Legal System International business manager’s attention is to understand Property rights...

Legal System

International business manager’s attention is to understand

•Property rights

•Protection of intellectual property

•Product safety requirements

Common law• The United Kingdom and its former colonies all follow a legal

system based on common law. • Common law is law based on the cumulative wisdom of judges'

decisions on individual cases through history. • Thus each country's legal system evolves as individual cases set

precedents

Civil law• Civil law is the world's most common form of legal system. • It is based on a detailed listing, or codification, of what is, and is

not, permissible. • An important difference between common law and civil law lies

with the role of the judge. • In the common law system the judge acts a neutral referee, while in

a civil law system the judge takes on many of the investigative and inquisitorial tasks that would be completed by lawyers in a common law system.

Major Legal System

Religious law• Religious law is based on the officially established rules

governing the faith and practice of a particular religion. • A country that follows such a system is called a

theocracy. • Iran is the world’s only true theocracyBureaucratic law• Bureaucratic law, followed by communist countries and

dictatorships, is whatever the country's bureaucrats say it is, regardless of the formal written law of the land.

• Bureaucratic law is frequently inconsistent, unpredictable, and lacking in appeal procedures

Home country laws affect a firm’s domestic operations, but may also affect a firm’s international operations by regulating international business activities that originate inside the country’s borders

Legal System: Property Rights • Property rights: a resource over which an individual or business holds a legal title• Refers to bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from the resource• Protection of property rights vary from country to country • It is violated in two ways a) private action such as theft, privacy, blackmail and the like by private individuals or groups • Weak legal system allows for a much higher level of criminal action in some in others as during collapse of communism in Russia (called Russian Mafia), underworld so called in India

Legal System: Property Rights

Public Action & Corruption•Public action to violate property right occurs when public

officials, such as politicians and government bureaucrats

extort income or resources from property holders•Mechanism to do is levying excessive taxation, requiring

permits from property holders excessive license, talking

assets into state ownership without compensating the

owners •Illegal means or corruption, bribes from businessmen •No society is immune to corruption


Public Action & Corruption

• According to report of Transparency International scores of CPI

(Corruption Perceptions Index) for New Zealand is 9.5 out of 10

(ranked 1st) , Denmark & Finland 9.4 (ranked 2nd), Sweden 9.3

(rank 4th), Singapore 9.2 (rank 5th), Japan 8.0 (rank 14th),

USA 7.1 (rank 24th )

• In South Asia Bhutan 5.7 (rank 38th) Sri Lanka 3.3 (rank 86th),

Pakistan 2.5 (rank 134th), Nepal 2.2 (rank 154th), Maldives 2.5

(rank 134th), Afghanistan 1.5 (rank 180th ), India 3.1 (rank 95th)

• Myanmar 1.5 (rank 180th) and Somalia and Korea (North) ranked

lowest 182nd with 1.0


Public Action & Corruption

•Corruption is so endemic in some countries that bureaucrats,

politicians take it as perk of office

•High level of corruption reduces FDI, level of international trade thus

economic growth rate

Foreign Corrupt Practices Act • In US 70s this was passed when there were revelation that U.S. companies has bribed government officials to win contracts • USA is unique case having this kind of law• Other countries are far less willing to regulate how their firms do business abroad • Act allows ‘grease payment’ for facilitating or expedite/to secure performance of a routine government action (payment might be to speed up the issuance of payments or license, process paperwork)

Legal System: Protection of Intellectual Property Rights

•Intellectual property refers to product of intellectual activity such as

computer software, a screen play, music composition, designs,

trademarks

•Ways of protecting your ideas and creations

•Allows inventors and creators to gain economic advantage

•Encourages future creativity and development for the benefits of

society

•Intellectual property is like any business commodity:It may be

bought, sold and licensed


• IP rights differ from country to country (some have stringent while

some have bit lax)

