Introduction to
International Business
Chapter 1
Managing the Risks of
International Business
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“THE MANAGEMENT OF
INTERNATIONAL BUSINESS IS THE
MANAGEMENT OF RISK”
1999 West Educational Publishing
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Implications for International
Business
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Political, economic, and legal environments
of a country
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Affect risks -- influence attractiveness
raise ethical issues
Attractiveness
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balance long-term risks with short-term benefits
of doing business in a foreign country
benefits depend on: size, wealth, future
economic growth
costs are affected by:
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political payoffs
economic sophistication (may be more costly to operate
in LDCs, no infrastructure)
legal framework impact on costs
1999 West Educational Publishing
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Forms of International
Business
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Trade
International licensing of technology
and intellectual property (trademarks,
patents and copyrights)
Foreign direct investment
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Trade
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Exporting
Importing
Trade in services - increasing
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Trade Risks
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Subject to government controls over trade:
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Tariffs
Non tariff barriers
Currency/Exchange Rate Risks
Transaction Risks
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credit / payment / delivery risk
marine (transit) risk
litigation risk
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Intellectual Property and
Licensing
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Intellectual Property Rights:
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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
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Risks in Intellectual Property
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Piracy
Controlling Actions of Licensee
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Limiting Access – Protecting Proprietary
Information
Misuse of Intellectual Property
Create Potential Competitors
Government Restrictions on Transfer or
Requiring Granting Access
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Foreign Direct Investment
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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
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FDI Risks
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Political risk
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nationalization / expropriation
risk of hostilities
Risk of foreign law and courts
language and cultural differences
Currency and exchange rate risk
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Fluctuations
Transfer restrictions
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Managing Risk
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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
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The Legal Environment in
Developing Countries
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How different?
Examples: foreign exchange, controls
on trade, licensing and investments
Bhopal discussion
Reform and privatization
Transition to market economies
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Ethical Issues
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“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?
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Ethical Issues
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Bribes?
Child labor?
Different working conditions and
wages?
Corporate response?
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Conclusion
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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
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Web Sites
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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
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Cases
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First Flight v. Pro Golf – p. 14
Raymond Dayan v. McDonald’s – p.16
In re Union Carbide – p. 22
Gaskin v. Stumm Handel – p. 33
DIP Spa. V. Commune di Bassano –
p.38
1999 West Educational Publishing
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Pro Golf Case
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First Flight v. Pro. Golf
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.
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Pro Golf Case
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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.
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Pro Golf Case (cont.)
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However Pro Golf was not entitle d to
royalties because they had not
perfected their rights to the trademark
under Japanese law.
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Raymond Dayan v. McDonald’s
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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.
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Dayan v. McDonald’s Corp.
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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?
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In re Union Carbide Gas
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Bhopal gas plant disaster
Why are victims seeking to sue in US?
Why is U.C. seeking to have claims tried
in India?
Can claims for the victims be brought in
US courts?
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Forum non conveniens
Factors considered in choice of forum?
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DIP SpA v. Commune di
Bassano
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“…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…
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DIP SpA v. Commune di
Bassano
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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
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Gaskin v. Stumm Handel
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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
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Gaskin v. Stumm Handel
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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?
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