37

CHAPTER 3
Legal, Technological, and
Political Forces

After studying this chapter, students should be able to:

> Describe the major types of legal systems confronting international business.
> Explain how domestic laws affect the ability of firms to conduct international
business.
> List the ways firms can resolve international business disputes.
> Describe the impact of the host country's technological environment on
international business.
> Explain how firms can protect themselves from political risk.
> Analyze the risks facing international firms doing business in emerging market
economies.

LECTURE OUTLINE

OPENING CASE: The Second Cultural Revolution

The opening case discusses the difficulties and opportunities the Internet has created
for Mainland China. It concentrates on discussing ways the Chinese government has
attempted to curb access to information.

Key Points

• The boundaryless nature of the Internet presents quandaries for governments

that wish to maintain walls between their citizens and the rest of the world.

• China's leaders recognize the importance of the Internet in promoting economic

growth. However, they wish to maintain political control, something that can be
undermined by the free flow of information on the Internet.

• The Internet is popular among Chinese citizens, who use it primarily to acquire
information and news.
38 > Chapter 3

• The government has tried many means of controlling the Internet, from banning
foreign investment in Chinese Internet service providers (ISPs), to only allowing
accredited reporters to file stories.

• The Chinese government's often hostile and sometimes contradictory policies

toward foreign presence on the Internet have made foreign firms more hesitant to
invest in that industry in China.

CHAPTER SUMMARY

Chapter Three explores the legal, political and technological environment within which
international businesses operate. The chapter begins with a discussion of the different
types of legal systems international companies may encounter. It then goes on to
discuss the way technological environments vary across countries. The final part of the
chapter addresses how firms deal with different regulations in different countries and
how they manage political risk -- especially in emerging markets.

I. THE LEGAL ENVIRONMENT

Discuss Wired World: The Law and the Internet

Most existing laws predate the World Wide Web. Adjusting
these laws to the needs of the Internet is a difficult task. Activities sponsored by
a web site may be legal in one country but not in another. This Box discusses
steps the US and other countries have taken to deal with some of these issues.

Differences in Legal Systems

Legal systems vary across countries for historical, cultural, political and religious
reasons. Access to the legal system also varies from country to country. Discuss
Figure 3.1 here. The basis of different legal systems is discussed below.

• The United Kingdom and its former colonies all follow a legal system based on
common law. Common law is law based on the cumulative wisdom of judges’
decisions on individual cases through history. Thus, each country’s legal system
evolves as individual cases set precedents.
• Statutory laws, those enacted by legislative action, also vary among common
law countries, as will the administration of the law. The text provides examples of
differences between the U.S. and Britain in terms of statutory laws and the
administration of law.
• Civil law is the world’s most common form of legal system. It is based on a
detailed listing, or codification, of what is and is not permissible. A main difference
between common law and civil law lies with the role of the judge. In the common
law system the judge acts as a neutral referee, while in a civil law system, the judge
takes on many of the tasks that would be completed by lawyers in a common law
system.
• Religious law is based on the officially established rules governing the faith
and practice of a particular religion. A country that follows such a system is called
a theocracy. The text provides an example of how religious law affects a
company’s loan opportunities in a Muslim society.
 Legal, Technological, and Political Forces > 39

• Bureaucratic law, followed by communist countries and dictatorships, is

whatever the country’s bureaucrats say it is, regardless of the formal law of the
land. Bureaucratic law is frequently inconsistent, unpredictable, and lacking in
appeal procedures.

Domestically-Oriented Laws

• Home country law clearly affects a firm’s domestic operations, but it may also
affect a firm’s international operations by regulating international business activities
that originate inside the country’s borders, affecting the ability of domestic firms to
compete internationally, and affecting business activities that occur outside the
country’s borders.

Laws Directly Affecting International Business Transactions

• A country may attempt to induce a second country to change an undesirable

policy by imposing sanctions -- restraints against commerce with that country.
• In extreme cases, an embargo (a comprehensive sanction against all
commerce with a given country) may be imposed.
• Sanctions are often used to limit the export of high-technology goods that may
have military applications.
• Attempts by the home country government to regulate a firm's activities outside
of the country's borders constitute a practice known as extraterritoriality. An
example of extraterritoriality discussed in the text is the Helms-Burton Act. Another
example of extraterritoriality is the Foreign Corrupt Practices Act (see Going Global,
ahead).

