Chapter One

Introduction to International Business

I. Economic Interdependence

A. The Global Marketplace

B. The Education of U.S. Managers

II. Forms of International Business

A. Trade

1. Comparative Advantage

2. Recent Trends in U.S. Trade

3. Trade in Services

B. Exporting

1. Direct Exporting

2. Indirect Exporting

C. Importing and Global Sourcing

D. Government Controls Over Trade

1. Tariffs

2. Trade liberalization and world trade

3. Organization

4. Export controls

E. Intellectual Property Rights and International Licensing Agreements

1. Protecting intellectual property rights

2. Technology transfer

3. International franchising

First Flight Associates v. Professional Golf Co., Inc., 527 F.2d 931 (6^th Cir. 1975)

Facts: Pro Golf sells golf equipment under name “First Flight” (registered in U.S. and certain foreign countries)

1961: Pro Golf negotiates with Wynn to be sales rep in Japan

Wynn creates “First Flight Associates, Inc.” in Japan

No formal agreement was ever reached

1967: FFA and PGC reached trademark agreement for use of “First Flight” name for “soft goods”

FFA tried to sub-license rights to “First Flight” name to another company

PGC objects, and learns that third parties have registered the “First Flight” name under Japanese law

PGC terminates deal with FFA, and FFA sued for breach of contract

Issue: May PGC terminate the contract?

Can PGC recover its costs from FFA as well as FFA’s royalties on the sub-license?

Holding: Yes, because it’s an at will contract.

No, because PGC did not have the rights to the “First Flight” name in Japan

4. Some legal aspects of franchising

F. Foreign Direct Investment

G. Multinational Corporations

1. UNCTAD’s World Investment Report
2. Impact of multinational corporations

3. Subsidiaries, joint ventures, mergers and acquisitions

H. U.S. Foreign Direct Investment

III. Conducting Business in Developing Countries

A. Developing countries

B. Economic environment in developing countries

1. Availability of foreign exchange

Note on Argentina

C. Controls on Trade and Licensing in Developing Countries

D. Controls on investment in developing countries

In re Union Carbide Corporation Gas Plant Disaster at Bhopal, 809 F.2d 195 (2^nd Cir. 1987)

Facts: Union Carbide owned 51% interest in Union Carbide India Limited

UCIL stock is publicly traded in Bombay

Chemical leak at UCIL Bhopal plant led to massive chemical leak, killing 2000-4000

Injuries to several hundred thousand more

Indian government passed a law giving itself sole authority to represent the victims

Indian courts do not have jurisdiction over Union Carbide

Issue: Should the court grant a forum non conveniens motion to dismiss in favor of litigation in India?

Holding: Yes, on condition that Union Carbide agree to jurisdiction in India and to satisfy any judgment reached by Indian courts

Reasoning: Standard FNC reasoning. Events, evidence, witnesses, victims are all in India. No interest in New York. Also, India has a strong interest in hearing the claim to regulate actions on its own soil.

NOTE: In 1989, Supreme Court of India approved a $470 million settlement

E. Road to free markets, consumer based economics, and private ownership

1. Capital investment

2. Privatization

3. Results of reform

4. People’s Republic of China

F. Newly industrialized countries

G. Less developed countries

IV. Business Environment in Eastern Europe, Russia, and Former Soviet States

A. Transition from communism to free markets and private enterprise

V. Managing the Risks of International Business

See list of problems on p. 28

Germany vs. Japan, comparing business cultures

A. Risk assessment and the firm’s foreign market entry strategy

B. Managing distance and communications

1. Selling face to face

2. Attendance at international trade shows

C. Language and cultural differences

Gaskin v. Stumm Handel GMBH, 390 F.Supp 361 (SDNY 1975)

Facts: P signed an employment contract with German company.

Contract was in German, and P did not speak German.

Contract contained German choice of law and forum selection clause

At time of contract, terms were explained in English

Dispute arose, and company invoked German forum clause

Issue: Can German company enforce the contract?

Holding: Yes.

Reasoning: He could have read it, and did have it explained to him. This is not an adhesion contract with forced terms. No evidence of unconscionable behavior.

D. Managing currency and exchange rate risks

1. Exchange rate risk

2. Floating and fixed exchange rates

3. Methods of managing exchange rate risk

4. Currency control risk

E. Special transaction risks in contacts for the sale of goods

1. Payment or credit risk

2. Delivery risk

3. Property or marine risk

4. Pilferage and containerized freight

F. Managing Political Risk

1. Causes of political risk

2. Impact on trade relations

3. Risk of international hostilities

4. Handling political risk

G. Risks of foreign laws and courts

DIP SpA v. Commune di Bassana del Grappa, Court of Justice of the European Community, 1995

Facts: German retailers sought to open stores in Italy

Italian law provided for licensing review and approval by local authorities. Italian law allowed license to be denied if the market was already adequately served.

Local Italian authorities refused to grant license to the German companies.

Issue: Is the refusal to grant a license unfair discrimination against foreign companies in violation of Treaty of Rome and laws of EU?

Holding: No. This is a valid exercise of Italian police power.

Reasoning: Italy may have such laws to protect local consumers. Government has the power to achieve a balance between supply and demand.

NOTE: By 2003, supermarkets were taking over Italy. Even Italians like convenience and low prices.

H. Ethical issues in international business

I. Receiving professional assistance in going international

1. International attorney

2. Freight forwarder/Customs broker

3. International banker