• Patent: grants the inventor of new product or process exclusive

rights for a defined period to the manufacture, use or sale of that

invention e.g. for inventor of new drug patent is of 20 years

• Copyrights: are exclusive legal rights of authors, composers,

playwrights, artists & publishers to publish and disperse their work

as they see fit

• Some features of copyrights

•Economic rights to the creator


•Some features of copyrights

• Moral rights to be identified as the creator of certain kinds of

material

•Copyright does not protect ideas, or such things as names or titles

•Require permission from the copyright owner

•Is automatic as soon as there is a record in any form of the

material that has been created

•Trademark: are designs & name, often officially registered by

which merchants or manufacturers designate & differentiate their

products and services


As per report prepared for Business Software Alliance

• Total software piracy rate in 2010 in the world is 42%

• In case of individual countries it stands out as :

• Among the lowest 20% in USA ,Luxemburg, Japan

22% in New Zealand

• 93% in Georgia, 91% in Zimbabwe ,90% in Yemen

Bangladesh & Moldova, 86% in Sri Lanka, 84% for

Pakistan, 64% in India & 78% in case of China

Legal System: Protection of Intellectual Property Rights Trademark: It provides owner exclusive right to use it to identify

goods or services. Period varies but can be renewed indefinitely

• Weak enforcement encourages the piracy of intellectual property,

piracy in music are rampant also in computer software it is estimated

that copyright infringement in Asia-Pacific region is about 53% in

2004.

• As per report prepared for Business Software Alliance: biggest

country for software piracy in dollar terms remained in USA US $

9.5 billion , China is second with US $ 7.7 b, Russia is third with

US $ 2.8 b , India with US $ 2.7 b and Brazil US $ 2.6 b in 2010

Legal System: Protection of Intellectual Property Rights Geographical Indications (GIs):

• A place name is sometimes used to identify a produt

• “Geogrphical Indication” does not only say wher ethe products was

made it also idetifies the product`s special chracteristics

• Examples are: Darjeeling Tea, Parma Ham, Siwss Watch, Juju Dhau

Legal System: Protection of Intellectual Property Rights • Under WTO from 1995 onwards IP rights is looked after/covered under TRIPS• Regulations oblige WTO members to grants & enforce patents lasting at least 20 years and copyright lasting 50 years• Many governments are increasing their enforcement of intellectual property rights and abiding by international agreements such as WTO`s TRIPS agreement • Firms chose to stay out of countries where IP laws are lax, rather than risk having their ideas stolen by local entrepreneurs (such reasoning partly underlay decision of Coca Cola, IBM pull out of India in 70s) • Microsoft encountered problem with pirated software in China, Thailand

Legal System: Protection of Intellectual Property Rights •Yahoo sued Facebook in March, claiming the No. 1 social networking company infringed 10 patents including several that cover online advertising technology but later in June they agreed to settle a patent dispute• Apple claims that Samsung has blatantly copied the design, look and feel of devices like iPhone and iPad, thereby infringing upon many of Apple’s patents• In July 2012 Apple Inc. has agreed to pay $60 million to Chinese firm Proview Technology Shenzhen to acquire the local rights to the name "iPad," . (Apple thought it owned the global rights when it purchased the iPad name from Proview's parent company. But the Shenzhen firm disagreed, prompting Apple to take legal action)

Legal System: Product Safety & Product Liability •Product safety law sets certain safety standards to which a product

must adhere

•Product liability involves holding a firm and its officers responsible

when a product causes injury, death or damage

•Product liability can be much greater if a product does not conform

to required safety standards: Civil product liability laws calls for

payment & monetary damages while product liability laws calls for

fines & imprisonment

•Liability laws less extensive in developing countries while in case of

US it is more extensive

• E.g. In January 2011: Toyota it recalled 1.7 million cars worldwide

due to fuel leaks. Most of the vehicles affected are in Japan, but Lexus

IS and GS cars in the North American market are also part of the

recall.

Legal System: Product Safety & Product Liability

• Difference in product safety & liability laws raise

important ethical issues

• In case of firms when Product Safety and Product Liability

are tougher in home country while lax in foreign country

then what it should do?

