THE LEGAL ENVIRONMENT OF BUSINESS A Critical Thinking Approach Fourth Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne 2003 Prentice Hall Ch. 3-1 2006 Prentice Hall The International Legal Environment of Business CHAPTER 9 THE LEGAL ENVIRONMENT OF BUSINESS Ch. 9-2 THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-3 Chapter 9 Overview All business is international business Opportunities for U.S. companies Competing in a global market THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-4 Dimensions of the International Environment of Business Political Economic Cultural Legal Ethical THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-5 Economic Dimensions Growth rate Central planning or market economy Disposable income Transportation infrastructure THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-6 Political Dimensions Democratic Totalitarian Decentralized Centralized Free Market Planned Economy Civil Liberties Stability THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-7 Cultural Dimensions Definition Culture consists of learned norms of a society based on values, beliefs and attitudes THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-8 Elements of Culture Language Religion Group Membership Attitudes Education THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-9 Legal Dimensions National Legal Systems: Common Law Civil Law Islamic Law Socialist Law Hindu Law THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-10 Common Law Origins in England and its colonies Case Law Precedent Retrospective THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-11 Civil Law Origins in Europe Romano-Germanic Code or Statutory Law Regulatory Prospective THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-12 Islamic Law Religious-Based: fundamentally from the Koran Set forth in the Sharia Woven into all aspects of daily life, the family, and institutions of government THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-13 Socialist Law Origins in socio-economic theories of Marx Law applied to advance the collective ownership of property and the means of production Private rights subordinate to collective rights as expressed through the state Ultimate goal is to evolve beyond the need for law THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-14 Hindu Law Religious origins in the Sastras and the Vedas Law advances compliance with the caste system Focus on family and succession Codified into Indias national laws As a former British colony, India also shares some common law traditions THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-15 International Law Traditional View: Public sector actions can directly affect private international agreements Realistic View: Public Private THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-16 Sources of International Law Customs Treaties Judicial Decisions Scholarly Writings International Organizations THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-17 Examples of International Law Visas Tax treaties Certain intellectual property right protections FCN treaties Multilateral trade agreements: NAFTA ASEAN WTO THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-18 Methods of Engaging in International Business Low Risk Trade: Stay Home and Export Low/Medium Risk Medium Risk Licensing, Franchising High Risk Direct Investment Distributors Sales Reps THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-19 International Trade DEFINITION Export and import of goods and services from one country to/from another THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-20 Reasons for International Trade Ricardo: The Economic Theory of Comparative Advantage Relative efficiency Assumptions in the model vs. the real world: There is no free trade THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-21 International Licensing Broadly applicable as to subject matter of license Trade Secrets Copyrights Patents Trademarks Technology Know How Trade Dress THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-22 Franchising Agreements Structure of the Franchise Agreement: Licensor permits use of licensed property Licensee pays royalties and fees based on sales Examples: McDonalds, KFC THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-23 Foreign Direct Investment Usually via Multinational Corporations Joint Venture Subsidiary THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-24 Motivation for Foreign Investment Expand markets Get close to customers Use foreign resources Cheaper labor Fewer regulations Acquire knowledge THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-25 Subsidiaries & Limited Liability When is the parent corporation liable for acts of subsidiary? THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-26 Case 9-1: In Re Union Carbide at Bhopal Action against both parent and subsidiary for wrongful death and injuries resulting from lethal gas leak at chemical plant in India Issue: Forum shopping Decision: Case removed to India from U.S. court Reason: Forum non conveniens THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-27 Forum Non Conveniens Where act occurred Where witnesses and evidence are Where business is incorporated Local, not U.S. work force employed at the plant Translation of language problems Local regulations applied to the plant Costs and effort required for U.S. venue THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-28 Joint Ventures Defining characteristic: Usually created for a single purpose and a limited time Some countries require all foreign investment via joint ventures Entities may be private, government, or both THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-29 Risks of Engaging in International Business Expropriation Sovereign Immunity Doctrine and FSIA Act of State Doctrine Export and Import Controls THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-30 Case 9-2: Keller v. Central Bank of Nigeria Foreign Sovereign Immunities Act (FSIA) No jurisdiction by U.S. court unless commercial activity is found Held: Illegal action does not preclude a finding of commercial activity THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-31 Case 9-3: Philippines v. Marcos FACTS Civil RICO action to recover fraudulent transfers of funds Injunction also sought to freeze funds Defense: Act of State (by head of state) THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-32 Case 3-3: Philippines v. Marcos HOLDING Act of State Doctrine based in balance of power among three branches of government Judiciary will not intrude on foreign affairs conducted by executive branch The doctrine does not extend to Marcos situation U.S. Court has jurisdiction and affirmed injunction THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-33 Case 9-4: U.S. v. Haggar Apparel FACTS Haggar ships pants to Mexico for sewing and permapressing, then ships finished goods back into U.S. General rule: such a procedure is exempt from customs duty U.S. Customs declared permapress to be manufacturing, not assembly; duty levied THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-34 Case 9-4: U.S. v. Haggar Apparel HOLDING Lower court ruled in favor of Haggar, refunding duty Court of Appeals reversed and held for Customs Rule: Customs classifications are made at port of entry, but such decisions must conform to statutory standards THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-35 Risks Relating to Currency Currency Controls Currency Value Fluctuation A Partial Solution: Hedging Forward Contracts Futures Contracts Options THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-36 Legal and Economic Integration Three Examples: 1. WTO 2. European Union 3. NAFTA THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-37 World Trade Organization Created 1995 Based upon GATT Goals: Eliminate Barriers to Trade Prohibit Nontariff Barriers Reduce Tariffs and Subsidies Protect Intellectual Property Rights THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-38 WTO: Structure and Function Rulemaking Ministerial Conference General Council Dispute Resolution Consultation between Members Dispute Settlement Panel Appellate Body THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-39 WTO: Concerns and Criticisms Sovereignty v. Trade Environmental Laws Consumer Protection Labor Laws THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-40 European Union Origins in the European Economic Community 1957 Goals: Free movement of goods, services, capital, and people across member borders THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-41 EU: Steps toward Realization Treaty of Rome 1957 Customs Union Single European Act 1986 Common Market Maastrich Treaty 1991 Monetary Union Political Union Uniform labor and social security laws THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-42 EU: Structure and Membership Council of Ministers One per state EU Commission 20 members, control functional areas called Directorates Parliament Elected by states European Court of Justice Jurisdiction over EU v. state disputes THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-43 North American Free Trade Agreement NAFTA ratified in 1994 Fifteen year phase in period Purpose: Eliminate barriers to free flow of goods, services, and investments in Canada, U.S. and Mexico THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-44 NAFTA: Structure Trade Commission Secretariat Arbitral Panels Dispute resolution via five member panels Offers relatively quick and final decision Example: UPS Case v. Mexico THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-45 Global Dispute Resolution Arbitration: The most often used method of resolving international business disputes Supported by: UN Convention on the Recognition of Foreign Arbitral Awards International Center for the Settlement of Investment Disputes International Chamber of Commerce Rules THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-46 Other Forms of Dispute Resolution Mediation Conciliation Litigation Contractual Clauses Choice of Forum Choice of Law Language THE LEGAL ENVIRONMENT OF BUSINESS 2006 Prentice Hall Ch. 9-47 Summary Managers need to consider all aspects of international business Important areas include: political, economic, cultural, and legal Increasingly, international organizations shape the rules of global trade
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