of the time such controls exact a huge price from domestic consumers. Even though the wide distribution of the burden among many consumers may result in a less obvious burden, the social cost of these controls may be damaging to the economy and subject to severe attack by individuals.
  2. Downstream change in import composition. For example, if the import of copper ore is restricted, either through voluntary restraints or through quotas, firms in copper-producing countries may opt to shift their production systems and produce copper wire instead, which they then export.
  3. Efficiency. Rather than improve the productivity of an industry, such controls provide it with a level of safety and a cushion of increased income yet let the drive for technological advancement fall behind. Alternatively, supply may respond to artificial stimulation and grow far beyond demand.
50
Q

Regulation of international business behavior

A

Home countries may implement special laws and regulations to ensure that the international business behavior of their firms is conducted within the legal, moral, and ethical boundaries considered appropriate.

51
Q

Boycotts

A

Firms refuse to do business with someone, often for political reasons; antitrust measures, wherein firms are seen as restricting competition; and corruption, which occurs when firms obtain contracts with bribes rather than through performance.

52
Q

Several major areas in which nations attempt to govern the international marketing activities of its firms are…

A

boycotts

53
Q

What is an example of boycott?

A

Arab nations have developed a blacklist of companies that deal with Israel.

54
Q

In what ways does the host country’s environment, both political and legal, affect the international marketing operations?

A
  • Political action and risk
  • Legal differences and restraints
  • Influencing politics and laws
55
Q

Where is political risk lowest, and where is it highest?

A

Political risk is lowest in countries that have a history of stability and consistency. Political risk tends to be highest in nations that do not have this sort of history.

56
Q

Three major types of political risk

A
  • Ownership risk
  • Operating risk
  • Transfer risk
57
Q

Ownership risk

A

Exposes property and life

58
Q

Operating risk

A

Refers to interference with the ongoing operations of a firm

59
Q

Transfer risk

A

Mainly encountered when attempts are made to shift funds between countries.

60
Q

What is a major political risk in many countries that a manager will want to think twice before conducting business?

A

Conflict and violent change

61
Q

What are coups d’etat and what can they do?

A

In many countries, particularly in the developing world, coups d’état can result in drastic changes in government. The new government may attack foreign multinational corporations as remnants of the Western-dominated colonial past. These coups have seriously impeded the conduct of international marketing.

62
Q

Expropriation does provide compensation to the former owners, but what can that look like?

A

Compensation negotiations are often protracted and result in settlements that are frequently unsatisfactory to the owners. For example, governments may offer compensation in the form of local, nontransferable currency or may base the compensation on the book value of the firm. Even though firms that are expropriated may deplore the low levels of payment obtained, they frequently accept them in the absence of better alternatives.

63
Q

What are other risks that are less dangerous, but probably more common?

A
  • Host governments that face a shortage of foreign currency sometimes will impose controls on the movements of capital in and out of the country.
  • Countries may also raise the tax rates applied to foreign investors in an effort to control the firms and their capital.
  • Price controls. In many countries, domestic political pressures can force governments to control the prices of imported products or services, particularly in sectors that are considered to be highly sensitive from a political perspective, such as food or health care.
64
Q

What are ways in which managers can lessen political and economic risk?

A

Obviously, if a new government that is dedicated to the removal of all foreign influences comes into power, a firm
can do little. In less extreme cases, however, managers can take actions to reduce the risk if they understand the root causes of the host-country policies. Most important is the accumulation and appreciation of factual information about a country’s history, political background, and culture before making a long-term investment decision. Also, a high degree of sensitivity by a firm and its employees to country-specific approaches and concerns are important dimensions that help a firm to blend into the local landscape rather than stand out as a foreign object.

65
Q

Adverse governmental actions are usually the result of…

A

a host country’s nationalism, desire for independence, and opposition to colonial remnants.

66
Q

How can the risk of government intervention be reduced?

A

A firm needs to demonstrate that it is concerned with the host country’s society and that it considers itself an integral part of the host country rather than simply an exploitative foreign corporation. Ways to do this include intensive local hiring and training practices, good pay, philanthropy, and more societally useful investment. In addition, a company can form joint ventures with local partners to demonstrate a willingness to share its benefits with nationals. Although such actions will not guarantee freedom from risk, they will certainly lessen the exposure to it.

