01.09.2019
Legal Aspects Of International Business A Canadian Perspective Ebook
Legal Aspects of International Business: A Canadian Perspective: Mary Jo Nicholson: 344: Books - Amazon.ca. Separating the (immigrant) Canadian pigs from the (native-born) US pigs was next to impossible. As a result, major US pork producers simply stopped buying pigs from Canada. Such a seemingly innocent move in the name of protecting consumers provoked fierce protests from the Canadian government, which eventually. Legal Aspects of International Trade—FITTskills International Business Course You don’t have to be a lawyer to do business globally, but knowing the basics definitely puts you at an advantage.
- Anon, 1996, Reducing legal liability with an ISO 14001 EMS, Standards New Zealand Environmental Newsletter, Feb. 1.Google Scholar
- Bell, A., 1996, OSC to move fast on new fund code, Globe and Mail, July 10.Google Scholar
- Bennett, C.J., in press, Privacy codes of the Canadian Bankers’ Association and the Canadian Standards Association, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Benton v. Tea Tree Plaza, 1995, No. SCGRG 94/417, Judgement No. 5144, (SC of South Australia), at 30.Google Scholar
- Bregha, F. and J. Moffet, in press, Canadian Chemical Producers Association Responsible Care Program, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Brink Forest Products Ltd v. Madrigga, 1989, B.C.J. No. 2371 (BCSC).Google Scholar
- Buchanan, J., A. Morrison and K. Webb, in press, Bike Helmet Standards and Hockey Helmet Regulations: Two Approaches to Safety Protection, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Carlill v. Carbolic Smoke Ball Co., 1893, 1 Q.B. 256 (C.A.).Google Scholar
- Clark v. McLennan, 1983, 1 All E. R. 416 (Q.B.).Google Scholar
- Cochrane, M., 1992, Class Actions in Ontario: A Guide to the Class Proceedings Act 1992, Toronto: Canadian Law Book.Google Scholar
- Department of Labour v. Waste Management NZ. Ltd, 1995, CRN No. 40040511 262 (Dist. Ct, Auckland).Google Scholar
- Director of Investigation and Research, 1995, Strategic Alliances Under the Competition Act, Hull: Ministry of Services.Google Scholar
- Fridman, G.H.L., 1994, The Law of Contract in Canada, Scarborough: Thomson.Google Scholar
- Harrison, K., in press, Eco-labelling and the environmental choice program, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Heidt, R., 1989, Populist and economic v. feudal: approaches to industry self-regulation in the United States and England, McGill Law Journal, 34, 41.Google Scholar
- Hornby, I., in press, Canadian direct marketing association and direct sellers association, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Hydrolevel Corp. v. American Society of Mechanical Engineers, 1980, 635 F. 2d 118 (2d Cir. 1980).Google Scholar
- Information Highway Advisory Council, 1995, Connection Community Context, Ottawa.Google Scholar
- Johnson v. Bingley and others, 1995, The Times, Feb. 28.Google Scholar
- Just v. British Columbia, 1991, 1 W.W.R. 385 (S.C.C.) at 403.Google Scholar
- Kresic v. Alberta, 1985, 37 Alta. L.R. (2d) 342 (Q.B.).Google Scholar
- Linden, A.M., 1988, Canadian Tort Law, Toronto: Butterworths.Google Scholar
- Martineau and Butters v. Maisqui Institution Disciplinary Board, 1978, 1 SCR 118.Google Scholar
- McChesney, A., in press, Voluntary standards and dispute resolution in Canada’s cable television industry, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Meisel v. Tolko Industries Ltd, 1991, B.C.J. No. 105 (BCSC).Google Scholar
- Murphy et al. v. Atlantic Speedy Propane Ltd, 1979, 1013 D.L.R. (3d) 545 (NSSC)Google Scholar
- Murray v. Sperry Rand Corporation, 1979, 23 O.R. 456 (Ont. H.C.).Google Scholar
- National Spa and Pool Institute Inc., 1990, 570 So 2d 612 (Ala. 1990).Google Scholar
- R. v. British Columbia Fruit Growers Association et al., 1986, 11 C.P.R. (3d) 183.Google Scholar
- R. v. Domtar, 1993, O.J. No. 3415 (Ont. C.J. — Gen. Div.).Google Scholar
- R. v. Electrical Contractors Association of Ontario and Dent, 1961, O.R. 265.Google Scholar
- R. v. Panel on Take-overs and Mergers, 1987, 1 All E.R. 564.Google Scholar
- Ramsay, I., in press, Advertising self-regulation, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Re: Evaline Jill Hamlyn and Moppet Grange Pty Ltd, 1984, Nos. G375–377 of 1983 (Fed. Ct. of Aus.).Google Scholar
