Unit 2 Flashcards
How do political systems create challenges for international firms?
- Government takeover of corporation assets (rare)
- sanctions & embargoes
- consumer boycotts
- terrorism
- war/violence
Why should foreign investment laws be considered?
- it can affect the entry strategy, operations and performance
- foreign investment can be restricted in sectors to protect a host nations’ competitiveness, security and cultural assets
Why might host countries impose regulations on production, marketing and distribution?
- to complicated the transportation and logistical operations to limit or deter foreign entry strategies
- different regulations on what can be advertised
What is income repatriation related to foreign laws and regulations?
The limitation of the amount of income or dividends that can be transferred home
What other laws and regulations must be considered as potential risks for international businesses?
- contract laws
- commercial law
- internet & ecommerce regulations
- underdeveloped/inadequate legal systems
- accounting & reporting laws
- transparency in financial
reporting
How is the extraterritorial application of nation laws a risk for international firms?
This subjects companies to:
- conflicting or overlapping legal requirements,
- fosters unpredictability,
- increases risks involved in commercial activities,
- leads to burdensome litigation -
- inflates legal costs
while having negative effects on international trade & investment.
What are the main functions of political systems?
- protect against external threats
- ensure stability
- govern valued resources
- define how society interacts
Why is it important to consider countries political systems?
1) they define how transactions are executed
2) identify rights and obligations
3) the costs of doing business in a foreign country are a function of the political system
What are the main types of legal systems?
1) Common Law
2) Civic Law
3) Religious Law
(4) Mixed systems)
How are national differences reflected in law and regulations?
1) contract law
2) property rights and action
- private action
(theft, piracy, blackmail)
- public action
(legally - tax, illegally - corruption)
3) intellectual property
- patents
- trademark
- copyrights
4) product safety and reliability
What are the main country risks associated to global business?
- Gov intervention
- barriers to trade
- lack of intellectual property rights & safeguards
- legislation unaffordable to foreign firms
- economic failures and mismanagement
- social and political unrest and instability
What are the source of country risks?
1) Political system:
- government
- political parties
- legislative bodies
- lobbying groups
- trade unions
- other political inst.
2) Legal system:
- laws & regs that ensure order in commercial actives
- resolve disputes
- protect intellectual property rights
- tax economic output
What are the 3 main risks to a foreign investor?
1) ownership risks.
- confiscation, nationalisation, foreign ownership limitations
2) operation risks
- price controls, financial restrictions, tax, local sourcing requirements
3) Transfer risks
- limitations on transfer of capital
- tariffs, restrictions on exports, dividend remittance, capital repatriation
How can you assess the political risk in countries?
Proactive environmental scanning - ongoing assessment of risks
How can political risks be measured?
- Quantitative political indices
- Qualitative analysis and scenario approaching
