INTERNATIONAL BUSINESS LAW

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Nov 20, 2013 (3 years and 6 months ago)

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Chapter 1

Introduction to
International Business

1999 West Educational Publishing

2

Managing the Risks of
International Business


“THE MANAGEMENT OF
INTERNATIONAL BUSINESS IS THE
MANAGEMENT OF RISK”

1999 West Educational Publishing

3

Managing Risk


Market entry strategy


Shifting the risk


Using the contract to fix
responsibility, allocate risk and
price accordingly


Payment and credit risk


Managing distance and
communications


1999 West Educational Publishing

4

Managing Risk


Managing language and cultural
differences


Managing currency and exchange
rate risk

1999 West Educational Publishing

5

Managing Risk


Political risk?


Causes?


How to handle?


Foreign courts and foreign law?
See
DIP SpA v. Commune di
Bassano
p.39 challenging Italian
retail licensing requirements. What
result?

1999 West Educational Publishing

6

Managing Risks


Currency/Exchange Rate Risks


Transaction Risks



*

delivery risk



*

marine risk



*

litigation risk
-

Gaskin
, p.34

1999 West Educational Publishing

7

Political Risks


Managing political risk


Managing risk of foreign law and
courts
-

choice of law and forum
clauses


Risk of international hostilities

1999 West Educational Publishing

8

Implications for International Business


Political, economic, and legal environments of a
country


influence attractiveness


raise ethical Issues


Attractiveness


balance long
-
term risks with short
-
term benefits of
doing business in a foreign country


benefits depend on: size, wealth, future economic
growth


first mover advantages


identify “star” future economies


costs are affected by:


political payoffs


economic sophistication (may be more costly to
operate in LDCs, no infrastructure)


legal framework impact on costs


1999 West Educational Publishing

9

Implications for
International Business


Ethical Issues


human rights


adherence to same standards abroad
as at home


product safety


work safety


environmental protection


bribes


Foreign Corrupt Practices Act (1977)


what is unethical is not necessarily
illegal

1999 West Educational Publishing

10

Legal Systems and
International Business


Legal Systems and International Business


property rights


use of a resource


use made of income from resource


enforcement issues


Public vs private action violations


protection of Intellectual Property


patent: inventors’ exclusive rights to manufacture, use,
sale an invention


copyright: same for authors, composers, artists,
publishers


trademarks: unique designs and names, often officially
registered


Paris Convention for the Protection of Industrial Property
(96 countries)


WTO/GATT

1999 West Educational Publishing

11

Legal Systems and
International Business


product safety and product liability


criminal / civil liability


contract law


document that specifies


conditions under which an exchange will happen


rights/obligations of parties


differences based on legal tradition


common law system


civil law system

1999 West Educational Publishing

12

Forms of International
Business


Trade


International licensing of
technology and intellectual
property (trademarks, patents and
copyrights)


Foreign direct investment

1999 West Educational Publishing

13

External or “arms
-
length”
Modes of Entry


Firm does business overseas without
investing in owned assets and own
human resources in target market


Exporting


Sell “domestically” produced products into
foreign markets through local independent
agents or directly to customers


Turnkey projects


Special case of exporting for firms that set up
production plants or build facilities for others


The “exporting firm” builds the facility
overseas, starts it up, turns it over to the host
country owner, and then departs


Oil firms, construction firms, manufacturers

1999 West Educational Publishing

14

External or “arms
-
length”
Modes (cont.)


Licensing


Licensor grants rights to licensee for use of intangible
property over a specified period in return for a fee


Intangible property: patents, inventions, formulas,
processes, designs, copyrights, trademarks


Licensing agreement likely allows licensor quality
assurance rights over actual use of intangible asset


If licensee sells to consumers using the licensor’s brand
name, the license may also give the licensor rights to
strategic brand control


Franchising


Franchisor, grants franchisee use of intangibles under the
condition that franchisee follow strict rules of operating
the business


Mode of operation is part of the brand image


International strategic alliances

1999 West Educational Publishing

15

“Internal” Modes of Entry


These involve Foreign Direct Investment


Wholly owned subsidiaries


Firms owned 100% by a company in a
foreign country


International joint ventures


Firms that are owned jointly by two or
more otherwise independent firms; most
IJVs are between two firms


One (or more) parent firms are non
-
resident in the host market


Ownership % may vary from majority
foreign owned, to 50%
-
50% owned, to
minority owned by the foreign firm

1999 West Educational Publishing

16

Trade


Exporting


Importing


Subject to government controls
over trade:



Tariffs


non tariff barriers


Trade in services
-

increasing



1999 West Educational Publishing

17

Intellectual Property and
Licensing


Intellectual Property Rights:


Copyrights: legal rights to an artistic or
written work


Trademarks: the legal right to use a name or
symbol; that identifies a firm or its product


Patents: governmental grants to inventors
assuring them of the legal right to produce,
use and sell their invention for a period of
years

1999 West Educational Publishing

18

International Licensing
Agreements


International licensing agreements:
contracts by which the holder of
intellectual property will grant certain
rights in that property to a foreign firm
to use for a period of time under certain
conditions in return for a licensing fee


Technology transfer


Franchising Agreements : licenses to
use trademark and form of business
operations

1999 West Educational Publishing

19

Protecting Intellectual
Property


Importance of IP for US trade


Difficulty of combating piracy

1999 West Educational Publishing

20

Legal and Political Issues in
Technology Transfer Agreements


Regulated by some governments


generally in Asia, Latin America, and
the Middle East


terms restricted to benefit the
developing country

1999 West Educational Publishing

21

Foreign Direct Investment


Ownership and active control of
ongoing business concerns
including investment in
manufacturing, mining, farming
and other production facilities


Wholly owned foreign subsidiary


Joint venture


Mergers and acquisitions

1999 West Educational Publishing

22

The Legal Environment in
Developing Countries


How different?


Examples: foreign exchange,
controls on trade, licensing and
investments


Bhopal
discussion


Reform and privatization


Transition to market economies

1999 West Educational Publishing

23

Ethical Issues



The law is a floor…but ethical
codes and personal values call on
us to exceed that which is required
by law.”


Do you agree?


Source of ethics?

1999 West Educational Publishing

24

Ethical Issues


Bribes?


Child labor?


Different working conditions and
wages?


Corporate response?


1999 West Educational Publishing

25

Conclusion


Global knowledge


Trade, licensing and investment


How to manage risk? Good
research, understand risk, know
the law and use contract to protect
you and help you manage risk.

1999 West Educational Publishing

26

Web Sites


www.firstgov.gov


www.ita.doc.gov/


www.ciber.bus.msu.edu/busres.htm


www.ustr.gov


www.wto.org


www.bea.doc.gov


www.worldbank.org


1999 West Educational Publishing

27


First Flight v. Pro. Golf
,
p.15


Facts: Pro Golf negotiated with Wynn to
act as sales representative in Japan.
Wynn incorporated FFA in Japan.
ProGolf

entered into an agreement
where FFA could use First Flight
trademark. FFA tried to sublicense the
trademark.


Pro Golf
Case

1999 West Educational Publishing

28

Pro Golf
Case


Progolf terminated the agreement. Pro
Golf learned that they had not properly
registered their trademark in Japan. FFA
sued for breach of contract and Pro Golf
counterclaimed for royalties.


Holding: Pro Golf was permitted to
terminate its Japanese sales agency
with FFA because it was terminable at
will
.

1999 West Educational Publishing

29

Pro Golf
Case
(cont.)


However Pro Golf was not entitled
to royalties because they had not
perfected their rights to the
trademark under Japanese law
.

1999 West Educational Publishing

30

Franchising Case


Raymond Dayan v. McDonald’s

p.
18


Facts: Dayan had franchise to operate
McDonald’s in Paris. There was a serious
problem with QSC (quality, service and
cleanliness standards. McDonald’s
wanted to terminate the franchise but
Dayan objected.

1999 West Educational Publishing

31

Dayan v. McDonald’s Corp.


Holding: After much legal
maneuvering on two continents,
McDonald’s was able to terminate
the franchise. Dayan was able to
continue his restaurants under a
different name.


What is the impact of this on the
franchiser?

1999 West Educational Publishing

32

DIP SpA v. Commune di
Bassano


“…it is sufficient to observe that
rules such as those contained in
the Italian Act make no distinction
according to the origin of the
goods distributed by the
businesses concerned, that their
purpose is not to regulate trade in
goods…

1999 West Educational Publishing

33

DIP SpA v. Commune di
Bassano


And that the restrictive effect
which they might have on the free
movement of goods are too
uncertain and indirect for the
obligation which they impose to be
regarded as hindering trade
between member states.”

1999 West Educational Publishing

34

Gaskin v. Stumm Handel


Facts:


Issue: Is the forum selection clause in
the contract which had been written in
German designating the courts of
Germany enforceable thus precluding
the plaintiff from proceeding in a U.S.
Court?


Yes

1999 West Educational Publishing

35

Gaskin v. Stumm Handel


Why did the court rule for the
defendant?


What circumstances might have
altered the result?


What advice do you have for the
plaintiff for the future?