Interconnection of political, legal and economic system

Innovation & Entrepreneurship: engines of growth

• Innovation & entrepreneurial activity are engines of long run economic growth

• Innovation include new products, new processes, new organisations, new management practices and new strategies

• IKEA of Sweden (cheap furniture with different kind of materials rather than normal wood)

• US economy has been benefited from high level of entrepreneurial activity Dell computers, Microsoft, Oracle


Market Economy: Requirement for Innovation &

Entrepreneurship

• Economic freedom associated with market economy creates greater incentives for innovation and entrepreneurship than planned or mixed economy

• Any individual that have innovative idea is free to try to make money out of that idea by starting a business

• Existing are free to innovative

• In case of planned one, state owns all means of production, entrepreneurial individuals have less incentives

•Study have found more economic freedom a country

between 1975-95 had achieved more economic growth

it achieved & richer its citizen

Innovation & Entrepreneurship require strong property

rights •Strong legal protection rights requirement for business

environment to be conducive to innovation, entrepreneurial

activity and thus economic growth •Without strong property rights protection, business &

individuals run the risk that their profits from their

innovative efforts will be exportiated either by criminal or

by state

•Study have found more economic freedom a country

between 1975-95 had achieved more economic growth

it achieved & richer its citizen

Innovation & Entrepreneurship require strong property

rights •Strong legal protection rights requirement for business

environment to be conducive to innovation, entrepreneurial

activity and thus economic growth •Without strong property rights protection, business &

individuals run the risk that their profits from their

innovative efforts will be exportiated either by criminal or

by state


Required political system •People in west associate democracy with market economic

system, strong property rights protection and economic

progress•Some totalitarian system countries that have adopted market

economy & strong property rights protection have

experienced economic growth e.g. in last 30 years S. Korea,

Taiwan, Singapore are good examples •While in India slow progress is recorded in this time period •It is not necessary that dictators make country rich if so

much of Africa, Latin America should have rapid growth in

1960-90

Required political system •People in west associate democracy with market economic

system, strong property rights protection and economic

progress•Some totalitarian system countries that have adopted market

economy & strong property rights protection have

experienced economic growth e.g. in last 30 years S. Korea,

Taiwan, Singapore are good examples •While in India slow progress is recorded in this time period •It is not necessary that dictators make country rich if so

much of Africa, Latin America should have rapid growth in

1960-90


Economic progress begets democracy •Democracy is not necessary precondition for a free market

economy in which property rights are protected •Fastest growing economies like South Korea, Taiwan

adopted democratic governments •Democracy may not always be the cause of initial

economic progress, it seems to be one consequences of that

progress

Economic progress begets democracy •Democracy is not necessary precondition for a free market

economy in which property rights are protected •Fastest growing economies like South Korea, Taiwan

adopted democratic governments •Democracy may not always be the cause of initial

economic progress, it seems to be one consequences of that

progress


Benefit/costs & risks associated with doing business in a country are a function of country`s political, economic & legal system

Benefit/costs & risks associated with doing business in a country are a function of country`s political, economic & legal system

Impact of differences of system in International Business

Benefits •Long run monetary benefits of doing business in a country is function of size f market, the present wealth and future wealth of consumers •Large population of some countries have limited buying power so small in economic perspective but future potential should be considered •International firms build brand loyalty & gain experience with early identification & investing early in potential future economic star

Benefits •Long run monetary benefits of doing business in a country is function of size f market, the present wealth and future wealth of consumers •Large population of some countries have limited buying power so small in economic perspective but future potential should be considered •International firms build brand loyalty & gain experience with early identification & investing early in potential future economic star


Benefits •Economic system & property rights regime are good predictors of economic prospects CostsNumber of political, economic & legal factors determine costs of doing business in a country •Political: cost might grow in a country by a need to pay off the politically powerful to be allowed by the government to do business •Economic: important variable is sophistication of country`s economy (cost of doing business is high in primitive economy as there is lack of infrastructure)