- Re: Malcolm David Lennox and Megray Pty Ltd, 1985, Nos. VG23–28 of 1985 (Fed. Ct. of Aus.).Google Scholar
- Re: Robert George Quinn and Brian Alexander Given, 1980, 41 F.L.R. 416.Google Scholar
- Reed v. McDermid St Lawrence Ltd. 1991. 52 B.C.L.R. (2d) 265 (BCCA).Google Scholar
- Rhone, G., D. Clarke and K. Webb, in press, Two voluntary approaches to more sustainable forestry practices, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada. in press.Google Scholar
- Rhone, G.T., in press, Canadian tobacco manufacturers’ council tobacco industry voluntary packaging and advertising code (tobacco), in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Ripley v. Investment Dealers Association (Business Conduct Committee), 1991, 108 N.S.R. (2d) 38 (N. S. C.A.).Google Scholar
- Smith, A., 1776, The Wealth of Nations, vol. 1, bk 1, chap 10, part 2.Google Scholar
- Structural Laminates v. Douglas Fir Plywood Association, 1996, 261 F. Supp. 154 (D. Or 1966).Google Scholar
- Swanson and Peever v. Canada, 1991, 124 N.R. 218.Google Scholar
- Visp v. Scepter Manufacturing Co., 1991, O.J. No. 356 (Ont. C.J. — Gen. Div.).Google Scholar
- Webb, K., 1989, Regulatory offences, the mental element, and the Charter: rough road ahead, Ottawa Law Review, 21, 419–478.Google Scholar
- Webb, K., and A. Morrison, in press, Legal aspects of voluntary codes: in the shadow of the law, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- Webb, K., G. Rhone and J. Stroud, in press, The Gap’s code of conduct for treatment of overseas workers, in D. Cohen and K. Webb, eds., Exploring Voluntary Codes in the Marketplace, Ottawa: Government of Canada, in press.Google Scholar
- 340909 Ontario Ltd v. Huron Steel Products Ltd, 1992, 9 O.R. (3d) 305n (Ont. C.A.).Google Scholar
60,959
Legal Aspects Of International Business A Canadian Perspective Ebook
From Embeds
Number of Embeds
ActionsDownloads
Comments
Likes
Embeds 0
In this chapter, we’re going to explore these systems, known collectively as the political economy of a country, and what they mean for multinational enterprises.
You can think of political systems as having two dimensions:
First, the degree to which they emphasize collectivism as opposed to individualism, and second, the degree to which they are democratic or totalitarian.
Keep in mind that while we’re talking about these systems individually, they’re actually interrelated. Collectivistic systems tend to be more totalitarian and individualistic systems tend to be more democratic.
In other words, in a collectivistic society, the needs of a society as a whole are generally viewed as being more important than individual freedoms.
Collectivism isn’t new, in fact, we can trace it back to the ancient Greek philosopher, Plato. In modern times though, collectivism is equated with socialism.
Modern day socialists, who trace their roots to Karl Marx, advocate state ownership of the basic means of production, distribution, and exchange.
In other words, state owned enterprises can be managed to benefit society as a whole, rather than benefiting individual capitalists.
You can learn more about the rationale behind state owned enterprises in the Country Focus: Chavez’s Venezuela in your text.
One group, the communists, believed that collectivism could only be achieved through violent revolution and totalitarian dictatorship, while the other group, the social democrats, believed the same goals could be achieved using democratic means.
During the late 1970s, communism was a dominant force in the world. You might think of the former Soviet Union for example, and its Eastern European neighbors like Poland, Czechoslovakia, and Hungary. Think also of China, Cambodia, and Vietnam, and of Angola and Mozambique, Cuba, and Nicaragua.
But by the mid-1990s, the world was a very different place! Communism was in retreat. The Soviet Union for example, had been replaced by 15 republics that were structured as democracies. China, through it still limited political freedom, was moving away from its strict communist ideology. Today, only a few fringe states like Cuba and North Korea still practice true communism.
Today, social democracy is also retreating. Countries like Great Britain, France, and Germany that had been greatly influenced by the principles of social democracy, have realized that state-ownership of the means of production doesn’t always benefit the public.
