Managing Political Risk

Use of integrative techniques using names which that not identified with overseas company or country Protective and defensive techniques- areas of production, R & D Based in different places Strategic use of joint ventures and partnershipsstrong investment in local economy Minimizing failure of co operative efforts -firm specific advantages -safeguard against unethical behaviour

Legal Factors
Legal environment refers to the legal system obtaining in a country It refers to the rules, or laws that regulate the behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained.

 A countrys laws regulate business practices, define the manner in which business transactions are to be executed and sets down rights and obligations.

Differences in legal systems can attractiveness of a country as an investment site or place or market

 Legal systems and property rights: there are three aspects of legal systems that affect international business, i.e., laws of property rights, Intellectual property rights, product safety and product liability laws and contract laws.

 Property rights: is the bundle of legal rights addressing the use to which a resource is put and the use made of any income that may be derived from that service. Control over property rights are very important for the functioning of business. Property rights can be violated by either private action (theft, piracy, blackmail, Mafia) or public action (governmental bribery and corruption, nationalization). Lack of confidence in a countrys fair treatment of property rights significantly increases the costs and risks of doing business.

 Intellectual property rights: Property such as computer software, screenplays, musical scores, or chemical formulas for new drugs that is the product of intellectual activity. (Patents, copyrights, and trademarks) are important for businesses if they are to capitalize on what they have developed. Patents: documents giving the inventor of a new product or processes exclusive rights to the manufacture, use, or sale of that invention.

 Copyrights: are the excusive legal rights of authors, composers, playwrights, artists and publishers to publish and dispose their works as they see it. Trademarks: are designs and names, often officially registers, by which merchants or manufacturers designate and differentiate their products.

 Firms like Microsoft, Levis, Coca-Cola, or McDonalds would have little reason to invest overseas if other firms in other countries were able to use the same name and copy their products without permission.

 For example, consider innovation in the pharmaceuticals firms an incentive to undertake the expensive, difficult and time consuming basic research required to generate new drugs( on average it costs $100 million in research and development and takes 12 years to get a new drug to the market.). Without the guarantee provided by patents, it is unlikely that companies would commit themselves to such research.

Product safety and product liability:

Product safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death or damage. Product liability can be much greater if the product does not confirm to required safety standards. There are both civil and criminal liability laws. Civil laws calls for payment damages. Criminal laws result in fines or imprisonment.

 Contract laws: A contract is a document that specifies the conditions, under which an exchange is to occur, and details the rights and obligations of the parties to a contract. Contract law is the body of law that governs contract enforcement. The parties can resort to contract law in case of violations.

 There are two legal traditions that are found in world today. The common law system and the civil law system. The common law system evolved in England over hundred s of years ago. It is now found in most of Britains former colonies including US. Common law is based on tradition, precedent and custom.

 Civil law system is based on very detailed set of laws that are organizes into codes. These codes define the laws that govern business transactions. This is used in ore than 80 countries, including Germany, France, Japan and Russia.

Economic Systems
There are four broad types of economic systems: market, command, mixed, and state-directed. In reality almost all are mixed to some extent, for even the most market oriented systems have some governmental controls on business and even the most command based systems either explicitly allow some free markets to exist or have black markets for some goods and services. Yet, all countries can be considered to be at some point on a continuum between pure market and pure command.

 Market economy: In a pure market economy, the goods and services that a country produces, as well as the quantity in which they are produced, is not planned by anyone. Rather price and quantity are determined by supply and demand.

 Command economy: In a pure command economy, the government plans what goods and services a country produces, the quantity in which they are produced, and the price at which they are sold. Resources are allocated for the good of society.

 Mixed economy: A mixed economy includes some elements of each. In Canada, for example, while most business is privately owned and operated under market principles, health care, electrical power, and liquor distribution are run by state owned enterprises in most provinces.

 In a state-directed economy, the government plays a significant role in directing the investment activities of private enterprises through industrial policy. Both Japan and South Korea are often cited as examples of state-directed economies. In both situations, the government has played a significant role in directing investment.

 The major measures of economic development of courtiers are GDP, PPP ( Purchasing power parity), and HDI (Human development index). HDI is based on these measures - Life expectancy at birth - Educational attainment Normally scaled from 0 -1 <0.5 low 0.5- 0.8 Med >0.8 high

Exporting Licensing Joint ventures Strategic alliances Acquisitions Franchising Assembly operations Management contracts Turnkey projects Free trade zones

 Most traditional way of entering the foreign market Direct exporting and indirect exporting ( trading companies, export house, domestic purchase)

 Under a licensing agreement, a company ( the licensor) grants rights to intangible property to another company(licensee) for a specified year; in exchange the licensee pays the royalty to the licensor. The rights may be exclusive on non exclusive Licensing agreements are most common on the use of patents, trademarks, copy rights.

 Benefits: Appealing to small companies that lack resources Faster access to the market Rapid penetration of the global markets Caveats: Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a licensee Licensee may become a future competitor

 A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets

 Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones. Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile, and it has also started GSM services in some states.

 Benefits: Higher rate of return and more control over the operations Creation of synergy Sharing of resources Access to distribution network Contact with local suppliers and government officials

 Caveats: Lack of control Lack of trust Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

 It is a business relationship established by two or more companies to co operate out of mutual need and share risk in achieving a common objective At least two companies combining value chain activities for the purpose of competitive advantage Technology based alliance , production based allaince, distribution based allaince

 Apple has partnered with Sony, Motorola, Phillips, and AT&T in the past. Apple has also partnered more recently with Clearwell in order to jointly develop Clearwell's E-Discovery platform for the Apple iPad. Hewlett Packard and Disney Hewlett-Packard and Disney have a long-standing alliance, starting back in 1938, when Disney purchased eight oscillators to use in the sound design of Fantasia from HP founders Bill Hewlett and Dave Packard. When Disney wanted to develop a virtual attraction called Mission: SPACE, Disney Imagineers and HP engineers relied on HP's IT architecture, servers and workstations to create Disney's most technologically advanced attraction.

Acquisitions
Acquiring or purchasing an existing venture

 Franchising is a means of marketing goods and services in which the franchiser grants the legal right to use branding, trade marks and products and the method of operation is transferred to the third party the franchisee- in return for a franchise fee. The franchiser provides assistance, training and help with sourcing components and exercise significant control over the franchisees method of operation Subway, McDonald's, 7-Eleven

 Benefits: Overseas expansion with a minimum investment Franchisees profits tied to their efforts Availability of local franchisees knowledge Caveats: Revenues may not be adequate Availability of a master franchisee

Turnkey operations
Turnkey project is a contract under which a firm agrees to fully design, construct and equip a manufacturing/business/service facility and turn the project over to the purchaser when it is ready for operation for remuneration Example oil refinery, steel mills, cement plants and fertilizer plants