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SUMMARY for International business diplomacy ■ Although host countries and international firms may hold resources that, if combined, should achieve objectives for both, conflict may cause one or both parties to withhold resources, thus preventing the full functioning of international business activities. ■ Both the managers of international firms and the host-country governmental officials must respond to interest groups that may see different advantages or no advantage at all to the business-government relationship. Therefore, the final outcome of the relationship may not be the one expected from a purely economic viewpoint. ■ Negotiations increasingly are used to determine the terms under which a company may operate in a foreign country. This negotiating process is similar to the domestic processes of company acquisition and collective bargaining. The major differences in the international sphere are the much larger number of provisions, the general lack of a fixed time duratio...

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS Most of the discussion in this chapter has centered on direct investment; however, one of the key business-government and government-to-government conflicts of recent years has involved intellectual property rights, sometimes referred to as intangible assets. The poet and essayist Ralph Waldo Emerson said, "If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he builds his house in the woods, the world will make a beaten path to his door." But if someone else gets hold of the design for the same book, sermon, or mousetrap the number of people beating the way on any single path will be divided. Some of the most valuable assets that businesses have are their intangibles, such as patents, trademarks, and copyrights, and millions of dollars can be spent in their development. Improper protection of these assets could lead to limited profitability by the parties that invested in...

Allies Through Participation The foreign company also may foster local participation designed both to reduce the image of foreignness and to develop local proponents whose personal objectives may be fulfilled by the foreign investor's continued operations. The parent company can follow a policy that involves its subsidiary in purchasing local supplies and raw materials whenever possible. It might be feasible for the local subsidiary to subcontract part of its assembly operations. In the case of purchasing component parts or subcontracting, it may be possible for the parent or the subsidiary to make a loan or give technical assistance to help the local supplier initiate or expand a plant. If it is economically reasonable, R&D activities may be undertaken within the host country. Another possibility for local participation would be a stock-option plan for country nationals employed by the subsidiary, a practice that some firms have followed even in some LDCs. A company interes...

Company Approaches Many firms strongly believe that by acting as a good corporate citizen abroad they will remove local animosities and concern that might affect their short-or long-term competitive ability. Some have even gone so far as to set their own published codes of conduct. The behavior itself may not be sufficient, however, since employees, governmental officials, consumers, and other groups may not know or understand what the company is doing. W. R. Grace's chairman, J. Peter Grace, said, "No matter how responsibly a corporation behaves, it will be viewed with skepticism unless it effectively communicates its activities, its plans, and its goals to its many publics."40 Because of conflicting pressures on the international firm from different groups, the investor can almost always be accused of bad behavior by someone. For instance, if the company offers higher wages, it may be accused of monopolistic practices and aiding inflation by attracting workers from c...

Codes of Conduct The first widespread attempt to regulate direct investment on a multilateral basis was made in 1929 by the League of Nations. At that time the attention was on foreign exploitation of the tropical commodity industry. Proposals were discarded quickly, however, with the onset of the Great Depression. Since World War II there have been several attempts to form agreements that would deal in part with the relationship between foreign investors and governments. Among these were the International Trade Organization (ITO) of 1948, which never became operative, attempts in 1951 by the UN Economic and Social Council (ECOSOC) to regulate antitrust, and the 1961 Code for Liberalization of Capital Movements established by the Organization for Economic Cooperation and Development (OECD).35 None appears to have had much effect on MNE operations. In 1975 the newly created Center on Transnational Corporations first met at the United Nations as a result of complaints issued by a larg...

CONSORTIUM APPROACHES As mentioned earlier, a company may at times be able to play one country against another, or a government may be able to do the same with international firms. When in a relatively weak position, companies or countries may be able to join together in a consortium to present a united front when dealing with the previously more powerful entity. Petroleum The Aramco case at the beginning of the chapter offers a good example of how companies have banded together on one side and countries have joined forces on the other side. The unity has strengthened both sides and at different points has helped to give advantages to one over the other. ANCOM ANCOM, as discussed in Chapter 11, sought a common policy toward foreign capital, trademarks, patents, licenses, and royalties. By unifying the policy the aims were to limit the role of MNEs and to prevent them from serving all the member countries by locating in a country with less stringent regulations. This attempt to g...

MULTILATERAL SETTLEMENTS When international firms or home governments are unable to reach agreement with a host country, they may agree to have a third party settle the dispute. In cases of trade disputes, the International Chamber of Commerce in Paris, the Swedish Chamber of Commerce, and specialized commodity associations in London frequently are asked to assist the parties. Since the trade transactions are generally among private groups, the disputes do not create the type of widespread emotional environment often attendant upon foreign investment disputes. Examples of active involvement by third parties in settling investment questions are extremely rare, for such involvement requires a relinquishment of sovereignty by host governments over activities within their own borders. Among the notable uses of external organizations have been the World Bank's agreement to arbitrate the compensation and to act as transfer agent for payments involving the Suez Canal nationalization. ...

