Property Rights & Global Business

Property Rights & Global Business

Key Term and Why You are Interested in it

Property-rights theory is that there can be an efficient business result achieved regardless of who the owner of the resource but not without an owner or if with more than one legal owner.

Contract law is one of the keys to success in global business.  Foreign Direct Investment (FDI) is the situation where a company invest directly into a foreign market.  This would constitute a full investment from the company into facilities, labor, distribution and all direct areas of business concern.  This contains the highest amount of risk for a business but in exchange the business entity has a high level of control over operations.

Foreign direct investment (FDI) can be very problematic if there is no way to actually own real property in a given country or can be owned by a foreign entity.  Following the context approach the closer the business market cultures (low context), the better suited they are for business.  The context approach is usually just to address the informal, cultural differences but it can be extrapolated to include the cultural practice of treatment of property rights.

Explanation of Key Terms

The property rights theory is a foundational concept that global business uses to operate and understand risk.  The article selected has contributed to the theory by measuring data points between two entities as well as multiple entities.  The standard theory uses the basic transaction between only two parties.  This is not the type of business scenario.  There are usually multiple entities involved from various geographic locations that collectively contributes to a product/service.  The article proposes that there is adequate data to allow for the theory to expand to multi-entity transactions.

In lieu of actual real property ownership, a contract will provide the terms for an agreement of resource sharing between parties.  Contracts can also be problem some in two key areas: (1) legal system that is used to form them and (2) enforcement.  As a result, contract law and strength of that law should always be considered as part of global expansion.

The level of FDI that takes place will be directly correlated to property rights and how structured those rights are based on law and government stability.  Contract law would hold a stronger position with less FDI if property rights are poorly defined and/or unstable.

Major Article Summary

The article by Antras expands upon the property-rights theory by introducing data that helps maintain equilibrium and balance regardless of parties.  Antras suggests that there is significant data that supports a more complex theory.  The current theory, as mentioned has focused on a simplistic model of two entities.

Global business is more complex than just two entities and the suggested model may be a foundation that allows more complexity into the theory.  There are several areas that are explored that include.

Multiple suppliers (from different markets and geography)

Secondary operations in a foreign market (like assembly)

Distribution logistics (between all locations and end users)

Destination market (product tailored for destination market)

Financial constraints (eventual monetary constraint)

All these variables are just a small sample of the additional complexity that exists when there are multiple markets and entities involved in the development of resources.  Property-rights play a significant role.  For the global market to continue to expand there has to be better definition of property rights when you consider the BRICS nations (Brazil, Russia, India, China & South Africa) there is considerable need for growth in these rights.  Governments like Russia, China and South Africa have serious flaws in property rights.  Additionally, contract law potentially could have very little enforceability if the government stance changes.  China’s communist government can conceivably seize property at its discretion.  The government instability is leading to property seized in South Africa.

Discussion

Cited works relation to topic

Antras provides an excellent example that the property-rights theory can be expanded and that it is imperative that the research is continued.  (Antras, 2014) The complexity of the global marketplace and the wide-ranging impact of multiple entity logistics demonstrates that business can operate in these scenarios but there is need for theoretical support.  The data modeling could help companies better predict risk and navigate levels of investment.

Cited works relation to other referenced items

While the other articles talked about property rights, there was a higher level of focus on intellectual property and communication standards.  While this is a very important component in the global marketplace it was too restrictive for this project.  The property-rights theory and equilibrium, would inherently encompass intellectual property rights as a subset.

All of the works cited share a common position that there is a need for strong contract law and a effective method for enforcement.

The function on intellectual property provides a continual example of how difficult it is to enforce contracts (user agreement in this case).

For a globalized market to continue to develop the property rights and contract law will have to be further developed.  The progression toward this goal could hinder or expand the development of all markets.

References

Antras, Pol (2014).  Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production.  Journal of Law, Economics and Organization, Supplement 1, 2014 V30 Pg. i118-75.  Retrieved from

Wein, Sheldon (2000).  Security and Global Property Rights.  Humanomics, Vol 16, Issue 2, Pg. 41-51.  Retrieved from

https://www-emeraldinsight-com.ezproxy.liberty.edu/doi/pdfplus/10.1108/eb018852