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Chapter 33

International business

Copyright © Nelson Australia Pty Ltd 2003

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Outline

1. Globalisation and international trade2. The World Trade Organisation3. Alternative strategies for international

business operations4. International sale of goods5. International trade financing6. International intellectual property protection7. International commercial dispute resolution

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33.1

Globalisation and international trade

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Globalisation and international trade

• The exponential growth in the globalisation of business is a consequence of:• the rapid advance of communications

technology• long-term economic growth

• The development of an international legal code to regulate global business is hampered by resistance to the transfer of power from local authority to global authority

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33.2

The World Trade Organisation

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The World Trade Organisation

• The World Trade Organisation (WTO) was established in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT).

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The World Trade Organisation

• The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably.

• It does this by:• administering trade agreements• acting as a forum for trade negotiations• settling trade disputes• reviewing national trade policies• assisting developing countries in trade policy issues• cooperating with other international organisations.

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The World Trade Organisation

• Principles for free and fair trade in services have now been developed and appear in the new General Agreement on Trade and Services (GATS).

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33.3

Alternative strategies for international business operations

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Direct sales/exporting

• An exporter may sell directly to customers in an overseas market.

• A manufacturing firm that does not want a physical presence in an overseas market may use intermediaries such as distributors or agents to market and distribute the product.

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Licensing

• Licensing is a contractual arrangement under which the owner of intellectual property grants to another the right to use that IP in a particular place, for a particular time, for a particular price and subject to whatever other provisions are agreed upon.

• Firms are increasingly using licensing as a strategy for international business operation.

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Franchising

• Franchising is a more sophisticated form of licensing characterised by the franchisor’s granting to the franchisee not only the right to use the franchisor’s IP but also the right to use its entire business format.

• Over the last two decades there has been a dramatic increase in the internationalisation of franchising.

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Branch offices and subsidiaries

• Branch offices, subsidiaries and foreign acquisitions allow greater control over the intermediary than the use of agents, distributors or licensees, and without the need to share any profits with anyone.

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Joint venture

• A joint venture is a common undertaking created by two or more participants for a specific purpose of a commercial, financial or technical nature.

• Forms of joint venture include:• equity ventures• contractual or cooperative ventures.

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Strategic alliances

• A strategic alliance is a cooperative agreement between potential or actual competitors.

• The essence of a strategic alliance is cooperation in a limited form in return for a share of profits arising out of the alliance.

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33.4

International sale of goods

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Vienna Sales Convention

• The United Nations Convention for the International Sale of Goods (the Vienna Sales Convention) was adopted in Vienna in 1980.

• The convention is in force in all Australian jurisdictions.

• Where an international contract for the sale of goods is entered into between parties in countries that are members of the Convention, that law governs the contract.

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33.5

International trade financing

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International payment methods

• The principal methods of ensuring payment for exported goods include:• payment in advance• documentary bills of exchange• documentary letters of credit.

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Payment in advance

• This is the preferred option of the vendor but in practice may be difficult to negotiate.

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Documentary bills of exchange

• The seller draws a bill of exchange on the buyer for payment, either at sight (immediately) or upon the expiration for a term.

• The bill is normally delivered by the seller to its bank, which will in due course present it to the buyer for acceptance, in the case of a term bill, or for payment, in the case of a sight bill.

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Documentary letters of credit

• A letter of credit is a document issued by the buyer’s bank in favour of the seller.

• The buyer instructs its bank as to times of payment and the document to be obtained prior to payment.

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33.6

International intellectual property protection

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TRIPS

• The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is administered by the WTO, and sets out intellectual property standards with which member nations must comply, as well as provisions for enforcement.

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33.7

International commercial dispute resolution

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International dispute resolution

• International trade and commercial disputes can be settled through:• Consultation or negotiation – An informal

and unstructured process under which the parties resolve their dispute by direct contact and exchange of opinions

• Conciliation and mediation – A process of third-party dispute settlement where procedural rules are very flexible or do not exist at all

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International dispute resolution

• Arbitration – Involves the use of an impartial and competent person as a referee to arbitrate a dispute

• Litigation – The traditional means of dispute resolution involving the use of a court of law