INTERNATIONAL BUSINESS MANAGEMENT (DRM26) ASSIGNMENT

1. Explain the financial , political, legal factors that affecting International business. Ans Meaning of International Business
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history , its economic, social, and political importance has been on the rise in recent centuries. Difference between International and Domestic

International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Poltical factors affecting International Business
Companies look at the host countrys current or future political system to assess the political risk. However, international businesses always face some political risk. If you operate a Canadian company, foreign customers may be unable to pay in full and on time because of instability from currency controls imposed by the government

Types of Political Risk A company needs to evaluate all of these issues when analyzing level of political risk in a country. Companies must consider the safety of both their products and their people in unstable political situations

Risk of General Political Instability: General political instability may not be considered serious enough to cause investors to withdraw from a country. However, general instability risk raises uncertainty about Canadian projects overseas.
Ownership Risk: when operations are threatened by government takeover or expropriation, owners may lose their offshore property. This is referred to as protectionism and nationalization of business.

Operations Risk: Government policies of the host country may impede business operations such as
finance, marketing, or property. These policies are known as operations risk.

Transfer Risk: government policy may adversely affect currency exchange rates. When policy results in
currency devaluation or economic downtime which can affect a companys ability to transfer capital out of the host country. When a company creates wealth in another country it may be forced to return a considerable amount to the countrys government. This process is known as repatriation of earnings.

Even if a company cannot know in advance the scope of the risks, if it can predict the possibility of risk, provide for it, and still project a profit, its venture may be ready for approval. There are a number of questions that the company should ask itself: 1. Is terrorism part of the political landscape? Terrorism, civil unrest, and the overthrow of governments can seriously affect the international business community. 2. Could extremist groups pose a danger to the general stability of society? 3. Has there been a withdrawal of freedoms? If the countrys nationals are treated in this way, foreign companies doing business there could find themselves having to conform to restrictive laws. Withdrawal from freedoms is a signal of unstable government and risk. As the government tries to protect a weakening hold on power, it becomes more controlling.

Legal factors affecting International business Contract Enforcement

Those engaged in international business will want to do everything possible to arrive at enforceable contracts. This requires knowledge of desirable contract provisions, the rules of law that apply, how payment is made, and the enforcement of judgments

Enforcement of Judgments. Can a judgment against an MNC be enforced in other countries besides the country where the judgment was rendered? The answer is yes, but there are caveats. Assume that one party sues another in the courts of a certain country for breach of contract and obtains a judgment in that countrys courts. The collection of the judgment can possibly be obtained in yet another country through the entry of a separate corresponding judgment there. The courts of the second country generally do not require a new trial on the merits. They will recognize the foreign judgment in their country and statutorily extend comity to the judicial actions of the other nation. This does not, however, work with perfect symmetry. While American courts will usually enforce foreign judgments in the absence of a strong public policy reason not to, many other countries attach conditions to enforcing U.S. judgments. Countries differ in the types of remedies they prefer. Specific performance is more commonly used than money judgments in many countries. In specific performance remedy cases, the court orders a party to do what it promised under a contract.

Patents, Copyrights, Trademarks, and Trade Names

As noted previously, intellectual property rights (IPRs) may constitute a valuable part of the assets of a firm doing business internationally. (See the chapter on intellectual property in Ref. 4, pp. 586664; Ref. 9, pp. 425452.) It becomes important to protect the exclusivity of these rights by blocking unauthorized use. One of the more effective ways to protect an IPR, where the situation fits, is to maintain an unpatented right as a trade secret. CocaCola, for example, for more than a century has kept its formula secret. So long as careful steps are taken to maintain the secrecy, the law of individual countries, or the law of individual states in the United States, relating to trade secrets provides remedies in case of theft. The international registration of patents and trademarks is governed by the 1883 Paris Convention for Protection of Industrial Property. Copyrights are governed either by the Berne Convention, promulgated in 1886 (revised in 1971), or the Universal Copyright Convention. Ninety-three countries belong to one, the other, or both. The conventions are administered by the World Intellectual Property Organization (WIPO), established in 1967.

Financial factors affecting International trade Competition

Designing a cutting-edge, highly valued product typically causes two things: Earn large profits and subsequently, entice several competitors to enter your industry and steal your customer base with an identical good. Competition has the power to cripple a corporate powerhouse. For example, Russ Banham explains in the book, "The Ford Century" that the founder of Ford Motor Company infamously stated, "Any customer can have a car painted any color that he wants so long as it is black." His obstinacy created a financial risk when other companies introduced vehicles in other colors. The competition took some of Ford's market share and, consequently, caused a significant financial loss for the motor company.

Economic Downturn

downturn. Even if the business is not traded on the stock market, a plunge in the DOW can cause a hit to the bottom line. Economic conditions including unemployment and lowered retail sales compels many investors to grow reticent with offering capital such as business loans. Similarly, many consumers become unwilling to spend as much disposable income if they fear losing their job. When companies preempt the possibility of this financial risk, they can offer and develop products at a lower price. Or, they may heavily advertise products that tend to be high-sellers during recessions, such as canned goods and generic products. Some companies attract consumers by offering extensive warranties on durable goods to alleviate concerns about the expensive purchase. Car companies, for instance, might extend the warranty by six months and offer higher trade-in rebates to attract hesitant buyers.

Consumer Preferences As consumers desire new and different products, companies must adapt and change their product line. The preference of consumers evolves due to changes in technology, changes in style and culture. Businesses face financial risks when they do not adapt to these evolving preferences. For instance, Polaroid and Kodak both extended their product lines to include digital cameras instead of offering only film-based cameras. Target and Marshalls offer trench coats and knee-high boots in the fall and clear out summer's swimsuit selection. Bakeries give brides the choice of cupcakes to accommodate the growing trend of miniature baked goods. Though businesses may be hesitant to veer away from their traditional products, an unwillingness to adapt to evolving consumer preferences could cause the company to go out of business.