The Second Cultural Revolution

1. The Second Cultural Revolution • The growth of the Internet has presented many challenges to the ruling Communist Party in the People’s Republic of China. • The government has adopted a variety of measures to protect state-owned enterprises, suppress foreign influences, and maintain its political power. • In 1999 it verbally banned foreign investment in Chinese ISPs, Internet content providers, and other dotcom ventures, after hundreds of millions of dollars of foreign venture capital had already flowed into private dotcom start-ups.

2. Differences in Legal Systems • Common law • Civil law • Religious law • Bureaucratic law

3. Common Law • Common law is the foundation of the legal systems in the United Kingdom and its former colonies, including the United States, Canada, Australia, India, New Zealand, Barbados, Saint Kitts and Nevis, and Malaysia. • Common law is based on the cumulative wisdom of judges’ decisions on individual cases through history. • In addition to evolutionary differences in case law, statutory laws—those enacted by legislative action—also vary among the common law countries.

4. Civil Law • Civil law, the world’s most common form of legal system, is law based on a codification, or detailed listing, of what is and is not permissible. • The roles of judges and lawyers demonstrate an important difference between common law and civil law systems. A common law judge serves as a neutral referee ruling on motions by the opposing parties’ lawyers. Acivil lawjudge takes on many of the tasks of the lawyers, determining, for example, the scope of evidence to be collected and presented to the court.

5. Religious Law • Religious law is a law based on the officially established rules governing the faith and practice of a particular religion. • A country that applies religious law to civil and criminal conduct is called atheocracy. • Countries relying on religious law often have other features that should make outsiders cautious.

6. Bureaucratic Law • The legal system in communist countries and in dictatorships is often described as bureaucratic law. • Bureaucratic law is whatever the country’s bureaucrats say it is, regardless of the formal law of the land. • In countries relying on bureaucratic law, an MNC’s ability to manage its operations is often compromised by bureaucrats.

7. Domestically–Oriented Laws • The laws of the countries in which an international business operates play a major role in shaping the opportunities available to that firm. • Such laws affect all facets of a firm’s domestic operations: • Managing its workforce • Financing its operations • Marketing its products • Developing and utilizing technology

8. Laws Directly Affecting International Business Transactions • A country may attempt to induce a second country to change an undesirable policy by imposing sanctions—restraints against commerce with that country. • An embargo—a comprehensive sanction against all commerce with a given country—may be imposed by countries acting in unison or alone. • Countries may also attempt to regulate business activities that are conducted outside their border, a practice known as extraterritoriality.

9. Northern India and Neighboring Countries

10. Laws Directed Against Foreign Firms • Leftist governments may choose to transfer ownership of resources from the private to the public sector, a process known as nationalization. • When the host government compensates the private owners for their losses, such a transfer is called expropriation. • When the host government offers no compensation, the transfer is called confiscation.

11. Laws Directed Against Foreign Firms (cont.) • Constraints on foreign ownership • Many governments limit foreign ownership of domestic firms in order to avoid control of their economies or key industries by foreigners. • Countries can also constrain foreign MNCs by imposing restrictions on their ability to repatriate, or return to their home countries, profits earned in the host country.

12. The Impact of MNCs on Host Countries • MNCs affect every local economy in which they compete and operate. • Many of their effects are positive–creating local jobs, pay taxes, technology transfer, etc. • MNCs may also have negative effects on the local economy–direct competition with local firms may cause those firms to lose both jobs and profits.

13. Cultural Impact of MNCs • MNCs can also exert a major influence on the cultures in which they operate. • Some of these changes are positive–the introduction of safer equipment and machinery, better health care and sanitation. • Some are not–environmental degradation, dilution of local culture, etc.

14. Dispute Resolution in International Business Typically, four questions must be answered for an international dispute to be resolved: • Which country’s law applies? • In which country should the issue be resolved? • What technique should be used to resolve the conflict—litigation, arbitration, mediation, or negotiation? • How will the settlement be enforced?

15. The Technological Environment (cont.) • An important determination of a country’s technological environment—and the willingness of foreign firms to transfer technology to it—is the degree of protection that its laws offer intellectual property rights. • Protection of such rights has been promoted by numerous international treaties. • Weak protection for intellectual property rights can have high costs for international businesses. • International conflicts often develop because intellectual property laws are not consistent.

16. The Political Environment • An important part of any business decision is assessing the political environment in which the firm operates. • Civil wars, assassinations, kidnapping of foreign businesspeople, and expropriation of a firm’s property are dangerous to the viability of a firm’s foreign operations.

17. The Political Environment (cont.) • Most political risks can be divided into three categories: • Ownership risk, where the property of the firm is threatened through confiscation or expropriation • Operating risk, in which the ongoing operations of the firm and/or the safety of its employees are threatened • Transfer risk, in which the government interferes with the firm’s ability to shift funds into and out of the country