Solutions to Assignments
IBO-01 International Business Environment
Question No. 5 A)
Political Risks
Geopolitical risk, also known as political risk, transpires when a country's government unexpectedly changes its policies, which now negatively affect the foreign company. These policy changes can include such things as trade barriers, which serve to limit or prevent international trade.
Some governments will request additional funds or tariffs in exchange for the right to export items into their country. Tariffs and quotas are used to protect domestic producers from foreign competition. This also can have a huge effect on the profits of an organization because it either cuts revenues from the result of a tax on exports or restricts the amount of revenues that can be earned.
Countries have implemented free-trade agreements, such as the North American Free Trade Agreement (NAFTA) and other similar measures, in an effort to reduce the number of trade barriers. However, not all of these measures are successful, and ongoing trade wars can disrupt an international company's business and market efficiency. Thus, the everyday differences in the laws of foreign countries continue to influence the profits and overall success of a company doing business transactions abroad.
Question No. 5 B)
Alternative Dispute Resolution (ADR)
Alternative dispute resolution (ADR) is, in an insurance sense, a number of disparate processes used by companies to resolve claims and contractual disputes. Insured clients who are denied a claim are offered this course of action as a form of recourse. It is employed to avoid expensive and time-consuming litigation and arbitration.
Alternative dispute resolution (ADR) is designed to settle disputes outside of the courtroom with the help of an impartial third party. This path is generally accessible after efforts between the client and the insurer to resolve any differences between themselves fails and reaches an impasse.
Many insurance policies contain mandatory alternative dispute resolution (ADR) clauses, depending on the state. The two most common forms of alternative dispute resolution (ADR) are:
- Mediation: An independent third party steps in to try and find a way for the insured and the insurer to agree on a mutually acceptable outcome. The mediator is not called upon to decide who is right but rather to add structure to communication between the disputing parties, so that they can, hopefully, eventually reach a resolution between themselves.
- Arbitration: A neutral independent party called an arbitrator listens to arguments from both sides, collects evidence, and then decides on the outcome of the dispute, similar to a court ruling. Arbitration can either be non-binding or binding. The latter means the decision is final and enforceable, while the former implies that the arbitrator’s ruling is advisory and only set in stone if both parties agree to it.
Question No. 5 C)
Wagering Agreement
Agreements entered into between parties under the condition that money is payable by the first party to the second party on the happening of a future uncertain event, and the second party to the first party when the event does not happen, are called Wagering Agreements or Wager. There should be mutual chance of profit and loss in a wagering agreement. Generally wagering agreements are void.
Wager means a bet. It is a game of chance where the probability of winning or losing is uncertain. The chance of either winning or losing is wholly dependent on an uncertain event.
Parties involved in a wagering contract mutually agree upon the nature of the agreement that either one will win. Each party stands equally to win or lose the bet. The chance of gain or the risk of loss is not one sided. If either of the parties may win but not lose, or may lose but cannot win, it is a wagering contract.
The essence of a wagering contract is that neither of the parties should have any interest in the contract other than the sum, which he will win or lose. Parties to a wagering contract focus mainly on the profit or loss they earn.
Question No. 5 D)
Code of Ethics for International Marketing
A large amount of international trade is carried out by MNCs that are under conflicting pressures of their stakeholders. Some of the notable pressures on them are listed below.
Pressure to meet demands of consumers of their products, having apparently similar characteristics and expectations from products and services, but differing in their lifestyles and environmental factors. Pressure to meet the expectations of shareholders about rate of return on investment, requiring them to be prudent investors and to effectively handle various risks of their activities. Pressure to do effective financial management including availing all legally permissible tax benefits. Pressure to compete effectively in their markets.
A review of various pressures on major player in international trade shows the need to clearly lay down guidelines, in form of code ethics, for their employees. Such code of ethics should lay down guidelines for operating in various markets, particularly focusing on places where unethical behaviour is more common. However, as the player have been more concerned with growth and development of their business, the code of conduct has been emphasized and laid down by outside agencies such as OECD, International Chamber of commerce, International Labour Organization and UN Committee on Transnational Corporations. These codes address issues related to MNCs and their stakeholders such as host government, the public, consumers and employees.
Apart from conforming to general ethical behaviour, the ethical codes of the companies active in international trade should ensure the following.
i) Need to respect laws and regulations of the host countries and do nothing to compromise with the health and safety of consumers. US laws on product liability, a big litigation issue, is an extreme case that affects the development of new products, especially the pharmaceuticals. Such legislation makes small firms reluctant to export to USA due to prohibitive cost of litigation.
ii) Firms should not exploit the weakness in legislation in host countries such as selling products in these markets that are banned elsewhere.
iii) The firms can be proactive and assist the governments in preventing marketing of unsafe products. However, the close relationship developed by firm with the local government, should not be misused such as gaining competitive advantage through adaptation of company's product specification, taking advantage of local lack of expertise in a particular area.
