Download 4 bases for the majority of legal systems around the world

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Economic Systems
Countries economic system deals with
three issues:
What goods and services should be
How should the goods and services be
For whom should these goods and services
be produced?
Systems are categorized by the
ownership of resources and the
governments involvement
Types of Economic Systems
Command/Centrally Planned
Command/Centrally Planned
All activities of the economy are planned by
the government
This includes what is produced, the quantity
of goods produced, and the prices at which
they are sold.
This is often called a communist economic
Cuba and North Korea are examples
Over past 20 years these have declined
create economic value
provide incentives
achieve growth
satisfy consumer needs
• Vending Machine
• Fashion
• Butcher Shop in Warsaw 1989
• Queue in Wroclaw, Poland
Market Economy
In a market economy, decisions are
made by consumers and companies
about what, how, and for who items are
Property is privately owned
This is also known as a capitalist system
An example of a market economy is the
United States
Mixed Economy
In a mixed economy, some parts of the
economy are privately owned and some
are owned by the government
Typically the government steps in for
companies who are considered vital to
the country or necessary for the public
good (ex: health care, transportation)
This is often referred to as a socialist
Examples of mixed economies include
France, Italy and Sweden
Relationship to Political Systems
Totalitarian political systems tend to
have a communist/command economy
Democratic political systems tend to
have a capitalist/market economy
The trend today is toward market
The process of transferring government
owned and operated entities to private
individuals is called “privatization”
Peru’s Privatization
Peru wanted to involve its citizens,
particularly low-income people
In November 1994, the government launched
a program designed to involve citizens in
auctions of shares of formerly state-owned
With almost 50 percent of the population
below the poverty line, 3,000 people bought
out all the telephone company shares
available in the fist auction in less than three
In the second auction, 6,600 investors - many of them lower-income -- bought
out all available shares in 45 minutes.
By 1994 18,500 people had participated
in the three auctions held to date.
The government aimed to involve half a
million by 2000.
Highest real economic growth rate in
the world in 1995.
Poverty rate had dropped from 53.6
percent to 45.8 percent by 1995
Major tax and trade reforms have been
enacted and the privatization program
has sold off 51 state-owned enterprises,
garnering $3.6 billion.
Economic Risk
Likelihood that events, including
economic mismanagement, will cause
drastic changes in country's business
environment that adversely affect the
profit and other goals of a business
Types of Economic Risks
Exchange controls
Tax impositions
Minimum wage changes
Loan default
3 bases for the majority of legal
systems around the world
1. Common law
2. Code/civil law
3. Theocratic law
Common law
Bases itself on tradition, past practices
and legal precedents set by courts
through interpretation of the statutes,
legal legislation and past rulings
Code/Civil Law
Code law is based on an all-inclusive
system of written rules. There are three
parts of rules: commercial, civil and
Theocratic Law
This system is based religious beliefs
Ex: Islamic law is based on an
interpretation of the Koran
An example of how Islamic Law differs
from American law is that Islamic law
prohibit the charging of interest
Legal Disputes
There are three types of legal disputes:
Between governments
Between a government and a company
Between two companies
First type can be handled by the World
International Court of Justice
Judicial branch of the United Nations
Located at the Peace Palace
Hears disputes between governments
and gives advisory opinions about
issues to international agencies
International Dispute between
Jurisdiction determined in three ways:
Is there a jurisdictional clause?
Where was the contract entered into?
Where were the provisions of the
contract performed?
Jurisdictional Clause
Statement in business that specifies whose
legal system or laws will apply to a dispute.
“That the parties in question hereby agree
that the agreement is made in Colorado, USA,
and that any questions regarding this
agreement shall be governed by the law of
that state, Colorado, USA.”
Dealing with Disputes
Ask a non-biased third party to step in
and recommend what should be done.
It is nonbinding, and can be either
formal or informal.
Recommended for disputes involving
the Chinese because it is less
threatening than arbitration.
Preferred manner of dealing with
disputes internationally
Both parties select a third person to
make a decision that will be honored by
Formal arbitration groups exist such as
the American Arbitration Association, or
International Chamber of Commerce
Arbitration clauses should be written
into business contracts to make sure
that both parties agree to follow the
decision made by arbitrators.
Arbitration clauses are recognized by
courts and over 80 countries have
signed an agreement to recognize
arbitration awards.
Least preferred method of dealing with
international disputes.