New parties have been voted into power with the goal of selling state-owned enterprises to private investors who will run them more efficiently. This process is known as privatization.
This philosophy has been championed by people like David Hume, Adam Smith, and John Stuart Mill, and more recently by economists including Milton Friedman and Friedrich von Hayak.
Individualism is based on two key concepts: first, that individual freedom and self-expression are guaranteed, and second, that people are allowed to pursue their own self-interest in order to achieve the best overall good for society.
For international companies, individualism and its free market economics is important for creating a favorable business environment.
You can think of these as being at opposite ends of a political dimension where at one end, democracy is a political system in which government is by the people, and is exercised either directly or through elected individuals, and at the other end, totalitarianism, where one person or political party exercises absolute control over all spheres of life, and opposing political parties are forbidden.
While we generally think of democracy as going hand-in-hand with individualism, and totalitarianism being associated with collectivism, gray areas do exist. For example, China is still under totalitarian rule, but has adopted free market policies that tend to be associated with individualism.
A pure democracy is based in the belief that people should be directly involved in decision making.
The most common form of democracy today is representative democracy, where elected representatives vote on behalf of constituents. This is the type of system that is present in the U.S.
Some of the characteristics of democracies include freedom of expression, free media, regular elections, a fair court system, and free access to state information. Of course, these freedoms do not exist in totalitarian systems.
There are four major forms of totalitarianism:
Communist totalitarianism advocates achieving socialism through totalitarian dictatorship. While this form of totalitarianism is declining worldwide, countries like Vietnam, Cuba, and North Korea still follow the philosophy.
In a theocratic totalitarian system political power is monopolized by a party, group, or individual that governs according to religious principles. You can think of countries like Saudi Arabia or Iran when you think of this type of system. Both countries are greatly influenced by the principles of Islam, and both countries restrict political and religious freedom.
In a tribal totalitarian system a political party that represents the interests of a particular tribe monopolizes power. This type of system is present in some African nations like Zimbabwe and Tanzania.
A right wing totalitarian system allows individual economic freedom, but individual political freedom is restricted because it might lead to communism. A nation’s military often backs this type of system. This type of system has been declining since 1980, but you might recall its presence in Germany and Italy during the 1930s and 1940s.
As we mentioned before, in countries where individual goals are given primacy over collective goals, free market systems are likely to exist, but in countries where collective goals are dominant, markets are likely to be restricted and state-owned enterprises are common.
There are three types of broad economic systems: market economies, command economies, and mixed economies.
In a market economy, goods and services are privately owned and production quantities are determined by supply and demand.
In a market economy, like the U.S., governments encourage free and fair competition and discourage monopolies.
In a command economy, the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold, are planned by the government.
Businesses are state-owned and the government allocates resources for the good of society as a whole.
However, because state-owned companies lack the profit incentive to be efficient and develop new products that you find in market economies, command economies tend to stagnate.
In a mixed economy, elements of a market economy and elements of a command economy are present.
Governments often take control of industries that are considered vital to national interest. Until their recent shift to market economies, France, Great Britain, and Sweden were mixed economies.
Why is it important for international managers to be familiar with different legal systems?
It’s important because a country’s laws regulate business practice, define the manner in which business transactions are to be executed, and set down the rights and obligations of those involved in business transactions. So, the legal system impacts the attractiveness of a country as an investment or a potential target market.
Remember, a country’s legal system is influenced by its political system. So, countries that are collectivistic totalitarian states restrict private enterprise, while individualistic market economies are pro private enterprise and pro consumer.
There are three types of legal systems:
Common law is based on tradition, precedent, and custom. So, judges look at how previous cases have been treated to decide how to treat current cases. Then, as new precedents are made, laws can be amended if necessary.
Civil law is based on a detailed set of laws organized into codes. This type of system, which is practiced in more than 80 countries including Germany, Japan, and Russia, is less adversarial than common law because under civil law, judges only have the power to apply the existing law, not interpret the law.
Theocratic law is based on religious teachings. You might already know that today, Islamic law is the most widely practiced theocratic law system in the world. In practice, Islamic jurors and scholars are struggling to apply the foundations of Islamic law to the modern world, and many Muslim countries today are actually practicing Islamic law combined with common law or civil law.
One key reason is because each system approaches the enforcement of contracts in a different way.
A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved.
Contract law then is the body of law that governs contract enforcement.
Common law systems tend to spell out detailed contingencies related to the enforcement of a contract, while in civil law systems contracts tend to be much shorter because many issues are already covered in a civil code.
