A] Examine the various issues that needs to be considered by an international business organization while studying the political environment of a country.
Answer - The International Marketing activities take place within the political environment of national political institutions such as the government, political executive, legislative and the judiciary.
Any company doing business overseas should Carefully study the political environment of he country it intends to operate and analyze issues such as the attitude of the political party in power toward
(a) Sovereignty,
(b) Political Risk,
(c) Taxes,
(d) Threat of Equity dilution and
(e) Expropriation.
Sovereignty:
The sovereign political power of a country in a command economy may determine every aspect of economic life of the people. In contrast, in a market economy, the government may only play the role of a facilitator and a regulator. However, after the fall of the Soviet Union, the command economics around the world have progressed towards a market oriented system. Eastern European countries, countries in Central America, and most importantly, India and China have also adopted the free market system. With globalization and economic integration, political sovereignty of individual nation states is on the wane. However, erosion of political sovereignty is not without a quid pro quo. There are definite economic advantages in forging a regional economic union as exemplified in cases such as the European Union, NAFT A, ASEAN and others.
Political Risk:
There is always a political risk involved in making investments both within and without the country. The element of risk and its severity is relatively high in foreign countries. More objectively, the extent of political risk depends upon the political stability of the host country. An unstable country is fraught with investment risks. A country needs to be stable both internally and externally. Frequent changes in the government and attendant changes in the economic policy of the government will increase the element of uncertainty and adversely effect upon a company's ability to operate effectively in a foreign country. Investments in highly destabilized countries like Afghanistan and Iraq may be very attractive economically speaking but the political risks involved are overwhelming. Political instability is therefore a great .deterrent to foreign investment. In order to justify investment in a foreign country, risk assessment should be undertaken on a regular basis and investments should be made only when opportunities to make profits are much greater than the risks involved.
Taxes:
A company which is geographically diversified needs to take care of the tax laws of the countries in which it operates. Companies, generally minimizes their tax liability by shifting the location of their income. One method of reducing tax liability is called earnings stripping. Foreign companies reduce earnings by' making loans to their affiliates in a country rather than making direct foreign investment. The subsidiary company which takes the loan can deduct the interest it pays on such loans and reduce its tax burden. There is an absence of international laws to govern the levy of taxes on companies that are into international business. In order to provide fair treatment, governments in many countries have negotiated bilateral tax treaties to provide tax credits for taxes paid abroad. Generally foreign' companies are taxed by the host country up to the level imposed in the home country.
Equity Stripping and Dilution of Control:
In less developed countries, there is a general tendency to exert political pressure for governmental control of foreign companies. Host-nation governments may attempt to control ownership of foreign-owned companies operating in their Countries. For instance, foreign equity participation in industries such as insurance is limited to 74 percent in India and as a result, a foreign insurance company must team up with a local company to do insurance business in India. In industries where, the government wants to keep the ownership in the hands of Indian companies, foreign equity participation is less than fifty percent. The threat of equity dilution has forced companies to operate in host countries through joint ventures and strategic alliances.
Expropriation:
Expropriation is the ultimate threat that a government can pose toward a foreign company. Expropriation refers to governmental action to dispossess a company investor. Generally, compensation is provided to foreign investors. However, quite often, the compensation is not prompt, adequate and effective. If there is no compensation then the act of expropriation would be termed as confiscation. When severe limitations are imposed the activities of a foreign company, it is termed as creeping expropriation. Such restriction may include limitations on repatriation of profits, dividends, royalties, local content etc, quotas for hiring local nationals, price controls etc. All these restrictions and limitations adversely affects the profitability of foreign investment. Discriminating tariffs and non-tariff barriers, discriminating laws on patents and trademarks may also limit market entry of certain consumer and industrial goods manufacturing foreign firms. When governments expropriate foreign property, there are limitations on actions to reclaim the property. For instance, according to the United States act of State doctrine, if the government of a foreign State is involved in a specific act, the US court will not get involved. In such a situation, expropriated companies representatives may seek redressal through arbitration at the World Bank Investment Dispute Settlement Center. It is safe to buy expropriation insurance than to seek redressal through World Bank mechanism. In 1970 and 1971; some foreign copper companies in Chile resisted government efforts to employ local nationals in the managerial cadre of the companies. Such companies were expropriated by the Chilean government and companies which obliged were allowed to operate under joint management.
B] Write Short Note On Monopoly and Restrictive Trade Practices
Answer -
Monopoly and Restrictive Trade Practices:
MRTP laws are enacted to fight restrictive business practices and help foster competition. In the United States, anti-trust laws are designed to encourage free competition by limiting the concentration of economic power in the hands of few. The Sherman Act of 18~O prohibits certain restrictive business practices like fixing prices, limiting production, allocating markets and other anti-competitive practices.
