Legal,Technological,and Political Forces
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
Chapter Objectives 2
•Describe the impact of the host country’s technological environment on international
•Explain how firms can protect themselves from political risk
The Legal Environment
While domestic firms must follow laws and customs of home country, international
businesses must obey laws of home country and all host countries.
•Based on wisdom of judges’ decisions on individual cases through history
•Cases create legal precedents
Countries Using Common 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
•Based on the officially established rules governing faith and practice of a particular
•A country that applies religious law to civil and criminal conduct is called a theocracy
Economic and Political Impacts of MNCs on Host Countries
–Dependency on economic health of MNC
Cultural Impacts of MNCs on Host Countries
–Improved standard of living
–Introduction of new products
–Better health care
–More sanitary food products
–Abuse of less developed policies in the areas of safety and environmental concerns
–Negligent product offerings
•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?
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
Arbitration is the process by which both parties to a conflict agree to submit their cases
to a private individual or body whose decision they will honor.
International Treaties Protecting Intellectual Property Rights
•International Convention for the Protection of Industrial Property Rights (i.e., the Paris
•Berne Convention for the Protection of Literary and Artistic Works
•Universal Copyright Convention
•Trade-Related Intellectual Property Rights Agreement
Table 3.2 Examples of Political Risk
•Campaigns against foreign goods
•Mandatory labor benefits legislation
•Kidnappings, terrorist threats
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?
Insurance Against Political Risks
•Overseas Private Investment Corporation (OPIC)
•Multilateral Investment Guarantee Agency (MIGA)