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Chapter 5

Chapter 5. The Political and Legal Environment. Environmental Shortcomings of the Investment Climate. Political and Legal Environment. Home country political and legal environment The Environmental Superfund Intellectual property rights Gray markets.

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Chapter 5

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  1. Chapter 5 The Political and Legal Environment

  2. Environmental Shortcomings of the Investment Climate

  3. Political and Legal Environment • Home country political and legal environment • The Environmental Superfund • Intellectual property rights • Gray markets

  4. Political and Legal Environment (continued) • Embargoes and sanctions • “…government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes.

  5. Export Control • U.S. export control systems • Export Administration Act (Commerce Department) • Munitions Control Act (State Department) • Determinants for export controls • National security, foreign policy, short supply, nuclear nonproliferation. • Dual-Use Items • Goods used for both military and civilian purposes. • Controlled for other purposes. • Export license

  6. The U.S. Export Control System Decision Steps in the Export Licensing Process Determinants for Export Controls Should a Given Product Be Exported • National Security • Foreign Policy • Short Supply • Nuclear Nonproliferation To a Given Country To a Given End-user? For a Particular End-user?

  7. Export Controls New Environment • Foreign availability of high technology products. • Export controls have moved from a “strategic balance” to a ‘tactical balance” approach. • Increase in the speed and dissemination of information and innovation. • Issue of equipment size. • How much of the latest technology is required before a country may engage in dangerous activities. • Loosening of mutual bonds between allied nations.

  8. Import Controls • Tariffs • Voluntary restraint agreements • Quota systems • Administrative problems • Monetary and social costs to consumers while benefiting protected groups. • Downstream change in the composition of imports to circumvent narrowly defined protectionist measures. • The failure of protected firms become more efficient and competitive.

  9. International Business Behavior and Regulations • Regulating international business behavior • Home countries may implement special laws and regulations to ensure that the international business behavior of firms headquartered within them is conducted within moral and ethical boundaries considered appropriate. • Methods • Boycotts • Antitrust Laws • Bribery and Corruption Laws

  10. Risk Go HomeForeigners • Political risk • The risk of loss when investing in a given country caused by changes in a country’s political structure or policies. • Types of political risk • Ownership risk (property and life) • Operating risk (ongoing operations interference) • Transfer risk (in shifting funds between countries)

  11. Political Risk

  12. Forms of Host Country Controls • Expropriation • Taking of private property with compensation. • Confiscation • Taking of private property without compensation. • Domestication • To gain control over foreign investment through demanding partial transfer of ownership and imposed regulations. • Raise tax rates. • Price controls.

  13. Legal Differences and Restraints • The two major legal systems • Common law • Based on tradition and less dependent on statutes and codes than on precedent and custom. • Code law • Based on a comprehensive set of written statutes that spell out legal rules explicitly.

  14. International Environment • International Politics • Political relations and conflicts between countries can have a profound impact on firms trying to do business internationally. • If relations between countries improve, business can benefit. • International Law • No enforceable body of international law exists. Firms are subject to home and host-country laws. • Areas of cooperation among nations • bilateral treaties guaranteeing fair treatment • patent and trademark protection

  15. Comparative Corporate Governance Regimes

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