The law applies to foreign companies conducting business in the US and extends to the activities of US companies operating overseas if the company conduct is considered to have an effect on US commerce contrary to law. The European commission prohibits agreements and practices that prevent, restrict and distort competition.
In India, the Monopolies and Restrictive Trade Practices Act was passed in the year 1970 under which the MRTP commission was set¬up to investigate the effects of restrictive trade practices on public interest and recommend suitable corrective action.
C] Short Note on Licensing and Trade Screts
Answer -
Licensing and Trade Secrets: .
Licensing is a contractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology and other non-material assets in return for royalty payments or other forms of compensation. The duration of the licensing agreement and the amount of royalties a company can receive is commercially negotiated between the two parties i.e., the licensor and the licensee. There are no governmental restrictions on royalty remittances abroad. However, in many countries these elements of licensing are regulated by the government.
Important areas of concern in licensing are:
1] Analysis of assets offered by a firm for license,
2] Pricing of the assets,
3] Whether to grant only the right to make the product or to grant the right to use and sell the product, and
4] The right to sub-license.
Licensing is fraught with danger because it has the potential to create a competitor, if there is none or increase the number of competitors, if there is already one or more. Hence, licensors should be careful enough to protect their competitive advantage and to ensure a sustainable
competitive advantage, the only price the licensor should be willing to pay is in the form of continuous innovation. Else, the licensor may become history.
Trade secrets are confidential information that has commercial value and for which steps have been taken to keep it secret. Trade secrets include: manufacturing processes, formulas, designs and list of customers. In order to prevent disclosure, the licensing of unpatented trade secrets should be linked to confidentiality contracts with" each employer who has access to the protected information. The agreement on TRIPs concluded during the Uruguay round of GAIT negotiations requires all the signatory countries to protect against acquisition, disclosure or use of trade secrets in a manner contrary to honest commercial practices. Notwithstanding the legal developments, companies transferring trade secrets to foreign countries should apprise themselves of the existence of legal protection and the risks associated with lax enforcement.
D] Distinguish between common law and code law
Answer -
COMMON LAW CODE LAW
1. Australia, new Zealand, India, Hongkong, colonial English speaking African countries, united states and Canada have systems based on common law. In Asia, India, Pakistan, Malaysia, Singapore and Hongkong are the common law countries. 1.Japan, Thailand, korea, indo-china, Indonesia, Taiwan and china are all civil law countries.
2. In common law countries trademarks are established by prior use 2. In code law countries, intellectual property rights must be registered.
3. Not as many as civil law countries, have legal systems based on common law. 3. Most countries have legal systems based on civil law
4. This is divided into Statutory, Administrative and Case law. Statutory is codifies at national or state level. Administrative law originates in regulatory bodies and local communities and case law is product of the court system. 4. Code law is divided into judicial system which is further divided into civil, commercial and criminal law.
E] What do you understand by the term “International Law” and trace the Genesis of the International Law?
Answer –
The Term International Law refers to rules, regulations and principles that national governments consider binding upon themselves.
There are two types of international law :
1] The Law of Nations or Public law and
2] International Commercial law.
International law is concerned with trade related issues and other areas that have been ordinarily under the jurisdiction of nation states. The Genesis of international law can be traced back to the early middle ages in Europe and later in the 17th Century peace of Westphalia. Early International law was concerned with war, peace, diplomatic recognition of new nation states etc. Detailed international law gradually evolved with time. To being with, International law was an amalgam of treaties, covenants, Codes and agreements. With the growth of international trade, order in commercial affairs grew in Importance. In the 20th century, the new international judicial organizations contributed to the creation of an established Justice (1920-45), The International court of Justice, established under article seven of the United nations are issues of Public states 1947. Disputes between nations are issues of public international law and they may be referred to the International Court of justice located in the Hague. The sources of International law as defined under article 38 of ICI statute are as follows:
The Court whose function is to decide in accordance with international law such disputes as are submitted to it shall apply:
(a) International Convention, whether general or particular, establishing rules expressly recognized by contesting states.
(b) International custom as evidence of a general practice accepted as law.
(c) The General principles of Law recognized by civilized nations.
(d) Subject to the provision of Article 59, judicial decisions are the teachings of the most highly qualified publicists of various nations as subsidiary means for the determination of the rules of law.
If a nation allows a case to be brought before the ICI and then refuses to accept a judgment against it, the plaintiff nation can seek redresses through the United Nation’s highest political are i.e., the Security Council, which can use its power to enforce the judgment.
