INTRODUCTION
• Growth of International Business
• Laws of International Business Transactions
• Forms of International Business
Transactions
• Risk Analysis and Risk Aversion
GROWTH OF
INTERNATIONAL BUSINESS
• Factors That Contributed to Growth of
International Business
• General Agreement on Tariffs and Trade
• Expansion of GATT into services, technology and
foreign investments
• North American Free Trade Agreement
• Disintegration of Soviet Union and Warsaw Pact
• Development of Capital Markets
• Advances in Telecommunication and Information
Growth of International Business
Transaction
• Trade in Goods
• Significant Growth from 1971 to 1975-World Bank,
1995
• Foreign Direct Investment
• 1985 ($98 billion) to 1997 (440 billion)-Department
of Commerce
• Trade in Services
LAWS OF INTERNATIONAL
BUSINESS
• Sources of Law-Article 38 of the Statute of
the International Court of Justice
– International Conventions and Treaties
– International Custom or General Practices
– General Principles of Law Recognized by
Nations
– Judicial Decisions and Scholarly Writings
LAWS OF INTERNATIONAL
BUSINESS
• Contracts-primary source of law between
contracting parties
• Codification of Contract Law
– Lex Mercatoria-law of merchants. Recognized day to day
practices of merchants. Significantly correlated to
customary law.
– United Nations Convention for the International Sales of
Goods-recognized contract law between merchants
incorporating many of the principles of lex mercatoria.
» The convention has been codified in at least a 120
nations
LAWS OF INTERNATIONAL
BUSINESS
• Customary Law-standard practices that are
recognized among business persons
• International Conventions-ratified by nation state
» Hague Rule on liability of carriers
» Agreement on Trade Related Aspects of Intellectual
Property
» General Agreement on Trade and Tariffs
» Organization for Economic Cooperation and
Development
LAWS OF INTERNATIONAL
BUSINESS
• Customary Law-continued
– Lex Mercatoria
• Material Produced by International Chamber o
Commerce based in Paris
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International Court of Arbitration
Centre for Maritime Cooperation in London
Counterfeiting Intelligence Bureau in London
Uniform Customs and Practices for Documentary Credits
Incoterms 2000-trade terms
FORMS OF INTERNATIONAL
BUSINESS
– Indirect Exporting-exporting goods and
services through another person or business
such as a buying agent.
– Direct Exporting-selling goods directly to
consumer in foreign country
– Foreign Investment-some type of financial
presence in another country-direct or indirect
– Transfer of Intellectual Property
– Export of Services-entertainment, tourism
RISK AND RISK AVERSION
• Risk Aversion
– Indirect Exporting
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Export Management Companies
Export Trading Companies
Office of Export Trading Affairs
Export Import Bank
– Direct Exporting
» Foreign Sales Representative
» Foreign Distributor
RISK AND RISK AVERSION
• Risk Aversion-continued
• Market Research
– Research sources through government publication in the
Department of Commerce, Small Business Administration
• Step by Step
– Screen Potential Markets
– Assess Targeted Markets
– Draw Conclusion
Risk Analysis and Risk Aversion
• Forms of Risks
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Cultural and Language
Currency
Legal
Political
RISK ANALYSIS AND RISK
AVERSION
• Cultural and Linguistic
• Compare Nigeria (bribes and possible Foreign
Corrupt Practices Act) and Canada-stable
government and currency
• China and France-Intellectual Property.
• Purchasing a business in Russia and Germany-legal
requirements to purchase business
• Review case Falcoal, Inc. v. Kurumu 660 F.; Supp.
1536
• Cultural Nuances such as handshake and gifts
RISK ANALYSIS AND RISK
AVERSION
• Currency Risks
– Types of Risks
– Convertibility Risks-whether one currency is convertible
to another currency-difference between hard and soft
currency
– Repatriation-when one attempts to remove currency from
a host country
– Devaluation of currency-see Bernina Distributors v.
Bernina Sewing Mach. 646 F.2d 434
– Aversion
– Arbitrage, forward contract, futures contract
RISK ANALYSIS AND RISK
AVERSION
• Legal Risk
• Ambiguity of Contractual Terms
• Differences in Legal Systems in terms of substantive
laws, procedures and remedies
» Nachfrist Notice and request for extension of time
• Differences in enforcement of Laws
» Intellectual Property-countries differ in what
constitutes intellectual property
• Discrimination against foreign investors
» Local Participation Requirements
RISK ANALYSIS AND RISK
AVERSION
• Political Risks
– Trade Barriers
– Government Procurement, Export Subsidies, Service
Barriers, Investment Barriers and Technical Requirement
– Expropriation and Nationalization
– Government Seizure of foreign business and assets
– Risk Aversion for Political Risk
– Bilateral Trade Agreements
– International Center for the Settlement of Investment
Dispute, Foreign Credit Insurance Association
Risk Analysis and Risk Aversion
• Risk Aversion
• Insurance-MIGA
• Intermediaries-freight forwarders, custom brokers
• Countertrade
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counter purchase
barter
buy back agreements
performance agreements
clearing agreements