Discuss Going Global: Should Bribes be a Competitive

Weapon?
In many countries a small payment to government officials
such as customs officers, immigration authorities, and building
inspectors is just a part of doing business. In 1977 the US Congress passed the
Foreign Corrupt Practices Act (FCPA) prohibiting US firms from making payments to
foreign government officials in order to influence the official actions or policies of
that official to gain or retain business -- even if the transaction occurs entirely
outside US borders. Some companies have argued that the FCPA puts them at a
competitive disadvantage against competitors from other countries that allow those
competitors to pay bribes to get business.

Laws Directed Against Foreign Firms

• Nationalization occurs when a government takes possession of assets

belonging to a foreign company. When the government takes possession without
compensating the firms it is called confiscation. When the host government
compensates the private owners for the assets, the transfer is called expropriation.
• Privatization is the conversion of state-owned property to privately owned
property. It is the opposite of nationalization and creates opportunities for
international businesses.
• Many governments place constraints of foreign ownership of firms in certain
industries. For example, the US limits foreigners to 25 percent ownership of US
television and radio stations.
40 > Chapter 3

• Countries can also constrain foreign MNCs by imposing restrictions on their

ability to repatriate profits to their home country.

The Impacts of MNCs on Host Countries

• The presence of MNCs affects the host country economically, politically and
culturally. Economically, an MNC may have positive and not-so-positive effects.
The capital investments MNCs make can help create jobs. The taxes they pay can
help host governments finance a variety of programs. Technology transfer can
make whole industries in the host country more efficient.
• However, sometimes MNCs can drive domestic firms out of business, creating
unemployment. They also often benefit from tax holidays and other policies that
reduce the positive effects that otherwise might have been generated.
• Exposure to MNCs and their products may also alter the norms, standards and
behavior of the host country. Consumer preferences and expectations often change
with new products and new business practices.

Dispute Resolution in International Business

• When resolving disputes in international business, four questions must be

answered: (a) which country’s laws apply? (b) in which country should the issue be
resolved? (c) what technique should be used to resolve the conflict--litigation,
arbitration, mediation, or negotiation? And (d) how will the settlement be enforced?
• In many cases, the answers to the questions are specified in contracts between
companies. However, in other cases each party may seek to hear the case in the
court system most favorable to its own interests. This process is known as forum
shopping.
• Because monetary awards are higher in U.S. courts than in most other courts,
forum shopping puts U.S. firms involved in disputes at a competitive disadvantage.
The text provides an example of how Union Carbide fought to halt its Bhopal case
from being heard in U.S. courts. However, lawyers who were aware of the higher
monetary award that was likely to be awarded in U.S. courts tried to get the case
heard in the U.S. so that they could collect a contingency fee equal to one-third of
monetary damages awarded.
• The principle of comity provides that a country will honor and enforce within its
own territory the judgments and decisions of foreign courts, with certain limitations.
For the principle to apply, reciprocity must be extended between the countries,
proper notice must be given to the defendant, and the foreign court judgment must
not violate domestic statutes or treaty obligations.
• Many companies seeking to avoid the costs and uncertainties of litigation will try
to settle their dispute through arbitration, the process by which both parties to the
conflict agree to submit their cases to a private individual or body whose decision
they will honor.
• Companies involved in a dispute with a government have a more limited set of
options. For example, the Foreign Sovereign Immunities Act of 1976 of the U.S.
provides that the actions of foreign governments against U.S. firms are generally
beyond the jurisdiction of U.S. courts. However, most countries will try to protect
their firms from discriminatory actions by foreign governments by negotiating
bilateral treaties.
 Legal, Technological, and Political Forces > 41

II. THE TECHNOLOGICAL ENVIRONMENT

• Countries change and shape their technological environment through

investment. Investments in infrastructure and human capital have allowed
developed countries to continue to prosper in world markets despite high wages
paid to their workers.

Discuss Wiring the World: Tapping India's Human Capital

India is now the world's 2nd largest software exporter, thanks to the
thousands of well-trained engineers its colleges and universities produce each year.
The management consulting firm McKinsey and Company, recognizing the high
level of human capital in India, sponsored India Venture 2000 and identified 67
proposals that may lead to new businesses start-ups.

