Deck 5: Political and Legal Environment

Question 1

Explain the timeline that led to the deterioration of the political relationship between the U.S. and Cuba.

Answer 1

Castro succeeded with Cuba's revolution in 1959 and began confiscating land and limiting MNCs' ownership of land, redistributing land to farmers. Cuba discarded the United States' profit-making rights in October 1959 and limited capital exploitation. In 1960, Cuba nationalized American assets equivalent to $10 billion. The day after Castro declared Cuba as a socialist state, the CIA attacked Cuba in what would be known as a failed invasion referred to as the "Pigman attack." The failed U.S. invasion resulted in Cuba's decision to strengthen its relations with the Soviet Union and Castro's leadership. The end result was the Cuban Missile Crisis of 1962 that led to the freeze of diplomatic relations between Cuba and the U.S. President Eisenhower canceled sugar imports and refused to export oil to Cuba. Cuba became more reliant on Russian crude oil and decided to nationalize its refineries. In February 1962, the embargo expanded to include almost all imports. The Trading with the Enemy Act of 1917, The Foreign Assistance Act of 1961, the Cuban Assets Control Regulations of 1963, the Cuban Democracy Act of 1992, the Helms Burton Act of 1996, and the Trade Sanctions Reform and Export Enhancement Act of 2000 make up the basis of the embargo. In 2015, relationships changed. President Obama and President Castro met and Obama announced that relations would be restored.

Question 2

How can MNCs use the recent change in diplomatic relations between the U.S. and Cuba to their advantage? Examine the opportunities and challenges facing U.S companies if they decide to enter the Cuban market.

Answer 2

Opportunities and Challenges
Cuba remains an untouched market of opportunity for U.S. companies looking to expand. The Cuban government has also relaxed its rules, creating a flood of new entrepreneurs and businesses in the country.
Lack of capital investment. Cuba requires billions of dollars in investment in communication infrastructure. It needs to update its shoddy transportation network and use capital inflow to bolster productive sectors.
Stalled state economy. Cuba's public sector constrains the country's ability to expand output. Many state-run enterprises are unprofitable and stay afloat by utilizing subsidies. Furthermore, the country lacks a true price mechanism to drive resource allocation.
Currency confusion. The country's dual currency system creates constraints for the development of the country's export sector. Cuban firms need to greatly devalue to gain greater competitiveness.
Regulatory environment. Regulations have been changed, facilitating trade in the telecommunications and agricultural sectors, but most U.S. firms are still not allowed to invest in Cuba. If the embargo is lifted, U.S. companies will still have to catch up with companies from Europe and Latin America who have been operating in Cuba for decades.

Question 3

What do you think are the major political risks that MNCs have to cope with in conducting business overseas?

Answer 3

Answers will vary.
Government Instability
Multinational companies must deal with government instability in developing or even emerging countries. If there is a coup or transfer of power from one party to another, MNCs must take this into account and plan accordingly to mitigate risk and ensure operations remain fluid.
Regulations
Governmental regulations and limits on businesses may be a hindrance to companies. MNCs may need to adjust their business practices or exit the market altogether to avoid any negative externalities that may arise. Furthermore, many MNCs need to utilize leverage through lobbyists or other political advocates to ensure their needs are being considered and met.
Legal Environment
Different business practices may result in ethical dilemmas that skew the line of legality. MNCs may need to engage in acts within the host country that are illegal or discouraged in the home country. For example, a company may need to pay government officials to keep their business afloat. This makes it very important for MNCs to construct and implement clear guidelines on how to conduct business within these countries and ensure compliance with local, federal, and international standards.

Question 4

Explain the key success factors of China's economic transition from a planned economy to a market economy. Discuss whether these success factors can be applied to other planned economies.

Question 5

Compare the experience of China with that of Poland, the Czech Republic, and Russia in their efforts to transform into a market economy.

Question 6

Why is it difficult to successfully implement big bang reforms, as we have seen in the case of the former Soviet Union and its former satellite countries in Central and Eastern Europe?

Question 7

Explain the background and significance of The Foreign Corrupt Practices Act.

Question 8

Explain a recent FCPA lawsuit. How did the company or individual violate the act? What were the consequences or results if any?

Question 9

What changes have been made to the FCPA? Why?

Question 10

What are the Panama Papers? What are the legitimate and illegitimate ways offshore accounts and companies can be used?

Question 11

What are some methods the EU and other countries could employ to prevent political and economic corruption?

Question 12

What institutions do you feel are responsible for enforcing economic transparency and preventing corruption?

Question 13

Discuss the differences between macro and micro political risks.

Question 14

Describe different economic systems and explain how a country can successfully transform from a command economy to a market economy.

