TAMÁS NOVÁK Global Business Environment

Legal, regulatory and technological environment, business cycles

Basic issues

Confusion and challenge of international business environment is heightened by– Differing laws and regulations in MNCs’ global

business operations– Impact of these laws and regulations on ability to

capitalize on economies of scale and scope MNCs must carefully evaluate legal framework

in each market in which they want to do business, before doing so

Four Global Foundations of Law

• Derived from interpretation of the Qur’an and teachings of Prophet Muhammad

• Found in Islamic countries– Middle East– Central Asia

Islamic Law

Four Global Foundations of Law

• Comes from Marxist socialist system• Continues to influence regulations in

former communist countries– Members of former Soviet Union– Peoples’ Republic of China– Vietnam– North Korea– Cuba

• Requires most property to be owned by the state or state enterprises

Islamic Law

Socialist Law

Four Global Foundations of Law

• Comes from English law

• Foundation of legal system – United States– Canada– England– Australia– New Zealand

Islamic Law

Socialist Law

Common Law

Four Global Foundations of Law

• Derived from Roman law

• Found in non-Islamic and nonsocialist countries– France– Some Latin American countries– Louisiana in the U.S.

Islamic Law

Socialist Law

Common Law

Civil or Code Law

Basic Principles of International Law

Sovereignty and Sovereign Immunity

An international principle of law which holds that governments have the right to rule themselves as they see fit

Sovereignty and Sovereign Immunity

Basic Principles of International Law

International Jurisdiction

A jurisdictional principle of international law which holds that every country has jurisdiction over its citizens no matter where they are located

• Nationality principle• Territoriality principle• Protective principle

Sovereignty and Sovereign Immunity

International Jurisdiction

Basic Principles of International Law

Doctrine of Comity

A jurisdictional principle of international law which holds that there must be mutual respect for the laws, institutions, and government of other countries in the matter of jurisdiction over their own citizens

Sovereignty and Sovereign Immunity

International Jurisdiction

Doctrine of Comity

Basic Principles of International Law

Act of State Doctrine

A jurisdictional principle of international law which holds that all acts of other governments are considered to be valid by courts, even if such acts are illegal or inappropriate under the host county law.

Sovereignty and Sovereign Immunity

International Jurisdiction

Doctrine of Comity

Act of State Doctrine

Basic Principles of International Law

Treatment and Rights of Aliens

Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conductNations also can deport aliens

Sovereignty and Sovereign Immunity

International Jurisdiction

Doctrine of Comity

Act of State Doctrine

Treatment and Rights of Aliens

Basic Principles of International Law

Forum for Hearing and Settling Disputes

Courts can dismiss cases brought before them by foreigners; however they are bound to examine issues such as

• where the plaintiffs are located,

• where the evidence must be gathered

• where property to be used in restitution is located

Sovereignty and Sovereign Immunity

International Jurisdiction

Doctrine of Comity

Act of State Doctrine

Treatment and Rights of Aliens

Forum for Hearing and Settling Disputes

Regulation of Tradeand Investment

Individual countries use legal and regulatory policies to affect the international management environment

Country is perceived to engage in unfair trade practices (WTO and similar agreements)

– Government support (subsidies)– Require MNCs to accept local partners

Response may be– Tariffs– Restrictive trade regulations

Business Cycle

The business cycle occurs when economic activity speeds up or slows down.

A business cycle is a swing in total national output, income and employment, usually lasting for a period of 2 to 10 years, marked by widespread expansion or contraction in many sectors of the economy.

Business Cycle

Potential output

Actual output

Business cycles are the

irregular expansions and

contractions in economic

activity.

Q

t (in years)

Three Types of Business Cycle

Economic theory define three types of business cycle:– Short-term (Kitchin) cycle: from 2 to 4 years, it

results from the changes in business inventories.– Medium-term (Jouglar) cycle: from 7 to 11 years, it

refers to new business investment.– Long-term (Kondratiev) cycle: from 30 to 50 years,

it results from the technological innovation.

Business Cycle

A business cycle can be divided into four major phases:– Recession – the downturn of a business cycle.

This is a period in which real GDP declines for at least 2 consecutive quarter-years.

– Through – the lowest point of real GDP at the end of a recession.

Business Cycle

– Expansion (boom) is a period in which output increases and approaches potential GDP or perhaps even overshoots it.

– Peak – the point at which recession begins, the highest point in real GDP before a recession.

Business Cycle Theories

We may classify the different theories into two categories:– The external theories find the root of the

business cycles in the fluctuations of something outside the economic system (wars, revolutions, elections, economic policy, migrations, discoveries of new lands and resources).

– The internal theories look for mechanism within the economic system itself (self-generating business cycles).

Business Cycle Theories

Some of the most important business cycle theories are:– Neoclassical theories attribute the business

cycle to the expansion and contraction of money and credit.

– Keynesian theories attribute fluctuations to the economic system itself. They think that the macro economy is prone to extended business cycles, with high levels of unemployed resources for long period of time. They further hold that the government can stimulate the economy.

Business Cycle Theories

– Political theories of business cycle attribute fluctuations to politicians who manipulate fiscal and monetary policies in order to be reelected.

Technological Environment and Global Shifts in Production

Biotechnology Nanotechnology Satellites Artificial intelligence and embedded learning technology Advancements in computer chip technology Supercomputers E-business

– Business-to-business (B2B)– Business to consumer (B2C) transactions– Financial services (e-cash)

Technological Environment and Global Shifts in Production

Telecommunications– Wireless or mobile telephone service

Economic growth hampered by poor communication services Wireless is more affordable than installed phone lines Some governments recognize the need to privatize this

service Technology, outsourcing and offshoring

– Technology has reduced and eliminated some work in middle management and white-collar jobs

– Global competition has forced some MNCs to outsource jobs to offshore productions (lower labor and other costs)

– Emerging technology makes work more portable

Expected Winnersin Selected Occupations

-80 -60 -40 -20 0 20 40 60 80 100

Computer software engineers, applications

Computer support specialists

Computer software engineers, systems software

Network and computer systems administrators

Personal and home care aids

Medical assistants

100

97

90

82

62

52

Percentage change for 2000-2010

Expected Losersin Selected Occupations

-80 -60 -40 -20 0 20 40 60 80 100

-61

-35

-28

-26

-25

-20

Percentage change for 2000-2010

-20

Railroad brake, signal, and switch operators

Telephone operators

Loan interviewers and clerks

Meter readers, utilities

Farmers and ranchers

Order clerks

Insurance claims and policy processing clerks