• Technology transfer also affects the technological environment in host countries

around the world. MNCs bring new technologies with them when they start
operations in countries where they were not present before.
• For technology transfer to occur, a country must be careful to protect -- through
its legal environment -- intellectual property rights. Discuss Map 3.2 which
shows losses and piracy rates for different regions of the world. Trademarks,
patents, copyrights, and brand names all require protection from piracy.
• Inconsistencies in intellectual property rights laws across countries create
numerous difficulties for MNCs. For example, patents may expire sooner in one
country than in another or trademarks may already have been registered by
someone else.

III. THE POLITICAL ENVIRONMENT

Political Risk

• Political risk assessment is a systematic analysis of the political risks faced by

international businesses in foreign countries. Political risks include any changes in
the political environment that may adversely affect the value of the firm’s business
activities. Most political risks fall into one of three categories: ownership risk (where
the property of the firm is threatened through confiscation or expropriation),
operating risk (where the ongoing operations of the firm and/or the safety of its
employees are threatened through changes in laws, environmental standards, tax
codes, terrorism, and so forth), and transfer risk (where the government interferes
with the firm’s ability to shift funds into and out of the country). Discuss Table 3.1
here.
• A macropolitical risk affects all firms in a country, while a micropolitical risk
affects only a specific firm or firms within a specific industry. The text provides
examples of each type of risk.
• Assessing political risk typically involves constant monitoring by the MNC.
Some of the best sources of information are the employees of the firm. In addition,
embassy officials and international chambers of commerce may be consulted, or
consulting firms may be employed. Several international business publications also
print surveys of political risk. Governments can also be a good source of
information. Discuss Map 3.3 here.
42 > Chapter 3

• Some degree of political risk exists in every country. The depth of analysis
necessary to assess its magnitude depends on the type of business and its likely
duration in the host country. Firms can then make a tradeoff between political risk
and the likely rate of return of a particular investment.
• Most developed countries have created organizations to insure firms against
political risk. In the U.S., firms can obtain insurance from the Overseas Private
Investment Corporation (OPIC) for protection from nationalization, insurrections or
revolutions, and foreign-exchange inconvertibility. See Chapter 6 for further
discussion of OPIC. The Multilateral Investment Guarantee Agency (MIGA), a
subsidiary of the World Bank, is another source of insurance against political risk.
In addition, firms may obtain protection from private insurance firms.

The Emerging Market Economies

• Assessing political risk is particularly important when a country is undergoing

extreme political, economic, or legal changes, as is the case with the former
centrally planned economies of Eastern and Central Europe and the People’s
Republic of China. A centrally planned economy (CPE) is one in which government
planners determine prices and production levels for individual firms.
• Some former Soviet bloc countries have moved to functioning democracies,
while others have established one-man dictatorships. Further complicating the
situation are the ethnic conflicts that permeate parts of the region. Governments
have also behaved in an unpredictable fashion. The text illustrates this point with
examples of the difficulties encountered by Motorola and Monsanto in the Ukraine.
• While firms operating in China may avoid some of the problems encountered in
some of the other former CPEs, many risks continue because China’s government
is still controlled by the Communist Party.
• Companies participating in the transition of the former communist countries to a
free market system have encountered numerous operating difficulties. The region’s
infrastructure is poor, making even simple business operations such as making a
telephone call a challenge. In addition, there is a distinct lack of qualified
executives to run the newly privatized companies, and management training in
general is decidedly poor. The text provides examples of the situations some firms
are facing in former CPEs.
CA

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A Job for 007

The closing case examines the difficulties in transporting oil from the Caspian Sea. The region
has a considerable amount of oil--oil that companies know how to access. However,
transporting the oil is a process fraught with political risk (as highlighted in the 2000 James
Bond movie, The World is Not Enough). Map 3.4 should be used in the case discussion.
 Legal, Technological, and Political Forces > 43

Key Points

• Baku, the capital of Azerbaijan, is the center of the oil industry operating in the Caspian
Sea region. The city is the Caspian’s main port. The Caspian Sea sits on a rich bed of oil,
and consequently, is of interest to oil companies around the world. Accessing the oil is
easy; however, getting it to market is another question. All of the possible transportation
routes involve crossing politically unstable territory.

• The Azerbaijan International Operating Company, owned by a consortium of oil companies

including BP, Exxon and Amoco, is most affected by the problem. The company expects
to spend between $8 billion and $10 billion over the next 30 years to develop and produce
four billion barrels of Caspian Sea oil.

