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BMAL 590 Legal Environment of Business with verified solutions
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BMAL 590 Legal Environment ofBusiness
"Glocal" - correct answer ✔✔The trend of organizations that think globally but act locally
Few, if any, companies can be called purely local.
OECD - Organisation for Economic Co-operation and Development Countries - correct answer
✔✔Whereas the resources and capabilities to harness new technologies are available in the developed
world, natural resources are often found in emerging economies and developing countries.
More than a third of the world's population is in one continent - Asia. Just two countries, China and
India, account for nearly 2.5 billion people. It is not surprising that corporations look at these countries
as huge markets.
Exporting - correct answer ✔✔Export refers to sending goods produced in the firm's home country to be
marketed in other host countries.
Exports are governed by the laws of the home country (which may prevent certain goods and services
being exported) and those of the host country (which may prohibit some goods, restrict quantities,
impose customs and countervailing duties, and in some cases may impose anti-dumping duties).
Thus, firms need to study the fine print before getting into exports.
Exporting enables the firm to exploit economies of scale in existing facilities and reduces risk that may
arise out of having operations in another country.
Exporting becomes unviable to certain countries due to geographic distance and related transportation
costs, or where the other country imposes restrictions and/or high customs duties.
,Other options in going global include: - correct answer ✔✔Licensing
Franchising
Joint ventures
Strategic alliances
Wholly-owned subsidiaries
Acquisitions
Licensing - correct answer ✔✔a firm in the host country manufactures goods under license to a
company that is paid royalties on the sales
Licensing is beneficial in low-tech sectors. In hi-tech sectors, licensing has the risk of losing valuable tacit
knowledge.
Franchising: - correct answer ✔✔common in industries such as fast food, coffee, and services
Franchising works well in the services sector. The key is due diligenceand trust.
Joint ventures: - correct answer ✔✔firms enter into a co-operative arrangement with a firm in the host
country, usually with equity participation
Joint ventures are politically acceptable in most countries because they enable a firm in the host country
to upgrade its own capabilities. On the other hand, many joint ventures fail because of a breakdown in
trustbetween the partners.
Strategic alliances: - correct answer ✔✔co-operative arrangements for a specific purpose
Wholly-owned subsidiaries: - correct answer ✔✔the firm invests 100% of the funds required in the host
country
Wholly-owned subsidiaries are beneficial from the firm's perspective. Most countries have limitations for
100% foreign investment except in sectors where the host country may be lacking or favors foreign direct
investment to leapfrog certain technologies.
,Acquisitions - correct answer ✔✔the firm buys a going business in the host country
Going Global - Legal Challenges - correct answer ✔✔Businesses desire predictability. They are likely to
invest in countries where the rule of law is upheld and business interests would be protected as long as
they conform to the country's laws.
Firms going global need to be aware of law at two levels: - correct answer ✔✔Public International Law
Private International Law
Public International Law - correct answer ✔✔refers to the treaties, agreements, and protocols agreed to
between the governments of different countries. These could be bi-lateral (between two countries) or
multi-lateral (between several countries).
Private International Law - correct answer ✔✔Refers to the local law in the host country, and how those
laws will govern agreements and contracts entered into between organizations and individuals in
different countries. Private international law has to be aligned to public international law in so far as the
countries involved are concerned.
Agreements - correct answer ✔✔Agreements between countries are referred to as conventions,
covenants, protocols, charters, exchange of notes, treaties, pacts, compacts, and modus vivendi (manner
of living or practical compromise), based on the context.
Treaties - correct answer ✔✔Treaties generally include four or five basic elements:
The preamble
The substance of the treaty
The treaty specifies the time and the place
The final part contains the signatures of the parties represented in the treaty.
The preamble - correct answer ✔✔Provides the names of the parties, the purpose of the treaty, and
explains how the signatories are authorized to enter into the agreement.
,The substance of the treaty - correct answer ✔✔describes what the parties have agreed on.
The treaty specifies the time and the place - correct answer ✔✔for the ratification of the treaties by the
respective arms of government.
Signatures - correct answer ✔✔The final part contains the signatures of the parties represented in the
treaty.
The U.S. Perspective - correct answer ✔✔The President of the U.S. has the power to negotiate and ratify
treaties.
A treaty needs the consent of two-thirds of the senators present to take effect.
The U.S. Constitution forbids the states to enter into a "treaty, alliance, or confederation," although they
may enter into an "agreement or compact" with other states, domestic or foreign, but only with the
consent of Congress.