67
Q

What is OPIC?

A

Overseas Private Investment Corporation

68
Q

What does OPIC do?

A

Can cover three types of risk:
1) currency inconvertibility insurance, which covers the inability to convert profits, debt service, and other remittances from local currency into U.S. dollars
2) expropriation insurance, which covers the loss of an investment due to expropriation, nationalization, or confiscation by a foreign government
3) political violence insurance, which covers the loss of assets or income due to war, revolution, insurrection, or politically motivated civil strife, terrorism, and sabotage.

69
Q

What is theocracy?

A

A key legal perspective which has faith and belief as its key focus and is a mix of societal, legal, and spiritual guidelines.
For example, Hebre law and Islamic law (shari’ah) which are the result of scripture, prophetic utterances and practices, and scholarly interpretations.

70
Q

What is something a good manager should be aware of in relation with influencing politics and laws?

A

A good manager will be aware of the importance of this system and will work with people who do understand how to operate within the system.

71
Q

Lobbyists

A

Usually, these are well-connected individuals and firms that can provide access to policymakers and legislators.
Companies often seek assistance to influence the government’s decision-making process. Such assistance usually is particularly beneficial when narrow economic objectives or single-issue campaigns are needed. Typical providers of this assistance are lobbyists.

72
Q

Where are lobbying firms located?

A

Lobbying firms tend to be located in state, national, or regional capitals.

73
Q

What is a key factor in successful lobbying?

A

The involvement of local citizens and companies.

74
Q

International terrorism

A

Terrorism is the systematic use (or threat) of violence aimed at attaining a political goal and conveying a political message. International terrorism seeks to do this across national borders.

75
Q

What kind of new opportunities does terrorism create?

A

creates new opportunities for firms in a few industries like construction, security, and information technology.

76
Q

What are the direct and indirect effects that terrorism brings to business?

A

The direct consequences to business are the immediate costs levied on individual firms. While harm is clear to individual firms, from a societal perspective the direct effects tend to be less consequential than the indirect ones. The latter accumulate over time and are often not apparent immediately.
The indirect negative consequences of terrorism begin with macroeconomic phenomena, such as the real or perceived decline in per capita income, purchasing power, and stock market values. In the wake of a terror event, these trends cause a fall in the subjective (perceived) security of the nation.

77
Q

What is the “chill effect”

A

A phenomenon where buyers become uncertain about the state of their nation’s economy, and a sharp reduction in demand for both consumer and industrial goods follows

78
Q

Model of corporate preparedness for terrorism

A

Textbook page 192

79
Q

Comparative corporate governance regimes: Regime basis and characteristics

A
  • Market-based: Efficient equity markets; Dispersed ownership
  • Family-based: Management & ownership is combined; Family/majority and minority shareholders
  • Bank-based: Government influence in bank lending; Lack of transparency; Family control
  • Government affiliated: State ownership of enterprise; Lack of transparency; No minority influence
80
Q

What is functional lubrication?

A

The “express fee” charged in many countries, which has several characteristics: the amount is small, it is standardized, and it does not stay in the hands of the official who receives it but is passed on to others involved in the processing of the documents. The express service is available to anyone, with few exceptions.

81
Q

Individual greed

A

The process driven by “individual greed,” the amount depends on the individual official and is for the official’s own personal use. Although the facilitation of routine actions is not prohibited, the illegal influencing of policy decisions can result in the imposition of severe fines and penalties.

82
Q

What is the “ehrbarer Kaufmann”?

A

Honorable merchant
Focuses on maintaining long-term successful international trade efforts with distant and often unfamiliar people.
Key requirements are a good understanding of other cultures, dedicated research and planning for opportunities (one could not afford to have a ship travel home empty), and scrupulous honesty so that there always would be the ability to return for more business. There is no room for bribery and corruption with the honorable merchant.

83
Q
A

BUSI 338 (12 decks)

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