HOME-COUNTRY _ INVOLVEMENT IN ASSET PROTECTION The Historical Background In the nineteenth century the home country ensured through military force and coercion that prompt, adequate, and effective compensation would be received for investors in cases of expropriation, a concept known as the international standard of fair dealing.17 The host countries had little to say about this standard. As late as the period between the two world wars, the United States on several occasions sent troops into Latin America to protect investors' property. The 1917 Soviet confiscations without compensation of Russian and foreign private investment led the way to noncoercive interference by home countries in cases of expropriation. In conferences attended by developing countries at The Hague in 1930 and at Montevideo in 1933, participants concluded a treaty stating that "foreigners may not claim rights other or more extensive than nationals."18 On the basis of this doctrine, Mexico us...

Behavioral Characteristics Affecting Outcome In negotiations involving people from different countries, there is a strong possibility of misunderstandings due to cross-country cultural variances as well as possible language differences. Since the individuals involved may react on the basis of how they think their own performances are being evaluated, the direction of negotiations involving company managers on one side and government officials on the other side may be uncertain from the start since the. background and expertise of governmental officials may be quite distinct from that of businesspeople. Finally, it is always possible that one side or the other wishes to terminate bargaining but is hesitant to do so for fear of alienating future relationships. Cultural Factors Back in the 1930s Will Rogers quipped, "America has never lost a war and never won a conference." Many participants and observers agree with this assessment of Americans in business negotiations abroa...

Renegotiations For early foreign investments in developing countries it was common to obtain concessions on fixed terms for a long period of time or to expect that the original terms would not change. (These early investments were largely made in the commodity and utility sectors.) This type of expectation has almost ceased to exist. Not only may the terms of operations be bargained before setting up operations, but the same terms also may be rebargained any time after operations are under way. Generally, a company's best bargaining position exists before it begins the specific operations in a foreign country. Once the capital and technology have been imported and local nationals have been trained to direct operations, the foreign firm is much less needed than before.9 Furthermore, the company now has assets that are not easily moved to more favorable locales. The result is that the host government may be in a better position to extract additional concessions from the company. ...

Other External Pressures The complementary nature of the assets that international firms and countries control would seem, at first, to dictate a mutual interest in finding means to ensure that mutual benefits are developed. While there are pressures to do this, there are other constraints as well, particularly on governmental decision makers, who may have to act in ways not in the best interest of their country. Pressure may come from local companies with which the foreign investor is presently or potentially competing, from political opponents who seize the "external" issue as a means of inciting an unsophisticated population against present political leadership, or from critics who reason that more benefits may accrue to the country through alternative means. Managers also may face pressures from stockholders, workers, consumers, governmental officials, suppliers, and other interest groups outside the country who are concerned with their own interests rather than the ach...

Home-Country Needs Thus far we have implied that terms of operations are highly dependent on the interplay of needs between the MNE and the host country. Although this is true, it overlooks the role of the home country. Although concerns vary widely among home countries, the home country seldom takes a neutral position in the relationship. Like the host government, the home-country government is interested in achieving certain economic objectives (such as tax receipts and full employment) and may give incentives to or place constraints on the foreign expansion of its firms in order to gain what it sees as its due share of the rewards from transactions. The home government has direct political interests with the host government that temper its position as well. The influence of home governments is illustrated by the efforts made when France was selling off interests in its government-owned companies during the mid-1980s. The U.S. government interceded to pressure the French governme...

NEEDS AND ALTERNATIVES FOR FULFILLMENT Nature of Assets The international firm and the host country each may control assets that are useful to the other. There is thus an inducement to agree on the establishment of operations and to ensure that the operations continue functioning. The foreign firm may be able to bring in locally scarce resources in the form of capital, management talent, raw materials, and technology. These resources, in turn, may be used to foster local growth, employment, and balance-of-payments objectives. The foreign investor also may have access to or control of foreign markets through the ownership of the facilities that make import purchases. International firms may use these multiple facilities to contribute positively to the export development of countries in which they do business. They also may negatively affect the exports of domestic firms by denying them sales access to their operating facilities in other countries, by aggressively competing with the...

Introduction international business diplomacy Saudi Arabia has one quarter of the world's known reserves and is the largest exporter and second-largest producer (after the former Soviet Union) of petroleum. By the early 1990s one company, Aramco, accounted for over 90 percent of the Saudi production and more than double the output of the two next-largest oil firms in the world, Royal Dutch Shell and Exxon. Aramco's ownership, policies, and division of earnings from the outset have depended on interactions among: (1) the private oil companies participating in Aramco, (2) the U.S. government, and (3) the Saudi government. As the objectives and power of these three parties have evolved, so have the operations of Aramco. To understand these changing relationships, we will review some events that preceded Aramco's first oil output in 1939. U.S. policy toward U.S. oil firms historically has seemed contradictory because governmental objectives have involved trade-offs as well ...