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1. ©2004 Prentice Hall3-1
Chapter 3:
Legal,
Technological,
and Political
Forces
International Business, 4th
Edition
Griffin & Pustay
By Mahsina, SE., MSIBy Mahsina, SE., MSI
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2. ©2004 Prentice Hall3-2
Chapter Objectives_1
 Describe the major types of legal systems
confronting international businesses
 Explain how domestic laws affect the
ability of firms to conduct international
business
 List the ways firms can resolve international
business disputes

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Chapter Objectives_2
 Describe the impact of the host
country’s technological environment
on international business
 Explain how firms can protect
themselves from political risk

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The Legal Environment
 Common Law
 Civil Law
 Religious Law
 Bureaucratic Law

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Common Law
 Based on wisdom of judges decisions
on individual cases through history
 Cases create legal precedents

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Countries Using Common Law
 United States
 Canada
 Australia
 India
 New Zealand
 Barbados
 Saint Kitts
 Nevis
 Malaysia

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Civil Law
 Based on codification of what is and is
not permissible
 Originated in biblical times with the
Romans
 Reinforced by French Napoleonic code
 Judge determines scope of evidence
collected and presented

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Egypt’s legal
system is a blend
of English
common law, the
French
Napoleonic code,
and Islamic Law

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Religious Law
 Based on the officially established
rules governing faith and practice of a
particular religion
 Theocracy: country that applies
religious law to civil and criminal
conduct

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Bureaucratic Law
 Legal system in
communist
countries and in
dictatorships

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Laws Affecting
International Business Transactions
 Sanctions
 Embargo
 Extraterritoriality
– Helms-Burton Act

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Laws Directed Against Foreign Firms
 Nationalization
 Expropriation
 Confiscation
 Privatization

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Impacts of MNCs on Host Countries:
Economic/Political
 Advantages
– Greater selection
– Higher standards
– Job creation
– Tax benefits
– Technology
transfers
 Disadvantages
– Competition
– Job loss
– Dependency on
economic health of
MNC
– Political power

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Dispute Resolution
 Which country’s law applies?
 In which country should the issue be
resolved?
 Which technique should be used to
resolve the conflict?
 How will the settlement be enforced?

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Conflict Resolution Techniques
Mediation
Litigation
Arbitration
Negotiation

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Principle of Comity
 A country will honor and enforce within its
own territory the judgments of foreign
courts
 Conditions of the principle:
– Reciprocity is extended
– Defendant is given proper notice
– Judgment does not violate domestic statutes or
treaty obligations

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Joint venture
between
Volkswagen and
the Shanghai
Automotive
Industry Group

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Intellectual Property
 Patents
 Copyrights
 Trademarks
 Brandnames
Intellectual property often
forms the basis of a firm’s
competitive advantage!

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International Treaties Protecting
Intellectual Property Rights
 International Convention for the Protection
of Industrial Property Rights (i.e., the Paris
Convention)
 Berne Convention for the Protection of
Literary and Artistic Works
 Universal Copyright Convention
 Trade-Related Intellectual Property Rights
agreement

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Figure 3.2 Software Revenue
Lost to Piracy

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Political Risk
 Ownership risk
 Operating risk
 Transfer risk

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Table 3.1 Examples of Political Risks
 Expropriation
 Confiscation
 Campaigns against
foreign goods
 Mandatory labor
benefits legislation
 Civil wars
 Inflation
 Kidnappings,
terrorist threats, and
other forms of
violence
 Repatriation
 Currency
devaluations
 Increased taxation

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Basic Country Knowledge
 Is the country a democracy or dictatorship?
 Does country rely on free market or
government controls?
 Does government view foreign firms as
positive influence?
 Are firm’s customers private or public?
 Does government act arbitrarily?
 Is existing government stable?

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Insurance against Political Risks
 Overseas Private Investment
Corporation (OPIC)
 Multilateral Investment Guarantee
Agency (MIGA)

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Map 3.2 Countries’ Relative
Political Riskiness, 2002