CHAPTER 1
Introduction to International Business
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
Economic Interdependence
• In the new global economy, almost no
businesses are purely “local.”
• Factors: technology, communication, natural
resources, move towards free markets, growing
demand of Latin America and Asia.
• America in International Markets.
• Education of American Managers.
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Forms of International Business
• Trade.
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Comparative Advantage.
Recent Trends in U.S. Trade.
Trade in Goods: Impacts U.S. trade deficit.
Trade in Services: accounts for 20% of world trade.
• Exporting.
– Having an export plan.
– Direct Exporting: manufacturer assumes responsibilities for all
aspects.
– Indirect Exporting.
– Export Trading and Management Companies.
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Exports v. Imports
• Exporting: shipment of goods or the rendering of
services to a foreign buyer.
• Importing: process of buying goods from a
foreign supplier and entering them into the
customs territory of a different country.
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Government Controls Over Trade
• Tariffs: import duties or taxes imposed on goods
entering the customs territory of a nation.
• Reasons for Imposing Tariffs:
– Revenue collection.
– Protection of domestic industry.
– Retaliation against another country.
– Political control.
• Most tariffs are determined by treaties.
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Government Controls Over Trade
• Non-tariff Barriers: all barriers to importing or
exporting other than tariffs ex. product standards.
• Quotas: restrictions imposed by law on the numbers
or quantities of goods or of a particular type of
good.
• Embargoes: a total or near total ban on trade with a
particular country e.g. used against Iraq in 1990.
• Boycotts: refusals to do business with certain firms
on political or other grounds.
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Intellectual Property and Licensing
• Definitions:
– 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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International Licensing Agreements
• International licensing agreements: contracts by
which the holder of intellectual property will grant
certain rights in that property to a foreign firm to
use for a period of time under certain conditions
in return for a licensing fee.
• How does this work as a business model?
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International Licensing Agreements
• Technology transfer: exchange of technology
and know how between firms in different
countries through licensing.
• See the First Flight Associates v. Professional
Golf, Inc. (1975) case.
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Protecting Intellectual Property is a
Key Issue for Your Business
• Inventory and secure your intellectual property
as you would a building.
• Costs of Counterfeit Products is passed to
consumers.
• Laws are Difficult to Enforce. Why?
• What is piracy?
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Intellectual Property and
U.S.-Chinese Relations
• Despite treaties and its own IP laws, China has
generally failed to enforce protection.
• During the 1990’s “trade wars” with China were
threatened.
• More recently, China has created specialized courts
to handle IPR cases.
• However, an estimated 80% of counterfeit goods
imported into the U.S. comes from China.
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International Franchising
• Franchising is a business arrangement that
utilizes an agreement to license, control, and
protect the use of the franchisor’s (example
McDonalds or Nike) intellectual property.
• What are a few of the issues regarding the legal
aspects of franchising?
• See the Raymond Dayan v. McDonald’s Corp.
(1984) case.
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Foreign Direct Investment
• Ownership and active control of ongoing
business concerns including investment in
manufacturing, mining, farming and other
production facilities.
• Multinational corporation.
• Wholly owned foreign subsidiary.
• Joint venture.
• Mergers and acquisitions.
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Multinational / Transnational
Corporations
• Firms with significant foreign investments,
assets, or operations; they move technology,
factories, and capitals with most favorable
economic conditions.
• UNCTAD’s Report on Transnational
Corporations.
• Transnational Corporations and Development.
• What about Subsidiaries, Joint Ventures,
Mergers, and Acquisitions?
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Conducting Business in Developing and
Newly Industrialized Countries
• Difference between a “developed” and “developing”
country?
– Banking and finance, law enforcement, energy, health,
poverty, political instability, protectionist policies.
• Controls on Investment in Developing Countries.
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Local Participation requirements.
Repatriation and Transfer of Technology.
Nationalization, Expropriation, and Privatization.
See the In re Union Carbide Corporation Gas Plant Disaster
at Bhopal (1987) case.
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The Road to Free Markets, Consumer-Based
Economics, and Private Ownership
• Developing countries are passing and enforcing laws
to protect intellectual property.
• Privatization: governmental sells/transfers public
sector assets to private business.
• What about the People’s Republic of China?
• Transition from Communism to Free Markets and
Private Enterprise.
– Easter Europe, formerly Soviet Union or countries dominated by
SU.
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Managing the Risks of
International Business
• Risk Assessment and the Foreign Market Entry
strategy.
• Transaction Risks in Contracts for the Sale of Goods.
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Planning for International Transactions.
Payment or Credit Risk.
Delivery Risk.
Property or Marine Risk.
Pilferage and Containerized Freight.
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Managing the Risks of
International Business
• Managing Currency and Exchange Rate Risks.
– Exchange Rate Risk.
– Methods of Managing Exchange Rate Risk.
• Hedge Funds.
– Currency Control Risks.
• Managing Distance and Communications.
– Selling Face-To-Face.
– Attendance at International Trade Shows.
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Managing the Risks of
International Business
• Managing Language and Cultural Differences.
– See the Gaskin v. Stumm Handel GMBH (1975) case.
• Managing Political Risk.
– Causes of Political Risk.
– Risk of Wars and International Hostilities.
– How does a Company handle Political Risk?
• Risks of Exposure to Foreign Laws and Courts.
– See the DIP SpA v. Commune di Basano del Grappa (1995)
case.
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Receiving Professional Assistance
in Going International
• The International Attorney.
• Freight Forwarder/Customs Broker.
• International Banker.
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Ethical Issues
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Bribes?
Child labor?
Different working conditions and wages?
Corporate response?
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Ethical Issues
• “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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Conclusion
• Knowledge of global environment: stay current
by reading from many sources
• Trade, licensing and investment
• How to manage risk? Good research,
understand risk, know the law and use a contract
to protect you and help you manage risk.
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