The U.S. Supreme Court has ruled that U.S. treaties are superior to state law.
Acts of Congress are equivalent to a treaty.
If a treaty and a law of Congress are inconsistent, the one later in time prevails.
process of discovery - correct answer ✔✔Discovery is the formal process of exchanging information
between parties and the witnesses they will present at trial.
Discovery provides full disclosure of all the elements in dispute, and often leads to settlement, rather
than proceeding to a costly, time-consuming trial.
Discovery is designed to prevent "trial by ambush," where one party does not learn about the other
party's evidence or witnesses until the trial, when there is no time to obtain answering evidence.
,United Nations Convention on Contracts for International Sale of Goods (CISG). - correct answer ✔✔CISG
applies uniform legal rules to govern international commercial contracts and outlines the rights and
obligations of both the buyer and the seller.
CISG applies to all international contracts for the sale of goods between businesses, if the parties choose
this as their source of law.
The U.S. is a signatory to CISG.
Global Dispute Settlement - correct answer ✔✔When one or both parties to an international contract
feel aggrieved, they may choose to resort to a private solution through arbitration. This is an alternative
to going to courts.
Arbitration - correct answer ✔✔The process or act of resolving a dispute
A neutral third person or entity, agreed on by the parties to the dispute, analyzes the facts and evidence
and makes a binding decision.
Arbitration has the advantage of being generally speedier than the traditional legal system, is less formal,
more confidential, and often less expensive.
It is also private, but the decisions generally cannot be appealed.
U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York
Convention) - correct answer ✔✔binds the ratifying countries to:
1. force arbitration when the parties to a contract have to agree
2. enforce the award of the arbitrator.
The New York Convention has been ratified by the U.S. and more than 150 other U.N. member countries.
Intellectual Property - correct answer ✔✔Intellectual Property includes Trademarks, Patents, Brand
names, Copyrights, and Tacit Knowledge.
,All these are products of human intellect.
Knowledge Management (KM) is more important today than ever before.
In international trade, patents are governed by the World Intellectual Property Organization (WIPO), the
International Convention for the Protection of Intellectual Property, and the European Patent
Organization (EPO)
But, there is no "international patent" so each country's patent law is also applicable.
Trademarks - correct answer ✔✔The validity of Trademark protection varies from one country to
another.
The validity can range from 10 to 20 years or more.
Trademarks are protected by virtue of the Madrid Agreement of 1981, General American Convention for
Trademark and Commercial Protection, and on a bilateral basis between countries through commerce
and navigation treaties.
Brand names - correct answer ✔✔Protected in countries that are signatories to the Convention for the
Protection of Industrial Property.
Copyrights - correct answer ✔✔protected by the Berne Convention and the Universal Copyright
Convention.
Differences in Legal Systems - correct answer ✔✔The United States has a history of laws being amended
or revised on a regular basis by the states as well as at the federal level. Courts frequently interpret laws
or make decisions that have the force of law when used as precedent in future proceedings.
In contrast, Europe has a history of laws or regulations being amended quite rarely. Courts are not asked
often to interpret the law.
England does not have a jury system for civil suits.
,Also in England, it is quite common for the winner in a civil suit to be awarded costs. In the U.S., the
general rule is that each party pays its attorney's fees, with costs awarded only as sanctions against
frivolous actions and defenses.
Taxes - correct answer ✔✔Taxes levied in almost all countries.
Direct and indirect taxes are levied on incomes and on the sale and distribution of goods and services to
augment resources for development and welfare schemes.
Some taxes aim to reduce disparities in incomes.
Empirical studies show that higher rates of taxation invariably lead to tax evasion and re-location of
funds to tax havens.
Many countries use low taxes as an incentive to attract foreign investment.
Global Business and Taxation - correct answer ✔✔A number of large global corporations have re-located
their headquarters to tax havens depriving their home countries of tax revenues.
This process, called inversion, is practiced widely and is a source of friction between high-tax nations and
tax havens on the one hand, and between high-tax nations and corporations on the other.
For example, some U.S. corporations have re-located to Ireland. The reason is that the U.S. has a high
rate of corporate taxation (39.1%) compared to the OECD weighted average of 29.0% and the low rate of
12.5% in Ireland.
Most countries cite worthy causes while collecting taxes; very fewactually deliver on the promises.
