Unit 12: International Business

For Unit 5 Exam

Risks of International Business

Transacting business overseas creates great uncertainty (language barriers, legal systems, etc.)

Questions of International Business

Whose laws apply, what treaties are in effect, will foreign courts honor contracts, what about labor and environmental laws, are property rights enforced, and how is the political climate, and what are the export/import restictions

Foreign Corrupt Practices Act

prevents U.S. (1977) companies from obtaining business by bribing foreign officials (amended 1988)

Disadvantage: Foreign Corrupt Practices Act.

1. U.S. can’t bribe other countries' companies, but other countries can bribe that same company

2. Imposing morals on other countries to follow this rule for U.S. companies

“Grease Payment”

Pay Gov’t employees to speed up administrative process

How can a foreign government seize US business assets

Expropriation, nationalization, and export controls

Expropriation

take your stuff

nationalization

take your stuff and run your business

International law

is a nebulous (hard to define) concept—governed by multiple sources in multiple places

private international law

examines the relationship created by commercial transactions (business of coutrie)

public international law

the relationship between nations and applies uniform rules (gov’t or countries themselves have disupute)

international court of justice

Judicial of the UN

United Nations (UN)

developed after WWII to '“save succeeding generations from scourge of war”

What countries have veto powers over all proposed actions in the UN

US, UK, France, Russia, and China

2 key institutions of UN

International Monetary Fund and World Bank

International Monetary Fund

exchange rates betwen countries(currencies)

World Bank

lender to countries who don’t have option of loans

World Trade Organizations

Seeks to resolve trade disputes between member nations

GATT (1947-1994)

All members treated equally, no favor shown to domestic products, and trade barriers eliminated (authority to impose sanctions—when the country isn't playing fairly)

European Union (EU)

Political and economic partnerships with nearly 30 countries all in europe

Commission of EU

executive branch, non-national specific (represents EU, not a specific country)

Parliament/Council of the EU

legislative branch, nation specific (represents country)

Court of Justice

judical branch, ensures uniform intepreation of European law

Convention on the International Sale of Goods (CISG)

international version of the UCC (1988)

NAFTA (1933)

Ease trade restrictions between US, Mexico, and Canada

CAFTA (2003)

similar to NAFTA, but applies to coutnries in central America

Directs Sales (least risky)

sells goods in the foreign market (ex. Etsy)

Irrevocable Letter of Credit in Direct sales

is a written guarantee from a buyer’s bank that payment will be made to the seller once specified conditions (like shipping documents) are met.

1. Buyer applies to their bank for an irrevocable LC in favor of the seller.

2. The buyer’s bank (issuing bank) sends the LC to the seller’s bank (advising/confirming bank).

3. The seller ships the goods and prepares the required documents (bill of lading, invoice, etc.).

4. The seller presents the documents to their bank.

5. Once documents are verified, the seller is paid.

6. The buyer pays their bank to receive the documents and claim the goods.

*Bill of Lading: a legal document issued by a carrier (shipping company) to a shipper that details the type, quantity, and destination of the goods being transported.

license/franchise

allows entrance to a foreign market without direct investment (ex., McDonald's can let people pay them and give them a license to create McDonald's in their country—using their logos, recipes, and food and selling rights to country)

Direct Investment (most risky)

directly invest in a foreign market (some countries require joint ventures). Risky because legal systems in the country can cause issues.

Foreign Sovereign Immuninties Act

a foreign government is immune from law suits in US

Alien Tort Statue (ATS)

allows aliens (citizens/residents of foreign country) to bring a civil action in US federal courts for torts committed in violation of any law of nation

International Arbitration

has all the advantages of domestic arbitration (people come in a room to hear a case and render judgement) to a greater degree)

WIPO (Word Intellectual Property Organization)

deal with laws of both countries for lawsuit, international rules, different legal rules (arbitration makes this easy and simple)