Excessive costs, time delays and may
create a poor image for all parties
Fair juries and collecting awards can
also be an issue.
Chinese recommended settlement
Informal negotiation
Intellectual Property
Intellectual property refers to works of
the mind such as ideas, art, music. It
can also be products such as a chemical
formula or computer software.
This is becoming one of the hottest
issues in international business.
Types of intellectual property
Patent – exclusive rights to a new
product or process for an inventor
Trademark – words or symbols that are
registered by a company
Copyright – legal rights to a work by
authors, composers, playwrights, artists
or publishers
Examples of famous protected
works and their worth in millions
Coca-Cola $68,734
IBM $60,211
Microsoft $56,647
Nokia $34,864
McDonald's $32,275
Brand values courtesy of Interbrand
See the full report at
Paris Convention of the Protection of
Industrial Property, Madrid Agreement,
and others have tried to make
protection easier for international
Problems in Intellectual Property
In the U.S., ownership is established by
prior use due to our common law
Many code-law countries use a
registration system, where the first
company to register is the one who has
Piracy and counterfeit items are also a
large problem
In a survey conducted by the IACC,
Fortune 500 companies reported that
they spend an average of between $2 $4 million per year to combat
counterfeiting. Some reported spending
up to $10 million.
IACC – International Anti-Counterfeiting Coalition
The computer software industry as a
whole is losing between $12 - $16
billion per year because of rampant
piracy and counterfeiting. This amounts
to more than 40 percent of all software
industry revenues. In some countries,
more than 90 percent of computer
software are illegitimate copies.
Illegal videotaped copies of newly
released films are often available for
sale on the street even before the
movies appear on the big screen. A
recent film which cost a studio in excess
of $100 million to produce, could be
purchased on the street for a mere
$10.00 before it was released in
You Tube
Trademark counterfeiting robs the U.S. of
$287 billion annually. It is a highly profitable
tax-free cash business and it's lining the
pockets of the same criminals involved in
murder, drug trafficking, gun running and
City of New York Office of Comptroller
November 2004 Report on Counterfeiting in NYC
What's more, incidents of dangerous
fake products turning up in the U.S.
have spiked since the mid-1990s.
Authorities found counterfeit baby
formula at retail stores in 16 states,
bacteria in fake shampoo and the FAA
estimates that 520,000 counterfeit
aircraft parts are installed on airplanes
each year.
Marketing Laws
Countries have different laws relating to
promotion, product development,
pricing, labeling and distribution
In Germany, comparisons made between
products must be proven
In Canada, claims can not be misleading
Germany’s green dot program affects
product packaging because all packaging
must be accepted back by the
manufacturer, distributor or retailer.
Companies must check each country’s
Contract Law Issues
Contract law varies widely between
Civil law countries tend to be much
shorter and less specific
Common law countries tend to be much
more detailed
Product Safety and Liability
Safety standards vary greatly
Liability laws also change by country as
to how much a company can be held
responsible for product problems
American laws which follow
Foreign Corrupt Practices Act
National Security Laws
i.e. Patriot Act
Antitrust Laws
Foreign Corrupt Practices Act
Applies to any individual, firm or
representative of an organization
FCPA prohibits paying, offering, or
promising to pay anything of value to
any foreign official, political party or
candidate for political office
In order to assist firm in obtaining or
retaining business
FCPA enforcement actions filed
by DOJ and the SEC
Source: Gibson Dunn at 10/14/2009
Antitrust Regulations
Microsoft antitrust issues
1999 U.S. Justice Dept charge that they
are monopoly over Windows operating
system (self policing)
1999 European Union charged unfair
practices for using Windows to control
media players ($1.6 billion fine)
2004 Japan's Fair Trade Commission
issued cease-and-desist order for anticompetitive behavior.
2009 European Union charges anticompetitive practices
Legal Risk
Likelihood that trading partner will
opportunistically break a contract or
expropriate intellectual property rights
Political, Legal and Econ Impacts
Systems in place impact economic
Gross National Income per head of
population (GNI)
Nation Master GNI chart
Broader concept is Human Development
Index (HDI)
Life expectancy, educational
attainment, average income adequate
to meet basic needs
Major Themes from text
Innovation and entrepreneurship are
engines of long-run economic growth
Market economies have greater
incentives for innovation and
Strong legal protection of property
rights is conducive to economic growth
Democratic governments seem more
conducive to long-term economic
growth than dictatorships
Trends has been toward democracy and
toward market economy