What does this mean for companies?
Well, compared to a civil law system, contracts in common law states will be more expensive to draw up, and contract disputes will be very adversarial. However, in a common law system remember that the judge interprets the law with regard to the situation at hand, so there may be more flexibility in how a dispute is handled.
So, suppose you come from a common law state, and you’ve signed an agreement with a company operating under a civil law system. Which law should apply?
To deal with this type of scenario, many countries, including the U.S., have signed the United Nations Convention on Contracts for the International Sale of Goods, or CIGS, which established a uniform set of rules governing certain aspects of the making and performance of everyday contracts between sellers and buyers who have their places of business in different nations.
Unfortunately, at the moment, only about 70 countries have ratified CIGS, and many major trading countries like the United Kingdom and Japan have still not signed the agreement.
As you’ve probably already guessed, the laws on property rights differ across countries. In some countries, even though there are laws protecting property, the laws are not consistently enforced.
Property rights can be violated through private actions and through public actions.
Private violations like theft, piracy, or blackmail, are done by individuals. Keep in mind that this type of violation can take place in any country, but countries with weak legal systems like Russia have a much bigger problem with it.
When public officials like politicians and bureaucrats violate property rights, they might use legal mechanisms such as levying excessive taxes like Chavez did in Venezuela, or requiring special expensive licenses, or even simply taking assets into state control. Public violation can also be illegal. You might think of having to pay a bribe in order to get the right to operate in a certain country like companies had to do in the Philippines when Ferdinand Marcos was in power.
The United States passed the Foreign Corrupt Practices Act in the 1970s to make it illegal for companies to bribe government officials in foreign countries to obtain or maintain business over which the foreign official has authority.
Companies have to keep detailed records so that it’s clear whether a violation has taken place.
There are some exceptions to this law. Facilitating or expediting payments, which are also called grease payments, are still allowed. So a company can speed up the processing of routine paperwork, or obtain permits or licenses using grease payments. The U.S. argues that since these types of activities would be performed routinely anyway, speeding them is not a violation of the law.
The Organization for Economic Cooperation and Development, or OECD, has also adopted a convention that requires member states to make bribery of foreign public officials a criminal offense.
Why is it important to understand property rights and corruption? Well, most companies will be significantly more cautious when doing business in countries with high levels of corruption. This can be quite detrimental to a country because when foreign direct investment and trade are reduced, economic growth slows.
You might recall the Country Focus on the corruption that took place in Venezuela in the late 1990s and early 2000s when the president of the country, Victor Chavez began to take control over foreign oil companies doing business in Venezuela, and the Country Focus on the corruption that has been rampant in Nigeria over the last 40 years.
Remember that intellectual property is property that is the product of intellectual activity. So, it can include anything from computer software or a chemical formula for a new drug to a screenplay or a music score.
Intellectual property can be protected in three ways:
A patent gives the inventor of a new product or process exclusive rights to manufacture, use or sell the invention.
A copyright is the exclusive right of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit.
A trademark is a design or name that may be officially registered, that allows merchants or manufacturers to designate or differentiate their products.
China and Thailand are currently among the world’s biggest violators of intellectual property rights. Pirated products like Rolex watches, Levi’s jeans, and computer software are widely available in both countries. In Latin America, about 68 percent of all software is pirated, and in China alone, 86 percent of software is pirated!
Nearly 200 countries have signed the Paris Convention for the Protection of Industrial Property to protect intellectual property rights, and are part of the World Property Organization, but enforcement of property regulations is still lax in many countries.
What can you do if your intellectual property is stolen?
You can lobby your government to take action. Many companies have done this already, and as a result this is one of the areas that the WTO is working on though the Trade Related Aspects of Intellectual Property Rights or TRIPS agreement. You can also file your own lawsuit. Starbucks was successful at doing this against a Chinese firm that opened stores that were virtually replicas of the traditional Starbucks store. You can learn more about the Starbucks case in the Management Focus in your text.
Product safety laws set certain standards to which a product must adhere and product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage.
You probably already know that the U.S. has some of the strictest laws in the world in this area. Developing nations usually have less comprehensive laws. This often leads to an ethical dilemma for companies. What should a company do if the standards in a foreign market are lower than the standards at home?
Should they incur the costs of complying with the home country standards, even if this puts them at a competitive disadvantage, or should they simply meet the standards of the host market even if this means that foreign consumers may not be assured of the same product safety levels as domestic consumers?
