Chapter three

Nation environments:
cultural, natural, economics, politics
Forces

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
2

Nation culture

5-2

1-2
 Rules of Thumb for Business
Conduct Across Cultures
 Be prepared
 Slow down
 Establish trust
 Understand the importance of language
 Respect the culture
 Understand the components of culture

5-3

1-3
 What is Culture?

 Culture is the sum total of beliefs, rules, techniques,

institutions, and artifacts that characterize human
populations
 Culture is learned
 Its aspects are interrelated
 Culture is shared (as opposed to individual traits)
 It defines the boundaries of different groups

LO1
5-4

1-4
Discussion 1: Vietnamese and
American culture

5-5

1-5
 Ethnocentricity

 Ethnocentrism is the belief in the superiority of one’s

own ethnic group
 To overcome ethnocentricity
 Realize that there are many different cultures
 Spend time in another country
 Undergo training on culture and language

LO1
5-6

1-6
 Culture Affects All
Business Functions
 Marketing
 Variation in attitudes and values affects marketing
mix
 Human Resource Management
 Evaluation of managers
 Attitudes toward authority
 Production
 Attitude towards change

LO1
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1-7
 Sociocultural Components
 Culture is reflected in
 aesthetics
 attitudes and beliefs
 religion
 materialism
 language
 societal organization
 legal characteristics
 political structures

LO2
5-8

1-8
 Aesthetics
 Aesthetics refers to culture’s sense of beauty and
good taste
 Art conveys meaning
 Colors, symbols, numbers--Nike air
 Architectural style differences
 Feng shui (decorate house for good fate)
 Music and Folklore
 Musical tastes vary
 Folklore discloses way of life
 Cowboys in Chile or Argentina
 Mexican singing cricket
LO2
5-9

1-9
Discussion : Color and beauty

1. Pls list the favourite color in Vietnam,

compare with china, Thailan and Japan
2. Remind some business man to avoid
the mistake beauty color in business.
3. Talk about the differences in music
between Eastern and Western culture

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1-10
 Attitudes and Beliefs

 Attitudes Toward Time

 Vary across cultures
 Difficult area for some Americans
 Directness and drive may be perceived to be
rudeness
 Deadlines
 Liability abroad

LO2
5-11

1-11
 Attitudes Toward
Achievement and Work
 Germans put leisure first and work second
 The demonstration effect
 Result of having seen others with desirable goods
 Job Prestige
 The distinction between blue-collar workers and
office employees
 Professional order of hierarchy

LO2
5-12

1-12
 Religion

 Religion is responsible for many of the attitudes and

beliefs affecting human behavior
 Work Ethic
 Protestant work ethic
 Duty to glorify God by hard work and the
practice of thrift
 Confucian work ethic
 Drive toward hard work and thrift; similar to
Protestant work ethic

LO2
5-13

1-13
Will This Work?

LO2
5-14

1-14
 Primary Asian Religions
 Hinduism
 Caste system
 Society is divided into four groups (plus the
outcasts)
 Each is assigned a certain class of work
 Buddhism
 Reform of Hinduism
 Jainism (Mahavira a contemporary of Buddha)
 Nonviolence a major principle
 Sikhism
 Bridge between Hinduism and Islam
LO3
5-15

1-15
 Primary Asian Religions
 Confucianism
 Inseparable from Chinese culture
 Taoism
 Lao Tzu, contemporary of Confucius
 Shintoism
 Indigenous to Japan

LO3
5-16

1-16
 Islam
 Islam is the youngest and second largest faith
 1.3 billion followers
 In comparison, Christianity has 2 billion
adherents
 Muhammad is Founder
 Prophet of God and head of state
 Holy Book Koran

LO3
5-17

1-17
 Islam
 Five Pillars of Faith
 Confession of faith
 Five daily prayers
 Charity
 Ramadan fast
 Pilgrimage to Mecca
 Jihad – holy war
 Sunni-Shia Conflict
 Conflict gives rise to violent clashes

LO3
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1-18
Religions of the World