• The company’s two pipelines will cross politically unstable areas. Furthermore, Azerbaijan
is considered a politically risky area as well. The country is run by a former KGB general
who has stifled political dissent, suppressed the freedom of the press, and imposed a
blockade on Armenia.

• Companies operating elsewhere in the area are facing similar problems. Unocal has
proposed building a pipeline from Turkmenistan to Pakistan. However, the pipeline would
cross Afghanistan, a country that has experienced considerable political instability in recent
years. Routes through China also appear to be problematic because they would have to
pass through Xinjiang, an area that has seen rebellion by Uighur separatists.

• While it appears that no situation will be problem-free, companies are eager to try. The
temptation of as much as 160 billion barrels of oil is too great to resist.

Case Questions

1. Characterize the types of investments that are most vulnerable to political risk.
Characterize those that are least vulnerable. Oil and natural gas pipelines are immobile
and long-lived. They are also very expensive. On a scale of one to ten (ten being
highest), how vulnerable are they to political risks?

Most students will suggest that investments that are time-consuming and costly to make
are the ones most vulnerable to risk. Some students will suggest that it is important to
consider the value of the investment to the host country to properly gauge the likelihood of
confiscation, expropriation, or some other negative move by the host country. Those that
have the greatest potential value will likely be targets for such actions. Certainly, one might
argue that oil and natural gas pipelines are both costly and time-consuming to develop.
They also probably have great potential value to host countries, and therefore, would rate
high on the vulnerability scale.

2. Which of the pipeline routes discussed in the case offers the least political risk? Which
offers the greatest political risk? (You may wish to refer to the Working with the Web
exercise for help in answering this question.

Students will probably enjoy debating the merits of the various suggested transportation
routes. It might be helpful to students to use a spreadsheet method of analyzing the
advantages and disadvantages of each of the proposed routes. Many students may come
44 > Chapter 3

to the conclusion that the route crossing China may be least risky because the Chinese
National Petroleum Company has a stake in seeing it succeed.

3. In his novel Kim, Rudyard Kipling introduced the phrase “The Great Game” to describe the
struggle between Russian czars and the British empire to control the wealth of Central Asia
and the Caspian Sea. Clearly, the great game is being replayed as countries fight to
control access to the area’s oil and natural gas reserves. What can international
businesses do to protect themselves from the geopolitical struggles of Russia, China, Iran,
the United States, and other nations in this region?

There is no quick fix, one-size-fits-all method of avoiding political risk. Instead, companies
must consider each situation individually. Certainly, one might argue that those companies
that manage to ingrain themselves in the local economy are the ones that are less likely to
be a target for negative actions. Hence, actions such as employing local labor, bringing in
capital and technology, providing training, and so forth would all be good measures to take.
In addition, many companies retain the services of experts on the area who can provide
on-going advice about a particular situation. Finally, firms may decide to purchase
insurance against political risk from OPIC, MIGA, or a private firm.

Additional Case Application

Students can be asked to contemplate a major investment in a country that is undergoing
tough economic times. Students should conduct a political risk assessment of this
investment. Students may take various approaches to this exercise depending on the
country they choose and the type of investment they pick and its duration in the host
country. Most students will probably choose a manufacturing operation and may choose
South Korea or another South East Asian country as a destination. Factors that should be
considered in a political risk assessment include the threat of expropriation and
confiscation, campaigns against foreign goods, mandatory labor benefits legislation, recent
forms of violence, civil wars, inflation, currency devaluations, and increased taxation.
Students should assess political risk from both a macro perspective and a micro
perspective.
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1. Describe the four different types of legal systems with which international businesses must
deal.

The four types of legal systems with which international businesses must deal are common
law, civil law, religious law, and bureaucratic law. The common law system relies on the
cumulative effect of judicial decisions on individual cases. In contrast, the civil law system
is based on a detailed listing of what is and is not permissible. Religious law has its base
in the official rules that govern the faith and practice of a particular religion. Finally,
bureaucratic law is whatever the country’s bureaucrats say it is.

2. What is extraterritoriality?

Extraterritoriality is an attempt by a country to regulate business activities that are

conducted outside of its borders. Examples of extraterritoriality include attempts by a
country to monitor transfer prices, antitrust laws, and antiboycott provisions in trade law.)
 Legal, Technological, and Political Forces > 45

3. How can an MNC affect its host country?

An MNC can affect its host country in numerous ways, some positive, others negative. On
the positive side, local jobs may be created as a result of investments in plants and
factories; tax payments may improve a country’s infrastructure; and technology may be
transferred to the host country. On the negative side, local jobs and profits may be lost as
a result of increased competition, and the local economy may become dependent on the
success of the MNC. An MNC will typically also have a significant political impact.