Benefits •Economic system & property rights regime are good predictors of economic prospects CostsNumber of political, economic & legal factors determine costs of doing business in a country •Political: cost might grow in a country by a need to pay off the politically powerful to be allowed by the government to do business •Economic: important variable is sophistication of country`s economy (cost of doing business is high in primitive economy as there is lack of infrastructure)


Costs•Legal: costly to do business where local laws and regulations set strict standards with regard to product safety and also costly where there lacks well established laws RisksDetermined by political, economic & legal Political risk•Likely that political forces will cause changes in country`s business environment that will affect profit & other goods•Political risk tends to be greater in countries experiencing social unrest & disorder or in countries where the underlying nature of society increases likelihood of social unrest

Costs•Legal: costly to do business where local laws and regulations set strict standards with regard to product safety and also costly where there lacks well established laws RisksDetermined by political, economic & legal Political risk•Likely that political forces will cause changes in country`s business environment that will affect profit & other goods•Political risk tends to be greater in countries experiencing social unrest & disorder or in countries where the underlying nature of society increases likelihood of social unrest


Economic risk• Can be defined as likelihood that economic mismanagement will cause drastic change in a country`s business environment

that adversely effect that profit & goal of organisation • Indicator of economic mismanagement is inflation rate & another is level of business and government debt• Economic risks are not independent of political risk (economic mismanagement may give rise to significant social unrest & hence political risk) Legal risk • Risk arise when country`s legal system fails to provide adequate safeguards in case of contract violations or to protect property rights

Economic risk• Can be defined as likelihood that economic mismanagement will cause drastic change in a country`s business environment

that adversely effect that profit & goal of organisation • Indicator of economic mismanagement is inflation rate & another is level of business and government debt• Economic risks are not independent of political risk (economic mismanagement may give rise to significant social unrest & hence political risk) Legal risk • Risk arise when country`s legal system fails to provide adequate safeguards in case of contract violations or to protect property rights


Legal risk • Legal risk might be defined as the likelihood that a trading will opportunistically break a contract or expropriate property rights• When legal risk in country are high, an international business might hesitate entering into a long term contract or joint venture agreement with a firm in that country

Ethics & Regulations Country differences give rise to some important ethics and contentious ethical issues Ethics & Human Rights • One major ethical dilemma facing forms from democratic nations in whether they should do business in totalitarian countries

Legal risk • Legal risk might be defined as the likelihood that a trading will opportunistically break a contract or expropriate property rights• When legal risk in country are high, an international business might hesitate entering into a long term contract or joint venture agreement with a firm in that country

Ethics & Regulations Country differences give rise to some important ethics and contentious ethical issues Ethics & Human Rights • One major ethical dilemma facing forms from democratic nations in whether they should do business in totalitarian countries


Ethics & Human Rights • Where there is violations of human rights • Sanctions in South Africa when there was apartheid

Ethics & Regulations• Whether an international firm should adhere to the same

standards of product safety, work safety and environmental

protection that are required in its home country

Ethics & Corruption • Should international business pay bribes to corrupt government

officials to gain market access to foreign country?

Ethics & Human Rights • Where there is violations of human rights • Sanctions in South Africa when there was apartheid

Ethics & Regulations• Whether an international firm should adhere to the same

standards of product safety, work safety and environmental

protection that are required in its home country

Ethics & Corruption • Should international business pay bribes to corrupt government

officials to gain market access to foreign country?


Ethics & Corruption • Countries like USA prohibits the corruption/bribing by

company officials in foreign country to bribe government

official • In some places/countries pay off to government official are part

of life• Corruption reduces the returns on business investment leads to

low economic growth

Ethics & Corruption • Countries like USA prohibits the corruption/bribing by

company officials in foreign country to bribe government

official • In some places/countries pay off to government official are part

of life• Corruption reduces the returns on business investment leads to

low economic growth

Legal System International business manager’s attention is to understand Property rights...

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