INTRODUCTION TO INTERNATIONAL BUSINESS

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 1

INTRODUCTION TO INTERNATIONAL BUSINESS

CASES IN THIS CHAPTER

Tarbert Trading Ltd. v. Cometals, Inc.

Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc.

Dayan v. McDonald’s Corp.

In re Union Carbide Corporation Gas Plant Disaster at Bhopal

Transatlantic Financing Corp. v. United States

Gaskin v. Stumm Handel GMBH

Bernina Distributors v. Bernina Sewing Machine Co.

DIP SpA v. Commune di Bassano del Grappa

TEACHING SUMMARY

The three basic forms of international business—trade, licensing of technology and intellectual property and foreign direct investment—are methods of entering foreign markets, but they are not mutually exclusive and are often combined. The savvy manager of an international business will seek to create joint ventures and business opportunities to invest or manufacture, trade via export and imports for goods and services, and license its products where appropriate and protectable.However, international business opportunities are fraught with risk; selecting the appropriate methods of entering a foreign market or country, one must consider the culture, politics, and economics of the host country. Through the study of international law, one can better identify and manage potential legal risks.

CASE QUESTIONS AND ANSWERS

Tarbert Trading Ltd. v. Cometals, Inc.

• Import/export transactions usually require much more documentation than domestic

transactions. These include detailed invoices, packing lists, shipping and insurance documents, and specialized certificates. In this case, a “certificate of origin” was required by the government of Columbia before the goods could be imported. Does it refer to the country from which the goods were shipped or where they were grown or made? Why do you think Columbia required a certificate of origin? What is its purpose?

Answer: The CO refers to the country where the goods were grown or made, not from where it was shipped. It identifies for the buyer where the goods come from, so if goods from Country A have a better reputation than those from Country B, the buyer will know which goods it is receiving.(International Business Law and Its Environment, 10e Richard Schaffer, Filiberto Agusti, Lucien J. Dhooge) (Instructor Manual all Chapters) 1 / 4

Chapter 1: Introduction to International Business

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• Suppose that the beans had arrived in Columbia and were then stopped by Columbian

customs authorities because of a fraudulent certificate. What do you think might have happened to the beans? What would the risk have been to Cometals and Tarbert? What if the Columbian buyer had already paid for the beans?

Answer: They would have been impounded, i.e., not allowed to enter the country.

Cometals and Tarbert likely would face fines and perhaps criminal punishment. If the buyer had already paid for the beans, the buyer could sue in Columbian court to recover damages as the buyer did not get what he bargained and paid for.

• Evaluate and discuss the conduct of Cometals and Tarbert. Fraudulent documentation is

not uncommon in international trade, especially when parties do not have a history of business together. What are the lessons to be learned by all parties?

Answer: Their conduct was illegal and unethical. You need to know the party you are dealing with. If that is difficult or impossible, the risk is greater and may lead to not doing business with them. Agreements protecting yourself are very important in international business.

Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc.

• What are the “limited exclusive” rights granted to the licensees in this case?

Answer: Each has the right to copy and distribute DVDs of the film. Krupny could distribute the films in the Russian language, and Ruscico could distribute dubbed or subtitled films in various other languages.

• What is the difference between the rights granted to the plaintiff and those granted to the

defendants?

Answer: The language to be used in the films they distribute. Krupny can use only the Russian language and Ruscico can use any non-Russian language.

• Do you agree or disagree with the court’s interpretation of the license agreements?

Answer: The court interprets what the licenses provide; it cannot add other language to the agreement.

• What does this case tell you about negotiating and drafting a licensing agreement?
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Chapter 1: Introduction to International Business

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Answer: You must think how the language used in the licensing agreement will apply in practice. Be sure you have covered every possible scenario—especially true where the medium may change—theatre films, streaming videos, use on tablets, phones, computers, etc.

Dayan v. McDonald's Corp.

• What social or cultural factors might have affected McDonald's presence in Paris?