Insert Figure 6.1

LO3
5-19

1-19
 Animism
 Animism
 Spirit worship, including magic and
witchcraft (magic skills)
 Everything in nature has its own spirit or
divinity (image a gods or holy symbol)

LO3
5-20

1-20
 Spoken Language

 Spoken language is the most apparent cultural

distinction between countries
 Spoken languages demarcate cultures
 Switzerland has four separate cultures
 Many languages can exist in a single country, but one
usually serves as communication vehicle
 Lingua franca or link language
 English primary language of business

LO6
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1-21
 Language and Translation
 Translation
 The ability to speak the language well does
not eliminate the need for translator
 Use back translation to avoid translation
problems
 Japanese hotel: “You are invited to take
advantage of the chambermaid.”
 Bangkok dry cleaner: “Drop your trousers
here for best results.”
 Vietnamese reception confuse “hai muoi
tam” with “hai nguoi tam”.
LO6
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1-22
 Language Issues

 Technical words do not exist in all languages

 Usually use English
 Many cultures avoid saying anything disagreeable

LO6
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1-23
 Unspoken Language
 Nonverbal communication
 Gestures vary tremendously from one region
to another
 Closed doors convey different meanings
 Office size has different meanings in various
cultures
 Conversational distance small in Middle East
 Gift giving has specific etiquette in each culture
 Gift or bribe?
 Questionable Payments

LO7
5-24

1-24
 Societal Organization

 Kinship
 Extended family
 includes blood and marriage relatives
 Member’s responsibility
 Although the extended family is large, each
member’s feeling of responsibility to it is
strong
 Associations
 Social units based on age, gender, or common
interest, not on kinship
LO8
5-25

1-25
 Societal Organization
 Associations
 Age is an important market segment criterion
 Gender
 As nations industrialize, more women enter the
job market and assume greater importance in
the economy
 Free association
 people joined together by a common bond:
political, occupational, religious or recreational

LO8
5-26

1-26
 Understanding National Cultures

 Hofstede’s Dimensions of Culture

 Individualism versus Collectivism
 Large versus Small Power Distance
 Strong versus Weak Uncertainty
Avoidance
 Masculinity versus Femininity

LO9
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1-27
 Hofstede
Value Dimension Scores

LO9
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1-28
 Individualism versus Collectivism
 Collectivistic cultures
 People belong to groups that are supposed
to look after them in exchange for loyalty
 Individualistic cultures
 People look after only themselves and the
immediate family

LO9
5-29

1-29
 Large versus Small
Power Distance
 Power distance refers to the extent to which members
of a society accept the unequal distribution of power
among individuals
 In large-power-distance societies employees
believe their supervisors are right; employees do
not take any initiative in making non-routine
decisions

LO9
5-30

1-30
 Strong versus Weak
Uncertainty Avoidance
 Uncertainty avoidance refers to the degree to which
members of a society feel threatened by ambiguity
and are rule-oriented
 Employees in high uncertainty-avoidance cultures
tend to stay with their organizations
 Japan, Greece, and Portugal
 Those from low uncertainty-avoidance nations are
more mobile
 United States, Singapore, and Denmark

LO9
5-31

1-31
 Power Distance and
Uncertainty Avoidance

LO9
5-32

1-32
Individualism and
Power Distance

LO9 5-33

1-33
 Masculinity versus Femininity
 Masculinity versus femininity refers to the degree
to which the dominant values in a society
emphasize assertiveness, acquisition of money,
and status
 Masculinity
 achievement of visible and symbolic
organizational rewards
 Femininity
 emphasize relationships, concern for
others, and the overall quality of life

LO9
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1-34
 Material Culture

 Material culture refers to all human-made objects

 Concerned with how people make things
(technology) and
 Who makes what and why (economics)

LO3
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1-35
 Technology
 Technology is a mix of usable knowledge that
society applies and directs toward attainment of
cultural and economic objectives

LO4
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1-36
 Importance of Technology

 Technology
 enables a firm to be competitive in world markets
 can be sold or be embodied in the company’s
products
 can give a firm confidence to enter a foreign
market
 enables the firm to obtain better than usual
conditions for a foreign market investment

