Legal, Technological, Accounting, and Political Environments Griffin & Pustay 3-1 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall International Business, 6th Edition chapter Chapter Objectives • 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 3-2 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Chapter Objectives (continued) • Describe the impact of the host country’s technological environment on international business • Identify the factors that influence national accounting systems • Explain how firms can protect themselves from political risk 3-3 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Legal Environment While domestic firms must follow laws and customs of the home country, international businesses must obey laws of the home country and all host countries 3-4 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Legal Systems 3-5 Common Law Civil Law Religious Law Bureaucratic Law Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Common Law • Based on wisdom of judges’ decisions on individual cases through history • Cases create legal precedents 3-6 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Countries Using Common Law • United States • Barbados • Canada • Saint Kitts • Australia • Nevis • India • Malaysia • New Zealand 3-7 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall 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 3-8 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Religious Law • Based on the officially established rules governing faith and practice of a particular religion • A country that applies religious law to civil and criminal conduct is called a theocracy 3-9 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Bureaucratic Law Bureaucratic law is the legal system in communist countries and in dictatorships 3-10 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Technological Environment Agricultural land Infrastructure Low-cost labor Resources Skilled labor 3-18 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Rich natural resources Intellectual Property • Patents • Copyrights • Trademarks • Brand names 3-19 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Intellectual property often forms the basis of a firm’s competitive advantage! 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 3-20 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Accounting Environment The Roots of National Differences • GAAP - Generally Accepted Accounting Principles 3-21 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Figure 3.1 Influences on a Country's’ Accounting System 3-22 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Accounting Environment Differences in Accounting Practices • Valuation and Revaluation of Assets • Valuation of Inventories • Dealing with Tax Authorities • Use of Accounting Reserves 3-23 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Accounting Environment (continued) Other Differences • Capitalization of Financial Leases • Preparation of Consolidated Financial Statements • Capitalization of Research and Development expenses • Treatment of Goodwill 3-24 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Accounting Environment (concluded) Impact of Capital Markets • International Financial Reporting Standards 3-25 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall The Political Environment Political Risk Ownership risk Operating risk 3-26 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Transfer risk Table 3.2 Examples of Political Risks • Expropriation • Confiscation • Inflation • Kidnappings, terrorist threats • Campaigns against foreign goods • Repatriation • Mandatory labor • Currency benefits legislation devaluations • Civil wars • Increased taxation 3-27 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Levels of Political Risk Macropolitical risk 3-28 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Micropolitical risk Firms Need to Answer These Questions • Is the country a democracy or dictatorship? • Does the country rely on free market or government controls? • Does the government view foreign firms as a positive influence? • Are the firm’s customers private or public? • Does the government act arbitrarily? • Is the existing government stable? 3-29 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Map 3.3 Countries Relative to Political Riskiness, 2008 3-30 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Insurance Against Political Risks • Overseas Private Investment Corporation (OPIC) • Multilateral Investment Guarantee Agency (MIGA) 3-31 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United States of America Copyright © 2010 Pearson Education, Inc publishing as Prentice Hall .. .Chapter Objectives • Describe the major types of legal systems confronting international businesses • Explain how domestic laws affect the ability of firms to conduct international. .. international business • List the ways firms can resolve international business disputes 3-2 Copyright 2010 Pearson Education, Inc publishing as Prentice Hall Chapter Objectives (continued) • Describe the... property often forms the basis of a firm’s competitive advantage! International Treaties Protecting Intellectual Property Rights • International Convention for the Protection of Industrial Property