4. How do expropriation and confiscation differ?

When a government nationalizes an industry (or company) it may compensate the private
owners for their loss (expropriation) or it may not (confiscation).

5. Why do countries impose restrictions on foreign ownership of domestic firms?

Countries may impose restrictions on foreign ownership of domestic firms to avoid control
of their economies by foreigners, because they fear that foreign companies could
undermine their industrial policies, and because they believe that local citizens should
receive the benefits of certain industries.

6. What is the difference between “first to invent” and “first to file” patent systems?

A “first-to-invent” policy, followed by the U.S., Canada, and the Philippines, focuses on
protecting the rights of the “true” inventor, while a “first-to-file” system assigns rights to the
first patent applicant. The former encourages litigation, while the latter avoids it.

7. How do restrictions on repatriation of profits affect MNCs?

In an effort to encourage local reinvestment of earnings, countries may limit the repatriation
of profits by MNCs. In some cases the threat of restrictions on the repatriation of profits will
discourage MNCs from investing in the first place. Restrictions are sometimes formulated
in such a way that export operations are encouraged. The text provides an example of
how Poland encourages firms to expand their exports from their Polish operations by
allowing companies to repatriate all of their profits earned from exports.

8. What is political risk? What forms can it take?

Political risks are defined as any changes in the political environment that may adversely
affect the value of the firm's business activities. Most political risks can be divided into
three categories: ownership risk (the threat of confiscation or expropriation), operating risk
(political changes will put employees and or profits in danger), and transfer risk (the threat
that the government will interfere with the firm's ability to shift funds in and out of the
country).

9. What is OPIC’s role in promoting international business activity?

OPIC’s role in promoting international business activity is centered around reducing the risk
of a company’s foreign operations. OPIC provides insurance against nationalization,
insurrections or revolutions, and foreign-exchange inconvertibility. OPIC’s insurance is
46 > Chapter 3

available only to companies operating in countries with which the U.S. has a bilateral
investment treaty.

10. What difficulties do countries with centrally planned economies have in transforming them
into free-market economies?

The transition from a centrally planned economy to a free-market economy is a time of

great political and economic instability. The privatization of industry presents its own set of
problems as governments attempt to determine who actually owns state property, how it
should be sold, who it should be sold to, and so forth. Even after these questions are
answered, the lack of individuals with management skills and experienced executives to
run the businesses creates new challenges. Furthermore, centrally planned economies
are finding that in order to foster successful businesses they must update and improve their
infrastructures.

Questions for Discussion

1. What options do firms have when caught in conflicts between home country and host
country laws?

Firms caught between home and host country laws face a difficult situation. If they comply
with home country laws, they may find that their activities in the host country are severely
limited. Yet, if firms comply with host country regulations they may find themselves under
fire in the home country. Depending on the particular situation, firms may find that the best
option is to simply choose another location for business. However, in cases where the
stakes are high, negotiation with the appropriate party (home or host country government)
may be the best option.

2. What is the impact of vigorous enforcement of intellectual property rights on the world
economy? Who gains and who loses from strict enforcement of these laws?

The protection of international property rights is the subject of ongoing debate between
countries and firms. Firms with patents, copyrights, trademarks, and/or brand names favor
strict enforcement of intellectual property rights on a global basis. If such protection is
granted, “copycat” firms stand to lose. One might argue that consumers also stand to lose
if intellectual property rights are strictly enforced because they will probably pay higher
prices. However, some may say that the “copycat” products are inferior to the “real”
products. Finally, since most innovation originates in developed countries, and many of the
current “copycat” firms are residents of developing countries, one might argue that if
intellectual property rights are strictly enforced, developing countries will be hurt by a loss
in export sales. It should be noted that it will be difficult to enforce intellectual property
rights until the controversy over “first to invent” and “first to file” is ended.
 Legal, Technological, and Political Forces > 47

3. Consider the following transactions. Which of these would you consider to be bribes that
should be outlawed by international agreements? a) a payment to a customs inspector to
allow your goods to clear customs more quickly; b) hiring a law firm that employs the son of
the president of the country; c) making a $10,000 donation of equipment to the local
university that an important government minister graduated from (would your answer
change if the amount were $10 million?); d) creating a joint venture with a local company
controlled by a close relative of the country’s president; e) donating 2 percent of your
company’s profits to a private charity controlled by the country’s president.