Question 15

Explain the Foreign Corrupt Practices Act and how American MNCs can maintain their competitive advantage without violating this act in the foreign market.

Question 16

Describe differences between common law and civil law and discuss its implications for a business contract.

Question 17

How can an MNC manage political risks before and after entering a foreign market?

Question 18

Which of the following best characterizes a democratic political system?

A) All people in a country are politically and legally equal
B) Government of the people, by the people, for the people
C) All citizens have equal rights to an opinion
D) All of the above

Question 19

Which of the following political systems blocks opposing values and ideals through brainwashing, persecution, surveillance, propaganda, and censorship?

A) Democracy
B) Totalitarianism
C) Socialism
D) Communism

Question 20

Which of the following political systems is based on the assumption that the collective welfare of people should take precedence over individual welfare?

A) Democracy
B) Totalitarianism
C) Socialism
D) Communism

Question 21

Which of the following is not considered a macro political risk that affects the performance of all the industries and companies in a country?

A) Corruption
B) Riot
C) Pricing regulation
D) None of the above

Question 22

Which of the following characterizes market mechanisms in a market economy?

A) Interaction between price, quantity, supply, and demand
B) Resources allocated as a result of firms and households interacting
C) Company and consumer sovereignty
D) All of the above

Question 23

Which of the following economic systems has the government controlling the activities of all the economic sectors, determining how much is produced for whom and by whom?

A) Market economy
B) Centrally planned economy
C) Mixed economy
D) Common economy

Question 24

Which of the following is not a typical way in which a government can intervene in the free market?

A) Influence over economic decision-making
B) Ownership over the means of production
C) Creation of trade regulations and tax incentives
D) None of the above

Question 25

Which of the following is considered a symptom of a looming economic or financial crisis?

A) High inflation
B) Increased unemployment rate
C) Widening trade deficit
D) All of the above

Question 26

Which of the following legal systems respects previous cases and legal history in resolving conflicts and disputes?

A) Common law
B) Civil law
C) Theocratic law
D) Customary law

Question 27

Which of the following legal systems has the judge establish the facts of the case and applies the provisions of the applicable code?

A) Common law
B) Civil law
C) Theocratic law
D) Customary law

Question 28

Which of the following legal systems reflects the wisdom of daily life, spiritual heritage, and philosophical tradition?

A) Common law
B) Civil law
C) Theocratic law
D) Customary law

Question 29

Which of the following is not true in a theocratic law system?

A) It is based on religious doctrine, precepts, and beliefs of the country
B) Religious leaders have the legal authority to regulate business deals
C) No separation between church and state
D) None of the above

Question 30

Which of the following countries does not have a mixed law legal system?

A) Nigeria
B) United States
C) Russia
D) Pakistan

Question 31

Which of the following best characterizes profit remittance laws for MNCs?

A) Laws made to avert the abusive use and pollution of water resources
B) Laws prohibiting transferring earnings to their home country
C) Laws regulating what types of advertisement are allowed
D) Laws to restrict production, marketing, and distribution

Question 32

Which of the following is not a law typically regulated by an MNC's host country and instead is regulated by the MNC's home-country origin?

A) Profit remittance law
B) Intellectual property protection laws
C) Environmental laws
D) Accounting and inspection laws

Question 33

Which of the following best describes what is prohibited under the Foreign Corrupt Practices Act?

A) Offering bribes to foreign governments
B) Divulging financial information to foreign governments
C) Entering joint ventures with local firms
D) Sharing proprietary knowledge with foreign companies

Question 34

Which of the following is not true regarding environmental laws?

A) The government wants to preserve natural resources
B) Environmental laws have a potentially adverse effect on employment
C) Environmental laws have a potentially adverse effect on an MNC's investment
D) None of the above

Question 35

Which of the following characterizes an MNC's options in managing political risk before they enter a foreign market?

A) Private insurance companies developing insurance products
B) Investment guarantee programs
C) Insured tax concessions
D) All of the above

Question 36

Which of the following refers to how businesses should be run to meet moral, legal, commercial, and public expectations toward stakeholders?

A) Corporate social responsibility
B) Ethical corporate practice
C) Moral business responsibility
D) Social moral responsibility

Question 37

Which of the following characterizes the benefit of a local partner for an MNC?

A) Understands local situations
B) Cultivates trust with local government
C) Familiar with legal context
D) All of the above

Question 38

What is the difference between theocratic law and customary law?

Question 39

What is the difference between socialism and a social democracy?

Question 40

What is corporate social responsibility (CSR)? Why is this beneficial for an MNC?

Question 41

How are economic risks indicative of a possible financial crisis? What do these signs say about the country's government?

Question 42

What are the six legal risks an MNC can face in their host country?

Question 43

How does an MNC manage their political risk after already entering a foreign market?