Lecture 2 - The International Business Environment Flashcards
Define formal institutions
Laws, regulations, and rules - may be imposed by home countries and host countries
Guided by the regulatory pillar:
- coercive power of governments (can force companies to do specific things)
Define institutional transitions
Fundamental and comprehensive changes introduced to formal and informal rules of the game that affect firms as players
e.g. Brexit
What is the institution-based view?
Success and failure of firms are enabled and constrained by institutions
Define informal institutions
Norms, cultures and ethics
What is the normative pillar of informal institutions?
How the values, beliefs and actions of other relevant players influence the behaviour of focal individuals and firms
- external to firm an individual
What is the cognitive pillar of informal institutions?
Internalized values and beliefs that guide individual and firm behaviour
Draw a diagram showing how institutions, firms and firm behaviour are all linked
Look at lecture 2 notes
What are the four different legal systems?
Common law
- look at comparative/previous cases to make judgements
- mainly found in English speaking countries
Civil law
- no deviation from what’s written
Religious law
- countries base law on religion (e.g. Iran)
Bureaucratic law
- countries where a dictatorship takes place
- less about the actual law and more about who’s in power
In the legal environment, what are the impacts of domestically orientated laws?
1) Firm’s domestic operations
2) International competitiveness of domestic firms
3) Business practices of foreign firms operating outside the country’s borders
Outline and explain the 4 laws directly affecting international business transactions?
SANCTIONS: avoiding commerce with another country
EMBARGOS: comprehensive sanction against all commerce with a given country
EXPORT CONTROL OF DUAL-USE PRODUCTS: e.g. high tech products used by civilian and military
EXTRATERRITORIALITY: countries regulating business outside their borders, e.g. US firms still subject to antitrust laws
Outline and explain laws directed against foreign firms
1) Nationalisation: the transfer of ownership of resources from private to public sector, e.g. Northern Rock bank (2008), China’s recent nationalisation of smaller coal mines
2) Expropriation: when host government compensate private owners for loss (South Africa land reforms)
3) Confiscation: host government offer no compensation (e.g. Zimbabwean government taking land)
4) Privatisation: state owned industry moving into private hands
- good opportunities for international business
5) Repatriation: host government constraining MNCs by imposing restrictions on their ability to repatriate the profits earned in the host country
What are property rights?
Legal rights to use an economic property (resource) and derive income and benefits from it
Define intellectual property
Intangible property the result of intellectual activity
Define intellectual property rights
Rights associated with ownership of intellectual property
What are the three types of intellectual property rights?
Patents
Copyright
Trademarks
Define what patents are
Legal rights awarded by government authorities to inventors of new products or processes
Define what a copyright is
Exclusive legal rights of authors and publishers to publish and disseminate their work
Define what a trademark is
Exclusive legal rights of firms to use specific names, brands and designs to differentiate their products from others
What are the foundation and determinants of the technological environment?
- resource base
- investments in infrastructure and human capital
- technology transfer
- protection of intellectual property rights
What are the three main impacts that MNCs have on host countries and their positives and negatives
Economic
Political
Cultural
POSITIVES
- increased employment
- increased investment
- technology transfer
- new products
NEGATIVES
- promote corruption
- environmental damage
- child labour
What are the 4 questions regarding dispute resolution in international business?
- which country’s laws apply?
- in which country should the issue be resolved?
- which technique should be used to resolve the conflict: litigation, arbitration, mediation or negotiation?
- how will the settlement be enforced?
What are the main influences on a country’s accounting system?
- sources of capital
- legal system
- cultural values and attitudes
- international political ties
- economic system
Differences among countries’ accounting practices affect a firm’s decisions on:
- reported income and profits
- valuations of assets and inventories
- tax reporting
- desire to operate in a given country
- use of accounting reserves
Impact on capital market:
- evaluating the performance of firms incorporated in different countries
- assessing the riskiness of potential loans
What are the political risks associated with international business?
Ownership risk
- confiscation and expropriation
Operating risk
- how do you operate day to day?
- do you pay bribes?
Transfer risk
- repatriation
- transferring resources from country to country
What are macro-political risks?
Affects all businesses in a country - not specific
What are micro-political risks?
Targeted at particular company or industry
Give some examples of political risk
- expropriation
- confiscation
- campaigns against foreign goods
- mandatory labour benefits legislation
- kidnapping, terrorist threats, violence
- civil wars
- inflation
- repatriation
- currency devaluations
- increased taxation
What questions would you ask in a political risk assessment?
- democracy or dictatorship?
- free market or government control?
- public or private sector customers?
- arbitrary change to policies or rule of law?
- stability of the existing government?
What are the implications for action by managers who go to work abroad?
- economic, political and cultural risks (influenced by formal and informal institutions)
- look at previous companies who have moved there
- need to plan a strategy