The political, economic, and legal environments of a country can have a significant impact on its economic development, and on its attractiveness as a potential investment location or target market.
Economic development levels an be measured using gross national income per person, or GNI.
But, GNI measures can be misleading because they don’t take into account cost of living differences. So, we adjust these numbers by purchasing power. Using purchasing power parity or PPP, we can adjust the numbers to reflect how far your money actually goes in a particular country.
What does this mean for companies? Well, looking at a PPI adjusted GNI for India in 2007, we would conclude that the average India could only consume about 6 percent of the goods and services consumed by the average American. Think about that the next time you go to the mall! Should we discount India as a potential market then? No, because if we look a little deeper we would find that the country has an emerging middle class of about 100 million people that represents a tremendous opportunity for foreign companies.
Are there other ways to measure economic development? Nobel-prize winning economist Amartya Sen thinks so!
Amartya Sen argues that rather than simply focusing on material output measures like GNI per capital, we should consider the capabilities and opportunities people enjoy when measuring economic development. Sen believes that economic progress includes things like removing impediments to freedom like tyranny, poverty, and the neglect of public facilities, and a democratization of political communities so that citizens have a voice in decisions. So, for example, Sen argues that providing basic health care and education is essential for economic growth.
There is broad agreement among policy makers and scholars that innovation and entrepreneurship are the engines of long-run economic growth, and that furthermore innovation and entrepreneurship require a market economy. In other words, new products and business processes can increase the productivity of labor and capital.
Just think of some of the innovations by Microsoft or Dell, both of which were formed by entrepreneurs, and how they have changed not only the way of doing business, but also how we live today. Remember that without the market economy that creates incentives for entrepreneurs like Bill Gates and Michael Dell, these companies and their innovations may never have been created!
Similarly, innovation and entrepreneurship require strong property rights. If the innovations by Microsoft were not given protection, there would have been little incentive for the company to continue to develop new software and other products.
What type of political system is best for economic development? Most experts agree that sustained economic growth requires a free market system and strong protection of property rights, and that while a totalitarian regime may initially experience growth, it is unlikely that even a benevolent dictatorship is best in the long run.
Finally, remember that economic progress often leads to the establishment of democracy. When a free market system is in place, individual freedoms and democracy will follow. Think about countries, like South Korea and Taiwan that have adopted more democratic governments in the last twenty years, and of China which appears to be on the road to a free market system. You can learn more about some of the changes taking place in China in the Country Focus exploring the implications of the property law that was passed in 2007.
Yes, Adam Smith for example, argued that a country’s geography can also influence its economic growth. This idea has been expanded by Harvard economist, Jeffery Sachs, who argues that countries that are lucky enough to have favorable geographic situations are more likely to be open to and develop market economies. So, landlocked economies tend to grow more slowly than coastal economies that have easy access to trading routes. Similarly, countries with poor climates or soil conditions are less likely to grow than those with more favorable conditions.
You might guess that education is another factor that has been linked to economic development. Generally, we say that the more a country invests in its education system, the greater its economic growth. So, although Pakistan and South Korea were more or less equal in 1960, because South Korea made education a top priority, South Korea was able to pull far ahead of Pakistan.
We can see two major trends in the global economy: First, during the late 1980s and early 1990s, we saw a series of democratic revolutions, and second, there has been a strong move away from centrally planned and mixed economies toward free market economies.
The number of democracies in the world has nearly doubled since 1987. Many of the new democracies are in Eastern Europe and Latin America. Mexico, for example, had its first free and fair presidential election in 2000.
What’s caused the spread in democracy over the last 15 years?
There are three main reasons:
First, many totalitarian regimes were unsuccessful. Think about Eastern Europe for example and the revolution there that was prompted by the growing gap between the rich, vibrant Western economies and the stagnant, poor economies of the Communist East. Since the revolution, countries like Poland, and the Czech Republic have emerged as economic success stories.
A second reason for the spread of democracy is that advances in communications technology like the Internet, faxes, and satellite TV have all made it easier to spread democratic ideals, and have limited the ability of governments to suppress access to these ideas.
Finally, emerging middle classes have been pushing for democratic reforms.
Going hand in hand with the spread of democracy, is the second trend, a move away from command and mixed economies and towards market-based systems.
You already know that countries in the former Soviet Union and Eastern European Communist bloc rejected their systems in favor of market based systems, and we have seen a similar trend in Asian countries like China and Vietnam, as well as in African countries like Angola, Ethiopia, and Mozambique.