LO4
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1-37
 Importance of Technology
 Technology
 enables a company with only a minority equity
position to control a joint venture
 can change the international division of labor
 causes major firms to form competitive
alliances

LO4
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1-38
 Material Culture - Technology

 Cultural aspects of technology

 Includes skills in marketing, finance, and
management
 People are not always ready to adapt to
changes technology brings
 Technological dualism
 The side-by-side presence of technologically
advanced and technologically primitive
production systems

LO4
5-39

1-39
 Material Culture - Technology

 Appropriate Technology
 The technology (advanced, intermediate, or
primitive) that most closely fits the society
using it
 Boomerang Effect
 Situation in which technology sold to
companies in another nation is used to
produce goods to compete with those of
the seller of the technology

LO4
5-40

1-40
Technology in logistics

Productiviy = time + technology

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1-41
 Information Technology

 Information Technology Era

 As early as 2000 the Internet economy
 had reached $850 billion
 exceeded the size of the life insurance
and real estate industries

LO5
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1-42
Competitive Advantage:
Porter’s Diamond

Source: Reprinted by permission of the Harvard Business Review. “The Competitive Advantage of Nations” by Michael E.
Porter,
March–April 1990, p. 77. Copyright © 1990 by The President and Fellows of Harvard College; all rights reserved.

LO1
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1-43
Factor Conditions
The Cornerstone of Porter’s Diamond
 Basic Factors
 Derived from the country’s location
 Inherited
 Topography,climate, natural resources
 Can be a source of a nation’s competitive
advantage
 Lack of such resources can lead to innovation
 Advanced Factors
 Those a country can mold
 Labor force, infrastructure
LO1
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1-44
 Why Switzerland Makes Watches

 Basic Factor Conditions

 Mostly mountainous
 Close to populated lowlands of Europe
 Transportation across mountains is expensive
 No mineral resources available

LO1
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1-45
Natural Resources

 Key issues
 Location, topography, and climate
 Energy and non-fuel minerals
 Stewardship issues--environmental
sustainability

LO2
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1-46
Location

 Topography
 Climate
 Sources of Energy
 Non-fuel Minerals
 Environmental sustainability

LO2
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1-47
Location Affects Political
Relationships
 Austria took advantage of its location to
 increase trade with the east
 become the principal financial intermediary
between western and eastern europe
 strengthen its role as the regional headquarters
for international businesses operating in
Eastern Europe
 engage in passive processing

LO2
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1-48
Geographic Proximity
and Trade Relationships
 Geographic proximity is often the major reason for
trade between nations
 Faster delivery, lower freight costs
 Major factor in formation of trade groups such as
EU, EFTA, and NAFTA
 Chile exports grapes, peaches, raspberries to the
U.S. November - March

LO2
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1-49
Topography

 Topography refers to the surface features of a nation

or region
 Differences in topography may require products to be
altered
 Cake mixes
 Internal combustion engines
 Topography includes
 mountains and plains
 deserts and tropical forests
 bodies of water
LO2
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1-50
Dis 2: Make raw material of Platics
in Quatar (LLDPE Distribution
case)
Quatar is oil export nation. So that almost oil
cartel have a plant here. Mitsui (japanese
firm) invested $ 10 Bill. In making LLDPE (a
plastic material for making shopping bag) in
1992.
1. Why did Mitsui firm choose Quatar for
invest?
2. Pls talk about the advantage of location?

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1-51
Mountains and Plains
Divide Markets
 Spain: five regions with different cultures and three
different languages
 Switzerland: half the size of Maine
 Four languages
 35 dialects
 Different TV and Media networks
 China: dozens of languages
 Colombia: four separate markets

LO2
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1-52
Mountains and Plains Affect
Population Characteristics
 Afghanistan
 10 major
ethnic
groups
 33
languages
 40% of
population
lives above
6,000 ft
 In U.S. two
peaks east of
Mississippi over
6,000 ft LO2
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1-53
Deserts and Tropical Plains
 Deserts and tropical plains can
 separate markets
 increase the cost of transportation
 create concentrations of population
 Australia
 Continent the size of the U.S. but with only 19
million inhabitants
 Population concentrated in
 coastal areas; in and around state capitals
 the southeastern fifth of the nation