Inequalities - correct answer ✔✔Inequalities have increased during the last three decades.
Universal access to education, health care, and sanitation is still a distant dream for many.
,Implementation is often difficult due to the complexity of tax laws and the years spent on unnecessary
litigation.
For example, in the U.S., the I.R.S. (Internal Revenue Service) Tax Codeis reported to contain over four
million words.
implementation - correct answer ✔✔For example, the U.S. follows the principle of National Tax
Jurisdiction. The system requires U.S. Citizens and Residents to pay tax to the U.S.government
irrespective of where the income is earned. Thus, U.S. Citizens and Residents working and living abroad
have to comply with U.S. laws. Also called Citizenship-based taxation, it is supposed to be the most
draconian of all and is reported to be used by just two countries - the U.S. and Eritrea.
The alternative view is that of Territorial Tax Jurisdiction, in which expatriates are exempt from their
home country's taxes. Costa Rica, Gibraltar, Hong Kong, Macau, Malaysia, and Singapore are examples of
countries that follow a territorial tax system.
anti-trust laws - correct answer ✔✔The U.S. has anti-trust laws to prevent practices such as monopolies
and price fixing.
Europe has a similar law called the Competition Policy.
Both the U.S. and the European Union have repeatedly tried to enforcetheir anti-trust laws outside of
their territorial limits. The results have been mixed.
Many countries impose quantitative restrictions or quotas on imports to protect domestic companies.
Other barriers that firms desirous of operating globally face - correct answer ✔✔Safety requirements,
packaging and labelling requirements, language, weak laws of intellectual property protection, and anti-
dumping duties.
In several countries, another barrier is corruption.
Foreign Corrupt Practices Act (FCPA) - correct answer ✔✔prohibits making payments to foreign
government entities in anticipation of special treatment.
,Congress has passed the FCPA outlawing "bribery" but not "grease" (facilitation) payments.
The line between the two is rarely clear.
Transparency International - correct answer ✔✔every year publishes a ranking of 177 countries based
on perceived corruption.
A score of 100 means the country is very clean (no corruption) while a score of zero means the country is
highly corrupt.
For 2016, Denmark and New Zealand tied for the top of the list with a score of 90.
North Korea (12), South Sudan (11), and Somalia (10) were at the bottom.
The U.S. was ranked 17 with a score of 74, Ireland was ranked 19 with a score of 63, and Israel ranked 28
with a score of 64.
tort - correct answer ✔✔an act or omission that gives rise to injury or harm to another and amounts to a
civil wrong for which courts impose liability.
Common torts include intentional acts such as fraud, assault and battery, and defamation, as well as
unintentional negligence. The elements of tort law are defined by common law or statutory law,
depending on the country and its legal system.
One area of tort law of particular concern to businesses is the liability for injuries caused by a company's
products or services. This liability began as an outgrowth of the company's negligence, and is now found
in either product liability or strict liability.
Product Liability - correct answer ✔✔holds a company and its executives liable and subject to fines and
even imprisonment when a product or service causes death, disability, injury, or damage.
, Strict Liability - correct answer ✔✔holds the manufacturer or designer liable for damages caused by a
product or service without the plaintiff having to prove negligence on the part of the designer or
manufacturer, because the product or service is inherently dangerous.
Examples of activities that may invite strict liability are blasting or demolition, storage of explosives,
transportation and usage of certain chemicals, production of radioactive emissions, and disposal of
hazardous wastes.
NAFTA (North American Free Trade Agreement) - correct answer ✔✔Allows open trade between the US,
Mexico, and Canada.
Designed to benefit the people of all the three countries, NAFTA established the world's largest free
trade zone by area covered.
Mexico eliminated tariffs on U.S. capital goods in three stages between 1994 and 2003. The U.S.
eliminated most of the tariffs on Mexican goods in 1994.
NAFTA has provisions for protecting Intellectual Property, and for safeguarding the environment.
Provisions of NAFTA are aligned to the Berne Convention for the Protection of Literary and Artistic Works
(Copyrights) and the Paris Convention on the Protection of Industrial Property Rights (Patents).
World Trade Organization (WTO) - correct answer ✔✔a trade organization that replaced the old General
Agreement on Tariffs and Trade (GATT)
As of July 2016, the WTO had 164 members.
The basic principles of WTO are:
Most Favored Nation (MFN) treatment.
Bound Tariffs.
National Treatment.
Gradual Free Trade through Negotiation.
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