mktg 769 economics, political, and legal systems lars perner, instructor 1 economics, political, and...
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MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 1
ECONOMICS, POLITICAL, AND LEGAL SYSTEMS
• Brief review of– International
economics– Trade policy
• The political environment
• Legal systems• The California
“Win-Win” Project
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 2
VERY BRIEF REVIEW OF ECONOMICS
• Exchange rates– Floating (supply and
demand)– fixed
• Trade balances and their impact on exchange rates
• Measuring country wealth– gross domestic product– “purchase parity” vs.
nominal
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 3
U.S./Euro Exhange RateEuros per Dollar
00.20.40.60.8
11.21.4
1/1/
1999
7/1/
1999
1/1/
2000
7/1/
2000
1/1/
2001
7/1/
2001
1/1/
2002
7/1/
2002
1/1/
2003
7/1/
2003
1/1/
2004
7/1/
2004
1/1/
2005
Rate
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 4
Demand for Currency Depends OnDemand for Currency Depends On
• Trade deficit (demand for foreign currency to fund this) or trade surplus (demand for country’s currency)
• Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U.S. bonds and equities)
• Inflation: Reduces the attractiveness of holding the currency
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 5
Nominal vs. Purchase Parity Adjusted GNPs—Examples (2004)Nominal vs. Purchase Parity Adjusted GNPs—Examples (2004)
Country Nominal GNP PPA Luxemburg $56,230 $61,220
Norway 52,030 38,550
United States 41,400 41,400
Japan 37,180 30,040
Argentina 3,720 12,460
Czech Republic 9,150 18,400
Mexico 6,770 9,590
China 1,290 5,530
Source: World Bank http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 6
Nominal vs. Purchasing Power Parity GNPs
05,000
10,00015,000
20,000
25,00030,000
35,00040,000
0 10,000 20,000 30,000 40,000
PPA
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 7
Nominal GNP vs. Ratio
0.001.002.00
3.004.005.006.00
7.008.00
0 10,000 20,000 30,000 40,000
Ratio
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 8
Cautions on Interpreting Per Capita FiguresCautions on Interpreting Per Capita Figures
• Averages are not very meaningful!– Regional variations– Socio-economic differences
• Comparison to U.S. dollar and U.S. costs is arbitrary
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 9
Obstacles to Trade: Protectionism
• Differing interests of consumers and manufacturers
• Benefits of trade tend to be more diffused than benefits to specific groups of protectionism
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 10
Approaches to Protectionism
• Tariffs• Quotas• “Voluntary” export
restrictions• Subsidies to
domestic producers/exporters
• Non-tariff barriers– legal obstacles– differential
treatment
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 11
U.S. Protectionism--justified or not...
• Defense industry• Agricultural products--
e.g., beef, sugar• Textiles• Automobiles
(“voluntary” import restrictions)
• Steel
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 12
Justifications for Protectionism
• Protect infant industry• Resist “unfair” or inappropriate
competition• Protect home market (ensure that
product can be produced domestically)--defense
• Intervene into temporary imbalance• Maintain domestic living standards• Preserve jobs• Bargaining power/retaliation (Super-301
provision in U.S.)
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 13
Effects of Protectionism
• Reduced competition ---> inflation• More tariffs • Weaken balance of payments
(have to pay more in own currency)
• Reduce choice to consumers • May induce global trade wars
(vicious cycle)
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 14
THE POLITICAL AND LEGAL ENVIRONMENTS
• Political history and stability
• Political relations between countries --impact on business
• Legal differences between countries
• Extra-territorial application of laws
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 15
The Legal Environment
• Which laws apply when doing business between countries?– contractual
specifications– treaties– extra-territorial
applications of laws
– “compulsion” as a defense
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 16
Some Political RisksSome Political Risks
• Confiscation, expropriation, and domestication
• Economic risks– Exchange controls– Local content
requirements– Import restrictions– Tax controls– Price controls– Labor problems
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 17
Development of Legal Systems
• Laws on the books vs. laws enforced (transparency)– Japan: “Administrative guidance”
• The ability to sue--a blessing or a curse?– Means of litigation– Implications for contract initiation
and enforcement
• Evolving nature of legal systems
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 18
Approaches to Law
• Common law (U.S., Britain, and many English speaking countries)
• Code law (much of Europe and Louisiana)
• Islamic law• Socialist based
law• Asian laws
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 19
Common Law
• Gradually evolved in British courts, settling issues as they arose
• Emphasis on precedent• Recognized by U.S. Constitution• Standards
– criminal: “Innocent until proven guilty”
– civil: “Preponderance of evidence”
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 20
Code (Napoleonic) Law
• Law governed by explicit statutory codes--”match” codes to issues as well as possible
• Somewhat different standards in contracts --what constitutes an “act of God” canceling contractual obligations?
• Criminal law: “Guilty until proven innocent” but difficult to bring to trial
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 21
Islamic Law
• Note that different varieties exist• Traditions of Islamic countries are
not all tied to Islamic religion per se
• Purpose of promoting justice– assets are thought to be held in “trust”– interest is frowned upon
• Much wider scope than Western law: Shar’ia: the way
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 22
Socialist Law
• Basis for law in China, former Soviet Republics, and countries influenced by Communist allies
• Based on the view that the government owns productive resources --->– contract and intellectual property laws
are typically not well developed
• Legal scholars from the West are helping to reform
MKTG 769 ECONOMICS, POLITICAL, AND LEGAL SYSTEMS Lars Perner, Instructor 23
Asian LawAsian Law
• Based on compromise and accommodation
• Less emphasis on abstract principles
• Less emphasis on consistent application across circumstances
• Emphasis on informal resolution