LO2
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1-54
Tropical Forests

 Tropical Rain Forests

 Brazilian Amazon basin
 Occupies one-half of Brazil
 Four percent of population
 Canadian Shield
 Massive area of bedrock covering one-half of
Canada’s land mass

LO2
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1-55
 Bodies of Water

 Bodies of water
 attract people and facilitate transportation
 Inland waterways provide inexpensive access to
markets

LO3
5-56

1-56
7-11
Bodies of Water
Major Inland Waterways
 Rhine Waterway
 Main transportation artery of Europe
 Carries a greater volume of goods than do the
combined railways that run parallel to it
 The Amazon River in South America
 The Tigris-Euphrates (Iraq), the Ganges (India), and
the Indus (India) Rivers is Asia
 The Great Lakes, the St. Lawrence and the
Mississippi River in the United States

LO3
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1-57
Outlets to the Sea

 Outlets to the sea

 permit low-cost transportation of goods and
people from a country’s coast to its interior
 Africa has 14 of the world’s landlocked
developing countries
 Must construct costly, long truck routes and
extensive feeder networks
 Port countries exert considerable political
influence

LO3
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1-58
Dis 3: Location of cement
plants
1. Why does cement firm choose the
location near the outlets of the sea?
2. What is about the name of cement
firm near outlets of the sea in your
country?

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1-59
 Climate
 Climate refers to temperature, precipitation, and wind
 Climate
 is the most important element of the physical
forces
 sets the limits on what people can do both
physically and economically
 influences economic development
 can impede distribution

LO4
Ho chi Minh city and Hanoi capital 5-60

1-60
Natural Resources

 Natural resources are anything provided by nature

on which people depend.
 Principal types of natural resources important to
businesspeople include
 energy
 non-fuel minerals

LO5
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1-61
Energy
 Renewable
 Hydroelectric
 Solar
 Wind
 Geothermal
 Waves
 Tides
 Biomass (ethanol)
 Ocean thermal energy
 Non–Renewable
 Petroleum
 Nuclear Power
 Coal
 Natural Gas
LO5
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1-62
Energy
 Conventional sources - Oil
 Estimates of reserves change
 Discoveries continue in proven fields
 Governments allow new exploration and production
 New techniques enable greater output from wells
already in operation
 Automated, less expensive equipment lowers
drilling costs

LO5
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1-63
World Oil Reserves by Country
as of January, 2007 (billion barrels)
Reserve to % Share of
Proved
Rank Country Production World
Reserves
Ratio (Years) Production*
1 Saudi Arabia 262.3 75 13.3
2 Canada 179.2 10 1.8
3 Iran 136.3 83 5.7
4 Iraq 115.0 168 2.6
5 Kuwait 101.5 110 3.5
6 UAE 97.8 106 3.5
7 Venezuela 80.0 107 2.7
8 Russia 60.0 18 12.6
9 Libya 41.5 65 2.3
10 Nigeria 36.2 37 3.6
11 Kazakhstan 30.0 23 1.5
12 United States 21.8 11 7.2
13 China 16.0 14 5.0
14 Qatar 15.2 50 1.2
Data source: Reserves: “Worldwide Look at Reserves and Production,” Oil & Gas Journal,
104:47(December 18, 2006), pp.24-25. From Energy Information Administration, World Oil Markets LO5
Analysis to 2030, http://www.eia.doe.gov/emeu/international/oilreserves.html 5-64

1-64
 Petroleum-Unconventional
Sources
 Unconventional sources of petroleum include
 Oil sands
 Primarily in Athabasca, Alberta, Canada.
 Oil-bearing shale
 Largest sources in Utah, Colorado, and
Wyoming
 Coal
 Used primarily in South Africa

LO5
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1-65
Other Non-Renewable
Energy Sources

 Other non-renewable energy sources include

 Natural gas
 Fastest growing source of energy
 Nuclear Power
 Generates low pollution in the normal
process