The reasons for the shift are the same everywhere. The old system simply didn’t work well.
Keep in mind though, that economic freedom doesn’t necessarily mean political freedom. Hong Kong and Singapore for example, have free market systems, but are not politically free.
What is the world likely to look like in the future?
Some political scientists believe that the trend will continue and that Western liberal democracy will prevail. Others however, have suggested that while we see societies modernizing and adopting many of the material goods like Coca-Cola that are a part of the democratic free market economy, this type of modernization may also be creating a push for the adoption of more traditional values.
What does this mean for companies? If this second perspective holds, it may be much more difficult for companies to do business in certain parts of the world.
The transition involves three steps:
First, deregulation, which involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.
In other words, price controls are eliminated so that price is set by supply and demand, private enterprises are permitted, and so is foreign investment and trade. In India, for example, major economic reforms have helped the country become a global center for software development and a global player in pharmaceuticals.
The second step, privatization, transfers ownership of state property to private investors. Because private investors are motivated by profit, the companies should become more efficient and productive. In Great Britain for example, over 100 companies were privatized.
Finally, there must also be a strong legal system in place to protect property rights and provide contract enforcement. This is often a challenge to countries going through the shift towards being a market economy. In Eastern Europe for example, since property had been owned by the state, there was no mechanism in place to protect private property. Even now, while most countries have improved their systems, there are still gaps that can create huge difficulties for companies.
Companies now have access to new markets like China and its 1.2 billion people, and India’s 1.1 billion people!
Latin America has also emerged as a new market of about 400 million consumers.
Remember though, a large population doesn’t always mean a large profit.
The benefits of doing business in a market are a function of not only its size, but also the current and future purchasing power of its consumers. So, in 1960, if you looked at South Korea, it may not have looked too attractive.
Of course now you know that the companies that invested then, and gained first mover advantages are benefiting from their foresight. Companies just coming into the market are having a much more difficult time building brand loyalty and gaining experience.
Today, many companies are expanding in China in the hopes that they will be able to achieve first mover benefits.
Keep in mind that these countries are still transitioning and while the potential benefits are enormous, there is still significant risk.
What are the costs of doing business in a foreign market?
Sometimes, companies have to make payments to the host government just to be allowed to operate in a country.
There may also be costs associated with the economic systems of the country. For example if a country’s infrastructure is poor, a company may find it has to make additional investments. McDonald’s has done this in Moscow where it had to vertically integrate backwards just to maintain food quality levels. Russian grown meat and potatoes were so poor the company couldn’t use them, and so it set up its own dairy farms, cattle ranches, vegetable plots, and food processing plants.
Finally, there may be legal costs associated with the country. Complying with local laws and workplace regulations, product safety standards, and environmental pollution laws can all affect the bottom line. So companies doing business in the U.S. for example, may find insurance costs exorbitant. And, as we mentioned earlier, if a country has a poor legal system, costs will rise.
Political risk is the likelihood that political forces will cause drastic changes in a country’s business environment that adversely affects the profit and other goals of a company. Clearly, this type of risk is going to be higher in countries that are in the midst of social unrest or disorder, and its effects can be sudden and dramatic.
Economic risk is the likelihood that economic mismanagement will cause drastic changes in a country’s business environment that adversely affects the profits and other goals of a company. You might think of the Asian financial crisis and its implications here.
Legal risk is the likelihood that a trading partner will opportunistically break a contract or expropriate property rights. We’ve already talked about the importance of a strong legal system to making a country an attractive market.
In general, the benefit-cost-risk trade-off is likely to be most favorable in in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private sector debt.
A political system that stresses the primacy of collective goals over individual goals is called
a) individualism
b) collectivism
c) a democracy
d) a market economy
The answer is B.
a) communists
b) social democrats
c) social republicans
d) Plato
The answer is A.
a) a democracy
b) a representative democracy
c) totalitarianism
d) socialism
The answer is C.
a) tribal totalitarianism
b) right-wing totalitarianism
c) theocratic totalitarianism
d) communist totalitarianism
The answer is C.
a) a mixed economy
b) a command economy
c) a representative economy
d) a market economy
The answer is D.
a) civil law
b) common law
c) theocratic law
d) contract law
The answer is B.
a) Haiti
b) Indonesia
c) Malaysia
d) Nigeria
The answer is B.
a) trademarks
b) copyrights
c) patents
d) name brands
The answer is A.
a) its political system
b) its economic system
c) its geography
d) its currency
The answer is D.