GOVERNMENT AND LEGAL

INFLUENCESChapter 5

International Business

GOVERNMENTAL INFLUENCES ON TRADE Government and International Business

Government policies and regulations affect all aspects of importing and exporting

Legal systems regulate tradeCompanies must be able to work within

various political and legal systems to be competitive internationally

You must be aware of the ways governments shape economic policies and practices that affect international commerce

GOVERNMENTAL INFLUENCES ON TRADE Types of Governments

Democratic Government where the nations citizens hold political

power Rights, freedom, and responsibilities of the individual Use an economic system based on supply and demand, a

market economy. Totalitarianism

Government controls all aspects of life Including attitudes, values and beliefs

Can be theocratic or secular Theocratic – Religious leaders are the political leaders

Theocracy – government whose leader claims to be inspired by divine guidance ( Iran, Afghanistan)

Secular – Comes from the military or moves up through the single political party

GOVERNMENTAL INFLUENCES ON TRADE

Mixed System A combination of both types Citizens are free to trade and create companies,

though the government still directs the economy.

Political Environments Isolationism

A foreign policy that combines an avoidance of political and military alliances.

Government protects its economy by closing its bordersDiscourages immigration and trade

GOVERNMENTAL INFLUENCES ON TRADE

Conservative Attitudes Favors limits on government activities and

promotes private ownership and business domestically and internationally

Allows marketplace to operate as freely as possible

Liberal Attitudes Favors more government involvement in

business Impose strong quality and safety regulations Important to know its laws and policies regarding

liability

GOVERNMENTAL INFLUENCES ON TRADE Economic Policies and Practices

International Taxes Income Tax

Annual Tax on individual’s or corporation’s net profit Progressive (higher taxes for higher salaries), regressive

(higher taxes for lower salaries), flat (everyone pays the same %)

Sales Tax Tax on sale of the products

Excise Tax Levied on specific goods and services Included in the price of the product

Payroll Tax Tax employers are required to withhold from employee’s

paycheck Value Added Tax

Sales tax paid on the increased value of a good.

GOVERNMENTAL INFLUENCES ON TRADE

Trade Barriers (Discourage International Trade) Duties

Taxes on goods that cross national borders Tariffs

Import tax Quotas, embargoes, licensing requirements,

exchange rate controlsFree Trade (Increase Trade)

Can improve the economic well being of people in the country

Trade can bring in goods and services that otherwise would not be available

Trade can build political alliances

GOVERNMENTAL INFLUENCES ON TRADE Political Risk

Trade Sanctions The use of tariff, boycott, or embargo to make a

political statementExpropriation

Act of taking control and ownership of a foreign owned company or operation

Economic Nationalism Practice of discouraging the importing of goods in

order to protect a domestic product.Political Turbulence

Disruptions such as protests, strikes, other social disorder

War

INDEPENDENT PRACTICE Choose two countries with different

forms of government (Not U.S.) Create a Chart:

Compare and contrast the governments policies as they relate to: importing exporting international trade

Explain which country would be better to do business with.

LEGAL INFLUENCES ON TRADE Legal Systems and International Business

Laws and Regulations Common Law

Set of Laws based on local customs, traditions, and precedent Legal history, previous cases and national customs serves as

guides Precedent – Something that has come before. Look at

previous decisions when making judgments. Civil Law

Set of Codes based on broad legal principals Decisions are based on codes written over time Must understand countries codes when doing business in

that country Theocratic Law

Set of laws based on religious teachings Regulates moral behavior

LEGAL INFLUENCES ON TRADE

Laws and Regulations Product Safety and Consumer Protection

Each country has differing laws about product safety, liability and consumer protection.

They apply to manufactures and purchasing companies

Must consider importance of making safe products. Liability – legal responsibilities for the financial cost

of another person’s losses or injuries Labor Laws

Vary from country to country, they regulate: Minimum wage rates Length of the work week and overtime Hiring, firing, and layoff policies The age at which a person can work The right to form a labor union The right to strike

LEGAL INFLUENCES ON TRADE

Labor Laws Many countries are at a disadvantage because of

strict labor laws, WHY?

Intellectual Property An original work fixed in a tangible medium of

expressionCopyright – legal protection of a creator’s

intellectual property or productTrademark – A device that legally identifies

ownership of a registered brand or trade namePatent – Gives an inventor exclusive rights to

manufacture, sell, or use an invention

LEGAL INFLUENCES ON TRADE

Licensing Requirements Multinational companies must comply with

licensing requirements of other countries and international organizations

Issues that businesses must addressKnowing the requirementsMeeting the requirements in a cost-effective

waySuccessfully completing the paperwork

Licensing Requirements can become a trade barrier between two countries

LEGAL INFLUENCES ON TRADE Resolving Legal Disputes

Litigation Legal process used to resolve a dispute through

the court systemMediation

Process of intervention between conflicting parties that promotes resolution of their conflict outside the court system

Arbitration Process to resolve disputes in which each side

presents its case to an independent individual.Arbitrator makes decision which is binding