LO5
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1-66
Renewable Energy Sources

 Hydroelectric has had the most extensive application

 7% of world energy consumption
 Wind and solar energy: improved technology, new
support
 Solar: fastest-growing energy technology in the
world

LO5
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1-67
Kyoto Protocol

 The Kyoto Protocol is the UN Framework

Convention on Climate Change
 A reduction of emission of gasses will lead to a
reduction in global warming
 Prime global warming contributor: coal power plants
 U.S. has no carbon dioxide emission regulation
 Texas would rank 8th in carbon dioxide
emissions, just behind Canada
 U.S. and Kazakhstan are the only countries to have
signed but not ratified the agreement

LO5
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1-68
 Economic and
Socioeconomic Forces

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Impact of Economic Forecast
on Firm’s Functional Areas

LO1
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1-70
Economic Forces
are Uncontrollable
 Most significant forces for managers
 Firms assess and forecast economic conditions
 National and international level
 Data published by governments and international
organizations
 World Bank, IMF, UN, OECD
 CIA, US DOC
 Private economic consultants
 The Economist Intelligence Unit
 Business International
 Chase Econometrics
LO1
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1-71
Purpose of Economic Analysis
 Appraise the overall economic outlook
 Assess the impact of possible changes on the
firm
 Foreign market entry makes economic analyses
more complex
 Foreign environment: many national
economies
 International environment: national economies’
interaction

LO1
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1-72
Dis 1: What do you do when
you are leader of a nation?
1. Pls remember mercantile exchange
discussion? How does the
speculator look for and base on?
2. What do you think your government
action now? Good or not good?
Why?

5-73

1-73
VN government action

5-74

1-74
Government take care of the
following economics factors

5-75

1-75
Annual Rates of Inflation in
Consumer Prices for Selected Countries
Country-
1995 2000 2008
% Change
Angola 2,672 325 9
Congo, Dem.
542 550 9
Republic of
Zimbabwe 23 56 138,000
Turkey 94 55 5
Belarus 709 169 10
Georgia 163 4 8
Russia 197 21 8
Turkmenistan 1,005 8 9
Ukraine 376 28 11
Brazil 66 7 4
Ecuador 23 96 2
Uruguay 42 5 7
Myanmar 29 -2 28
1995 data from International Monetary Fund, World Economic Outlook, October 2000,
www.imf.org/external/pubs/ft/weo/2000/02/index.htm (June 17, 2008). 2000 and estimated 2008 data from
International Monetary Fund, World Economic Outlook 2007,
http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/tblPartA.pdf (June 17, 2008). LO2
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1-76
Levels of Economic Development
 Developed
 All industrialized nations
 Most technically developed
 Developing
 Lower income nations
 Less technically developed
 NIE: Taiwan, HK, Singapore, S. Korea
 NIC: NIE and Brazil, Mexico, Malaysia, Chile,
Thailand
 Emerging Markets BRIC: Brazil, Russia, India, China
 Most watched by businesses

LO2
5-77

1-77
Important Economic Indicators
 Gross National Income (GNI)
 GNI/capita
 Income Distribution
 Private consumption
 Unit labor costs
 Exchange rates
 Inflation rates
 Interest rates

LO3
5-78

1-78
 Socioeconomic Dimensions

 Total Population
 Most general indicator of potential market size
 Population size not a good indicator of economic
strength and market potential
 Age Distribution
 Developing countries have younger populations
than industrial countries
 Birthrates decreasing worldwide
 Developing countries account for over 3/4 of the
world population

LO3
5-79

1-79
Population Growth of the World’s
10 Most Populated Countries by 2050

LO3
5-80

1-80
Socioeconomic Dimensions
 Population Density
 Number of inhabitants per area unit
 Product distribution and communications
simpler and cheaper in densely populated
countries
 Population Distribution
 How inhabitants are distributed across a nation
 Rural-to-urban shift

LO3
5-81

1-81
Purchasing Power Parity
 In Thailand 1,235 Baht buys what $107.85 buys in the U.S.
 1,235 Baht / $107.85 = 11.45
 PPP rate is $1 = 11.45 Baht

