Exam 2 Flashcards
The importance of the sovereign nation concept
A state sets requirements for citizenship, defines geographical boundaries’, and controls trade to the state’s laws even when beyond national borders.
Forms of governments and stability of government policies
Political Parties
Nationalism – intense feeling of national pride and unity
Trade Disputes
Types of political risks in global business
o Confiscation o Expropriation o Domestication o Violence, Terrorism, and War o Cyber terrorism and Cybercrime
Economic risks of conducting business in foreign markets
o Exchange Controls o Local-Content Laws o Import Restrictions o Tax Controls o Price Controls o Labor Problems
How can a firm lessen political vulnerability
o Joint Ventures o Expanding Investment Base o Licensing o Planned Domestication o Political bargaining (lobbying)
How and why governments encourage foreign direct investment (FDI)
Most important reason to encourage foreign investment is to accelerate the development of an economy
Sovereignty
the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.
confiscation
seizing of a company’s assets without payment.
• Example: Fidel Castro becoming leader of Cuba
Expropriation
where the gov seizes an investment but makes some reimbursement for the assets.
domestication
occurs when a host counties gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees that mandate local ownership and greater national involvement in a companies management.
exchange controls
stem from shortages of foreign exchange held by a country
local-content laws
Countries often require a portion of any product sold within the country to have local content to contain locally made parts
• Ex: NAFTA requires 62% local content for all cars coming from member countries
import restrictions
Selective restrictions on the import of consumer products, raw materials, machines, and spare parts
tax controls
Taxes must be classified as a political risk when used as a means of controlling foreign investments. In such bases, they are raised without warning and in violation of formal agreements.
price controls
- Controls applied during inflationary periods can be used to control the cost of living
- May be used to force foreign companies to sell equity to local interests
labor problems
in many countries, labor unions have strong government support which may be used to obtain concessions.
Cybercrime
Hard to determine if cyber-attacks are launched by rogue states, terrorists, hackers, or pranksters
stability of government policies
Ideal political climate for multinational firms:
• Stable
• Friendly
Joint Ventures
Typically less susceptible to political harassment, joint ventures can be with locals or other third-country multinational companies.
Different types of legal systems
o common law o civil or code law o islamic law o communicable legal system o marxist social tenants
International dispute resolution
Two options: conciliation or arbitration
Protection of intellectual property rights
o Counterfeiting and Piracy
o Prior Use
o Registration
o International Conventions
Cyberlaw and related issues
o Cybersquatters
o Taxes
o Jurisdiction of Disputes and Validity of Contracts
Examples marketing laws in a foreign country that a U.S. firm needs to obey
o Greece, Norway, Denmark, Austria, and Sweden have banned TV advertising to kids
o In Austria, premium offers, free gifts, and coupons are banned