Answer: Parisian customs will inevitably affect the franchise agreement, which required the Paris franchisee meet the quality, service and cleanliness standards set by McDonald's USA. A successful franchise requires the franchisee to have the ability or desire to meet those U.S. standards. This case also illustrates the problems of franchising (licensing) over long distances and beyond the day-to-day control of the franchisor. The problems here could have arisen as easily in the case of a manufacturing business and the licensing of technology.

• How could McDonald's have exercised greater control over its foreign franchisee?

Answer: Better training in the U.S., more frequent inspection visits, and closer supervision of the Parisian franchises.

• What types of products or services are most suitable for foreign licensing?

Answer: Licensing is generally done as an alternative to foreign investment in plants and equipment where the licensor is unwilling to take the risks of further market penetration.Collecting royalties based on sales can be far safer than risking production overseas.

U.S. franchisors are getting a firm jump on the European market and have been particularly successful worldwide in franchising fast food restaurants as well as a host of service-related industries. An ability to adapt to local markets has proven to be a crucial factor in the success or failure of U.S. franchisors abroad. As the “Johannesburgers and Fries” article demonstrates, breaking into a foreign market requires franchisors to examine carefully the might of homegrown brands and local tastes.

Gas Plant Disaster In re Union Carbide Corporation at Bhopal

• India gained independence from Great Britain in 1947. Like many developing countries

with agrarian economies, independent India embarked on a long period of socialist and protectionist policies. How do you think this affected the investment climate in India? How do you think this defined the relationship between UCC and the Indian government prior to 1984?

Answer: This question calls for further student research and opinions. Students may be directed to review restrictions upon foreign investment presently existing in the developing world and contrast it to restrictions existing in 1984.

• Why do you think UCC might have chosen to produce agricultural pesticides in India rather

than exporting those products to India from plants in developed countries?

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Chapter 1: Introduction to International Business

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Answer: This question calls for student opinion, but obvious answers are reduced labor costs in India and relaxed safety requirements, which would reduce the overall cost of production.

• Why did India require local management and control? What are the advantages and

disadvantages of local management, and what problem does it present to the multinational?

Answer: This question calls for further student research and opinion. However, it should be noted that local management and control provides employment opportunities for nationals and allows host states to claim some regulatory control over the enterprise. Multinational companies may derive goodwill benefits from employing locals, as well as specialized knowledge of the host state and its market. However, multinational companies may suffer a loss of control of the investment and risk liability when harmful events occur.

• Had the legal requirements in India concerning the handling of hazardous chemicals been

less than that required in the United States, should UCC have ethically followed the higher U.S. standard?

Answer: This question might permit students to consider the loyalties and attitudes of Western managers operating in foreign countries.

• Do you think that a parent corporation, like UCC in this case, should be financially liable for

torts committed by its foreign subsidiary? Should the parent be protected by the limited liability of its corporate veil, or should a multinational firm with a “global purpose” be responsible under some theory of “single-enterprise” liability? How would this affect the attitude toward investment worldwide?

Answer: This question calls for student opinion. Students may be encouraged to discuss whether multinational corporations have a responsibility above and beyond compliance with the moral minimum as commanded by the law.

Transatlantic Financing Corporation v. United States

• Did the parties agree on what would happen if the Suez Canal had closed? In other words,

did they allocate the risk of closure? Would that have changed the result?

Answer: No, they did not. It would change the answer for Transatlantic as it could have recovered the extra cost if the contract specified via the Suez Canal.

• What is Transatlantic’s argument? If admiralty law implies that a ship’s journey will be by

the “usual and customary” route, why did the court not hold that the contract had become impossible to perform? How does the court define “impossible?”

Answer: It argues it expected to use the Suez Canal and as it could not do so, the extra cost should be paid by the U.S. as shipper. The court found it was not impossible to perform the contract as the alternate route was feasible to use and the extra cost was not extreme.

• Did Transatlantic’s performance become impracticable? How difficult was it for
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