Goods Thailand (Baht) US ($)

Soap (bar) 40 0.50
Rice (lb.) 25 0.35
Shoes (pair) 495 60.00
Dress 580 45.00
Socks (pair) 95 2.00
Total 1,235 107.85

LO4
5-82

1-82
Private Consumption Based on
Purchasing Power Parity

LO4
5-83

1-83
Human Development Index
 Economic growth is not synonymous with economic
development
 The human needs approach defines economic
development as the reduction of poverty,
unemployment, and inequality in the distribution of
income
 HDI (UN index) measures
 Long and healthy life - life expectancy
 Ability to acquire knowledge - adult literacy
 Access to resources needed for a decent standard of living -
GDP/capita

LO7
5-84

1-84
Technology-profit pyramy: Chinese lesson
Area
Countries

Ideal and USA, Russia,

innovations
German(G1)
>300%
CNC machinery G1 + Japan,
201%-300%
Italy.. (G2)
Consuming G2+ Korea,
machine nery and
101%-200% equipments Taiwan,.. (G3)
Make consumer G3 + Thailand,
0-100% products
Vietnam,
Malaysia...

World market Africa countries and Opec mambers

5-85

85 1-85
 Political Forces

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Ideological Forces

 Communism
 Government should own all the major
factors of production
 Labor unions are government-controlled
 This ideology persists in few countries
 Capitalism
 An economic system in which the means of
production and distribution are for the most
part privately owned and operated for
private profit

LO1
5-87

1-87
Ideological Forces
 Socialism
 In an extreme form socialist governments can
control public utilities and some basic means of
production
 Socialist governments rarely perform in ways
consistent with a “pure” doctrine
 Many European countries including Great Britain,
France, Spain, Greece, Germany, Italy, Austria,
and others have practiced a form of socialism

LO1
5-88

1-88
 Conservative or Liberal

 Conservative (keep constant)

 In recent U.S. terms a conservative believes in
minimizing government oversight of economic
activity and maximizing the independence of the
private sector
 Liberal
 In recent U.S. terms a liberal urges (persuit or
encourage) greater government regulation and
oversight (fault) of the economy
 These terms usually have entirely different meanings
outside the U.S.
LO1
5-89

1-89
Unfair Competition?

 Privately owned companies complain that

government owned companies
 Can cut prices because maximizing profit is
not their main purpose
 Get cheaper financing
 Get government contracts
 Get export assistance
 Can hold down wages with government
assistance

LO2
5-90

1-90
Government Protection
 Terrorism
 Unlawful acts of violence committed for a wide
variety of reasons,
 Economic gain: ransom (take money in exchange
something)
 To overthrow (let down) a government
 To gain release of imprisoned colleagues
 To exact revenge (beat for beat) for real or
imagined wrongs
 To punish nonbelievers of the terrorists' religion

LO3
5-91

1-91
Government Protection
 World wide terrorist groups: a new trend
 Government-sponsored terrorism: act of war
 Countries finance, sponsor, and train
terrorists and/or provide sanctuaries
(church/pagoda) for them

LO3
5-92

1-92
Government Protection
 Kidnapping for Ransom
 Victims held for large ransoms
 Columbia and Peru are dangerous places for
American executives
 U.S. executives practice “commando
management” to avoid kidnap risk
 Arrive secretly, meet for a few days and fly off
before kidnappers learn of their presence
 Such behavior is suggested when operating in
countries that are on the U.S. State Department’s
warning list

LO3
5-93

1-93
 Countermeasures by Industry

 KRE (kidnap, ransom, and extortion – ask money for

exchange secret or something)
 Insurance to cover ransom payments, antiterrorist
schools
 Cassidy and Davis
 The world’s largest kidnapping and extortion
underwriting firm is located in London
 Antiterrorist Schools

LO3
5-94

1-94
Government Stability
 Stable Government
 Maintains itself in power and whose fiscal,
monetary and political policies are
predictable and not subject to sudden,
radical changes
 Unstable Government
 Cannot maintain itself in power or makes
sudden, unpredictable, or radical policy
changes

