ECONOMICS, POLITICAL, AND LEGAL SYSTEMS

1. ECONOMICS, POLITICAL, AND LEGAL SYSTEMS • Secondary international market information /data resources • Brief review of • International economics • Trade policy • The political environment • Legal systems

2. Heavily internationally focused Economist Journal of Commerce Forbes Business America (U.S. Dept. of Commerce) World Press Review Some international coverage Wall Street Journal, New York Times, Washington Post Business Week, Fortune Time, Newsweek Useful Periodicals

3. Other • Academic country specialists (e.g., anthropologists, economists) • Consultants • Expatriates • Own experience

4. Data Availability and Reliability • Availability/ ability to collect data • Motivations for releasing data • Wishful thinking vs. reality • The Web--accessible to any fool or group • Comparability of data/Arbitrary differences in measurements • Recency--is the data up-to-date?

5. Cost of Data • Much “raw” data is free from • U.S. Gvt. • United Nations • Research institutions • Commercial directories • Consulting services

6. Book Library catalogs (e.g., SDSU PAC) Books in Print Amazon.com Indexing Collaborative filtering suggestions Periodical Business & Industry Lexis-Nexis ABI/Inform Factiva (formerly Dow Jones) Foreign language HAPI Online (Hispanic American Periodicals Index) Lexis-Nexis Government reports Stat-USA Other country info Countrywatch.com Specialty Latin America Database HAPI Online (Hispanic American Periodicals Index) Academic research (usually theoretical, hard to read) Behavioral: PsychInfo Economics: Econlit Library Databases See handouts for details

7. University of Texas Library Resource Lists • International business source list: http://www.lib.utexas.edu/subject/business/internat.html • Marketing source list: http://www.lib.utexas.edu/subject/business/marketing.html

8. VERY BRIEF REVIEW OF ECONOMICS • Exchange rates • Floating (supply and demand) • fixed • Trade balances and their impact on exchange rates • Measuring country wealth • gross domestic product • “purchase parity” vs. nominal

10. Demand for Currency Depends On • Trade deficit (demand for foreign currency to fund this) or trade surplus (demand for country’s currency) • Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U.S. bonds and equities) • Inflation: Reduces the attractiveness of holding the currency

11. Nominal vs. Purchase Parity Adjusted GNPs—Examples (2004) Source: World Bank http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

14. Cautions on Interpreting Per Capita Figures • Averages are not very meaningful! • Regional variations • Socio-economic differences • Comparison to U.S. dollar and U.S. costs is arbitrary

15. Obstacles to Trade: Protectionism • Differing interests of consumers and manufacturers • Benefits of trade tend to be more diffused than benefits to specific groups of protectionism

16. Approaches to Protectionism • Tariffs • Quotas • “Voluntary” export restrictions • Subsidies to domestic producers/exporters • Non-tariff barriers • legal obstacles • differential treatment

17. U.S. Protectionism--justified or not... • Defense industry • Agricultural products--e.g., beef, sugar • Textiles • Automobiles (“voluntary” import restrictions) • Steel

18. Justifications for Protectionism • Protect infant industry • Resist “unfair” or inappropriate competition • Protect home market (ensure that product can be produced domestically)--defense • Intervene into temporary imbalance • Maintain domestic living standards • Preserve jobs • Bargaining power/retaliation (Super-301 provision in U.S.)

19. Effects of Protectionism • Reduced competition ---> inflation • More tariffs • Weaken balance of payments (have to pay more in own currency) • Reduce choice to consumers • May induce global trade wars (vicious cycle)

20. THE POLITICAL AND LEGAL ENVIRONMENTS • Political history and stability • Political relations between countries --impact on business • Legal differences between countries • Extra-territorial application of laws

21. The Legal Environment • Which laws apply when doing business between countries? • contractual specifications • treaties • extra-territorial applications of laws • “compulsion” as a defense

22. Some Political Risks • Confiscation, expropriation, and domestication • Economic risks • Exchange controls • Local content requirements • Import restrictions • Tax controls • Price controls • Labor problems

23. Development of Legal Systems • Laws on the books vs. laws enforced (transparency) • Japan: “Administrative guidance” • The ability to sue--a blessing or a curse? • Means of litigation • Implications for contract initiation and enforcement • Evolving nature of legal systems

24. Approaches to Law • Common law (U.S., Britain, and many English speaking countries) • Code law (much of Europe and Louisiana) • Islamic law • Socialist based law • Asian laws

25. Common Law • Gradually evolved in British courts, settling issues as they arose • Emphasis on precedent • Recognized by U.S. Constitution • Standards • criminal: “Innocent until proven guilty” • civil: “Preponderance of evidence”

26. Code (Napoleonic) Law • Law governed by explicit statutory codes--”match” codes to issues as well as possible • Somewhat different standards in contracts --what constitutes an “act of God” canceling contractual obligations? • Criminal law: “Guilty until proven innocent” but difficult to bring to trial

27. Islamic Law • Note that different varieties exist • Traditions of Islamic countries are not all tied to Islamic religion per se • Purpose of promoting justice • assets are thought to be held in “trust” • interest is frowned upon • Much wider scope than Western law: Shar’ia: the way

28. Socialist Law • Basis for law in China, former Soviet Republics, and countries influenced by Communist allies • Based on the view that the government owns productive resources ---> • contract and intellectual property laws are typically not well developed • Legal scholars from the West are helping to reform

29. Asian Law • Based on compromise and accommodation • Less emphasis on abstract principles • Less emphasis on consistent application across circumstances • Emphasis on informal resolution

30. U.S. Laws of Interest to firms with U.S. Involvement • Anti-trust • Foreign Corrupt Influences • Anti-boycott laws • Trading With the Enemy