Ch 6 and 8 Quiz Flashcards
How much a country will trade with other countries depends…
-on the nature of political relations between countries
If friendly between 2 countries: fewer trade restrictions, countries may even sign free trade agreements
If hostile between 2 countries: more trade restrictions, governments may even forbid doing business with that country
Would it be okay if you first export your products to a friendly country and from there ship your products to Country X with which doing business is against the U.S Law?
The answer is No. U.S government would fine your company if it finds out about it
Export Controls
2 Factors:
-Country of destination for exports -Type of product you are exporting
-A government may restrict certain products sensitive/critically important
-A government may restrict exportation of a product to certain countries if a “civilian” product has dual use (military and civilian) in the importing country
Export Controls
FDI Activities
For U.S: easier to invest in more friendly countries, but can expect more restrictions when investing in other countries because the government would like to prevent transfer of certain technologies to some countries through U.S. FDI.
-Policy is same for FDI in the U.S
The government prohibits doing business with Country X, which is not a friendly country to the U.S. Can you invest in another country (Country G), and your company in country G trades with country X because the government of country G does not mind if companies in country G (both local and foreign) do business with Country X?
-The U.S law will apply to your countries subsidaries in other countries as well, and this is called:
Extraterritoriality (extraterriroial application of the law)
-Other words: no matter where your company and its subsidairies are located you will need to pay attention to U.S law
Foreign Corrupt Practices Act of 1977 (FCPA)
-Enacted when it was discovered that a U.S Company had bribed government officials in other countries in order to win business contracts
-Law prohibits bribery of foreign government officials by U.S companies directly or indirectly (through “consultants”)
-The U.S justice department has stepped up enforcement of this law in recent years and many companies have found themselve in trouble
Does FCPA apply to non-U.S companies as well?
Initially no, but over the years it has been amended, and now it does if that foreign company conducts business in the U.S
Ex: If a British company bribes government officials in a third country (outside the U.K and U.S), the U.S justice department can bring charges against that British company if the British company does business in the U.S
Impact of Host Country Laws
As a foreign company in another country you would have to:
follow the local HR practices (pay,vacation, termination of emplyoment)
Impact of Host Country Laws
FDI Incentives
-States in the U.S compete with one another to attract FDI
Ex: southern states had competed for BMW’s and Mercedes Benz’s FDI). Mercedes invested in Alabama and BMW invested in South Carolina
Impact of Host Country Laws
While governments try to attract foreign companies to their countries, they will also have some controls over activities of MNCs in their countries:
-Foreign Ownership Controls
-Local Content Requirement
-Export Requirement
Foreign Ownership Controls
As a foreign company you may be required own less than 50%, or a 50/50, or may be allowed to own >50%, even 100% by the host country’s government
Local Content Requirement
As a foreign company you may be required to use, to some extent, locally made parts/components in production instead of importing every single component from other countries
Export Requirement
Foreign companies may be required to export a certain percentage of production instead of selling 100% of it in the host country
Political/Country Risk
-Expropriation
Political/Country Risk
Adverse effect on operations and profitability of foreign companies resulting from such things as:
-changes in government
policies, laws, political conditions, etc