It would appear that an outright payment to a customs inspector should be classified as a

bribe, and therefore would be against the law for American companies. The other
transactions, however, are a bit blurrier and are subject to interpretation. It is important for
students when considering the other transactions to discuss the difference between a bribe
and creating goodwill. For example, some students may suggest that transactions (c) or
(e) could be considered bribes, yet other students may interpret them as simply an effort on
the part of the company to create goodwill in the host country. Still other students may
agree with the “goodwill students” but argue that the process of creating goodwill is in itself
a form of bribery.

4. Do you agree with the U.S. government’s policies restricting the export of dual use goods?
Why or why not? (You may wish to check out the Bureau of Export Administration’s
website, which details how it operates.)

The U.S. government restricts the export of dual use goods on the grounds that they may
be used for military applications which could threaten the safety of the US and its allies.
However, the decision is not a popular one with some industries. By forbidding US firms to
export aircraft construction equipment that could be used militarily, American firms lose
sales that are filled by European firms. The third country gets the goods anyway, and
American firms are cut out of the opportunity to profit from the transaction. In the end,
whether the U.S. restricts the export of the goods or not may make little difference, since
those who want the technology will simply purchase it elsewhere. Accordingly, some
students may feel that the U.S. policy is nothing more than a burden to U.S. firms that will
lose sales to foreign companies.

5. Map 3.3 presents countries’ relative political risk at the beginning of 2000. For which
countries has political risk changed significantly since then?

Most students will probably focus on the Middle Eastern Countries and those of the former
Eastern Bloc and China when answering this question. Certainly, it could be argued that
tension has intensified in parts of the Middle East, particularly Iraq. On the other hand, one
might argue that much of the former Eastern Bloc has become less risky, and that as China
has opened its doors to international trade, it, too, could be considered to be more stable.
48 > Chapter 3

ssing

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Essence of the exercise
This exercise requires students to conduct a political risk assessment of a fictitious project.
The exercise requires students to list all types of political risk that could be a factor in the
success of the project, and then use the text’s websites to identify the likelihood of any of the
risks becoming a problem.

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Essence of the exercise
This exercise is designed to provide students with experience in assessing political risk.
Students are asked to assess political and legal forces that might affect an investment in the
U.S.

Answers to the follow-up questions

1. How easy or difficult was it to identify political or legal forces affecting your firm’s proposed
entry?

Students should find that it is relatively easy to identify macro forces affecting a proposed
investment, but more difficult to assess micro forces. In fact, since most students will
probably contact the local chamber of commerce and consult published political risk
assessment publications such as Euromoney, responses should be fairly similar at the
macro level regardless of the type of investment being researched. Students will probably
conclude that the assistance of a consulting firm would be helpful at the micro level of
assessment.

2. What other political or legal barriers might exist that you were unable to identify?

As noted in the previous question, barriers affecting firms at the micro level will probably be
more difficult to identify than those at the macro level. Therefore, students are likely to
focus on micro forces when responding to this question.

3. Are the potential barriers so great as to keep your firm out altogether? Why or why not?

In most cases, since the U.S. has a fairly receptive attitude towards foreign investment,
students will probably conclude that the potential barriers are not enough to keep their
firms out of the market. However, there may be certain micro forces that would affect
certain types of investment to such a degree that investing would not be wise.
 Legal, Technological, and Political Forces > 49

4. Do different levels of government (city, state, and federal) pose different political and legal
barriers to your firm? If so, describe these differences.

The response to this question will, of course, depend on the type and location of
investment. Factors that should be considered include tax barriers, local content laws,
labor benefits packages, environmental restrictions, and laws regarding product standards.
Certainly, one might expect that taxes will be assessed at all three (city, state, and federal)
levels, while laws regarding product standards would be a product of the federal
government. Similarly, environmental restrictions might be a factor at both the state and
federal level, while local content laws would be assessed at the federal level only.

Other Applications
Students completing this exercise will be examining investment in the U.S., a country that
has a relatively open attitude toward investment. To provide students with a more
comprehensive understanding of the potential for political and legal restrictions to affect a
potential investment, students can be assigned to identify the same information for the
same type of investment, but in a different location such as China, Mexico, or Japan.