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Chapter 3

Chapter 3.pdf


Department
Commerce
Course Code
COMMERCE 4SA3
Professor
sfs
Chapter
3

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Chapter 3: Legal, technological, accounting, and
political environments
LEGAL ENVIRONMENT
COMMON LAW
Common law: is based on the cumulative wisdom of judges! decision on individual
cases through history.
Statutory law: those enacted by legislative action- also vary among the common law
countries.
CIVIL LAW
Civil Law: is based on codification, or detailed listing, of what is and is not permissible
difference between common law and cicil law system is apparent in the roles of judges
and lawyers
Common law system the judge serves as a neutral referee ruling on various motions
by opposing parties lawyers
lawyers are responsible for developing their clients! cases
Civil law the judge takes on many of the tasks of the lawyers, determining, for example
the scope of evidence to be collected and presented to the court
RELIGIOUS LAW
Religious Law: is based on the officially established rules governing the faith and
practice of a particular religion.
Theocracy: is a country that applies religious law to civil and criminal conduct
BUREAUCRATIC LAW
Bureaucratic Law: is whatever the country's bureaucrats say it is, regardless of the
formal law of the land
legal system in communist countries and in dictatorship is often described as
bureaucratic law
protections that may appear in the country's constitution may be ignored if government
officials find them inconvenient
DOMESTICALLY ORIENTED LAWS
sometimes laws of a country in which an international business operates play a major
role in shaping opportunities available to that firm
some laws are primarily designed to regulate the domestic economic environment
this affects firms domestic operations
this may indirectly affect the ability of domestic firm to compete internationally by
increasing their costs --> reducing their price competitiveness relative to foreign
firms
LAWS DIRECTLY AFFECTING INTERNATIONAL BUSINESS TRANSACTIONS
such laws are often politically motivated as designed to promote a country's foreign
policy or military objective

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Sanctions: are restraints against commerce with a country
a country may attempt to induce a second country to change an undesirable policy
by imposing sanctions
Embargo: a comprehensive sanctions against all commerce with a given country
may be imposed by countries acting in unison or alone
Dual-use: are products that may be used for both civil and military purposes
many technologically advanced countries control the export of these products
Extraterritoriality: when countries try to regulate business activities that are conducted
outside their borders
LAWS DIRECTED AGAINST FOREIGN FIRMS:
Nationalization: is when governments choose to transfer ownership of resources from
the private to the public sector
Expropriation: the transfer that occurs when the host government compensates the
private owners for their losses
Confiscation: When the government offers no compensation for the firm
Privatization: the conversion of state-owned property to privately owned property
stems from political ideology and economic pressure
many governments limit the foreign ownership of domestic firms to avoid their
economies or key industries controlled by foreigners
Repatriate: can also constrain foreign MNCs by imposing restrictions on their ability to
return to their home countries the profits earned in the host country
IMPACTS OF MNCs ON HOST COUNTRIES
Economic and political impacts
Positive effects include
may make direct investment in new plants and factories
creating local jobs
work for other sectors of economy
pay taxes to help improve education, transportations and other municipal services
technology transfer
Negative effects include
compete directly with local firms
may cause these firms to lose both jobs and profits
local economy could become dependent on financial health of MNC
Political Impact
sheer size of MNC can often give them tremendous power in each country that
they operate in
Cultural Impacts
raise local standards of living and introduce new products and services previously
unavailable
develop new norms, standards and behaviors
DISPUTE RESOLUTION
Four questions that must me asked
1. Which country!s law applies?
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