LO5
5-95

1-95
Traditional Race
 Traditional hostilities (deeply hate) refer to
long-standing enmities between tribes, races,
religions, ideologies, or countries
 Arab countries -Israel
 Hutus and Tutsis in Burundi and Rwanda
 Tamils and Sinhalese in Sri Lanka

LO5
5-96

1-96
Country Risk Assessment

 A country risk assessment (CRA) is an evaluation by

the firm that assesses a country’s economic
situation, policies and politics to determine how
much risk exists of losing an asset or not being paid

LO6
5-97

1-97
Country Risk Assessment
 Types of Country Risks
 Political: wars, revolutions, coups (dare to
make politic problem)
 Economic
 Financial: BOP deficits
 Labor: low productivity, militant (fighting)
unions
 Legal: underdeveloped laws concerning
business
 Terrorism

LO6
5-98

1-98
Dumping

 Dumping is within the domain of the WTO

 The WTO defines dumping as selling a product abroad
for less than
 the average cost of production at home
 home market price
 the price to third countries

LO7
5-99

1-99
Subsidies and
Countervailing Duties

 Subsidies are economic actions by a

government to support exports or hinder
imports
 Countervailing duties are additional import
taxes levied by the importing nation’s
government on imports that have benefited
from export subsidies offered by the exporting
nation’s government

LO7
5-100

1-100
 Intellectual Property and
Other Legal Forces

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
International Legal Forces

 Rule of law allows foreign businesses to

know interests will be protected
 Public International Law
 Legal relations between governments
 Private International Law
 Laws governing transactions of
individuals and companies that cross
international borders

LO1
5-102

1-102
 Sources of International Law

 The most important source of law is found in

bilateral and multilateral treaties between nations
 Treaties are agreements among countries, which
may be bilateral (between two countries) or
multilateral (involving more than two countries);
also called conventions, covenants, compacts, or
protocols
 United Nation’s International Court of Justice
creates law when it decides disputes

LO2
5-103

1-103
Extraterritoriality

 Extraterritoriality (exemption of local authority

for somebodies) refers to a country’s attempt to
apply its laws to foreigners or nonresidents and
to acts and activities that take place outside its
borders
 Not done through force, but by traditional
legal means

LO2
5-104

1-104
Intellectual Property

 Intellectual property includes

 Patents
 Trademarks
 Trade names
 Copyrights
 Trade secrets
 All result from the exercise of someone’s intellect

LO4
5-105

1-105
Intellectual Property

 Patents - protection
 International Convention for the Protection of
Industrial Property
 European Patent Organization (EPO)
 The World Intellectual Property Organization
(WIPO)

LO4
5-106

1-106
Intellectual Property

 Trademarks
 Protection varies by country, 10 to 20 years
 Madrid Agreement of 1891
 General American Convention for
Trademark and Commercial Protection
 Bilateral basis in friendship, commerce, and
navigation treaties

LO4
5-107

1-107
Intellectual Property

 Trade names
 Protected in countries that adhere to the
Convention for the Protection of Industrial Property
 Copyrights
 Protection provided under the Berne Convention of
1886 which is adhered to by 77 countries
 Universal Copyright Convention of 1954 adopted by
92 countries

LO4
5-108

1-108
Common Law or Civil Law?

 Common Law
 Jurisdiction has more power to expand rules to
fit particular cases
 Civil Law
 Jurisdiction is bound by the words in the code
 Much more predictable

Religious law
Islam , hindu…

5-109

1-109
Taxation
 Non-revenue tax purposes
 To redistribute income
 Discourage consumption of products such as
tobacco and alcohol
 Encourage purchase of domestic rather than
imported products

LO5
5-110

1-110
 Antitrust Laws
 Antitrust laws
 Laws to prevent price fixing, market sharing, and
business monopolies
 Competition policy
 The European Union equivalent of antitrust laws
 The U.S. and the EU have attempted to enforce their
antitrust laws extraterritorially
 Japan’s Fair Trade Commission
 The “toothless tiger”
 Japanese companies are incorporating antitrust
thinking into their strategy
LO6
5-111

1-111