27165028 International Business

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27165028 International Business

  1. 1. International Business Chapter Three The Political and Legal Environments Facing Business
  2. 2. Chapter Objectives <ul><li>To discuss the different goals and functions of political systems </li></ul><ul><li>To profile trends in the emergence and diffusion of political systems </li></ul><ul><li>To identify the idea of political risk and approaches to managing it </li></ul><ul><li>To understand how different political and legal systems affect the conduct of business </li></ul><ul><li>To profile trends in the evolution and diffusion of legal systems </li></ul><ul><li>To examine the major legal issues facing international business companies </li></ul><ul><li>To profile the idea of intellectual property and the bases of concern and controversy </li></ul>
  3. 3. Political System Defined <ul><li>Political system: the complete set of institutions, political organizations, and interest groups, the relationships amongst those institutions, and the political norms and rules that govern their functions </li></ul><ul><li>The ultimate test of any political system is its ability to hold a society together. </li></ul>
  4. 4. Fig. 3.1: Political and Legal Influences on International Business
  5. 5. Ways to Assess Political Systems <ul><li>Individualistic </li></ul><ul><li>-people accept the primacy of individual freedoms </li></ul><ul><li> in the political, economic, and cultural realms </li></ul><ul><li>-people believe in minimal government intervention </li></ul><ul><li>• Collectivist </li></ul><ul><li>-people reason that the needs of society take </li></ul><ul><li> precedence over the needs of the individual </li></ul><ul><li>-people believe that it is the government’s role </li></ul><ul><li> to define the needs and priorities of the country </li></ul><ul><li>Collectivist paradigms may be either democratic (Japanese) or authoritarian (Chinese) in nature. </li></ul>
  6. 6. Political Ideology Defined <ul><li>Political ideology: the body of constructs, theories, and aims that constitute a sociopolitical program </li></ul><ul><li>• Pluralism indicates the coexistence of a variety of ideologies within a particular society. </li></ul><ul><li>• Shared ideologies create bonds within and between countries; differing ideologies split societies apart. </li></ul>
  7. 7. Types of Political Ideologies: The Two Extremes <ul><li>Democracy: widespread citizen participation in the decision-making and governance processes, either directly or through elected representatives </li></ul><ul><li>• Totalitarianism: the monopolization of power by a single agent; opposition is neither recognized nor tolerated </li></ul><ul><li>In theocratic totalitarianism, religious leaders are also the political leaders; in secular totalitarianism, the government imposes order via military power. </li></ul>
  8. 8. Fig. 3.2: The Political Spectrum
  9. 9. Features of Contemporary Democratic Systems <ul><li>freedom of opinion, expression, </li></ul><ul><li>and the press </li></ul><ul><li>freedom to organize </li></ul><ul><li>free elections </li></ul><ul><li>limited terms for elected officials </li></ul><ul><li>an independent and fair court system </li></ul><ul><li>a nonpolitical bureaucracy and defense infrastructure </li></ul><ul><li>citizen access to the decision-making process </li></ul>
  10. 10. Fig. 3.3: Comparative Measures of Freedom
  11. 11. Map 3.2: Global Trends in Freedom: Political Freedom 2004
  12. 12. Trends in Political Systems <ul><li>Totalitarian regimes continue to fail as citizens challenge the right of the state to govern. </li></ul><ul><li>Many who champion democracy truly believe that greater political freedom also leads to economic freedom and higher standards of living. </li></ul><ul><li>Differentialism, i.e., the clash of civilizations, refers to the arguments that apparently innate and irreconcilable difference amongst cultures can trigger a backlash against Western ideas regarding political rights and civil liberties. </li></ul>
  13. 13. Political Risk Defined <ul><li>Political risk: the expectation, i.e., the likelihood, that the political climate in a country will change in such a way that a firm’s operating position or investment value will deteriorate </li></ul><ul><li>MNEs do their best to effectively deal with the threat of political risk through active and/or passive approaches. </li></ul>
  14. 14. Types of Political Risk [ranging from the least to the most destructive] <ul><li>Systemic [a change in public policy] </li></ul><ul><li>Procedural [bureaucratic delays, labor disputes, etc.] </li></ul><ul><li>Distributive [tax and regulatory revisions] </li></ul><ul><li>Catastrophic [random political events] </li></ul>
  15. 15. Leading Sources of Political Risk <ul><li>Expropriation or nationalization </li></ul><ul><li>International war or civil strife </li></ul><ul><li>Unilateral breaches of contract </li></ul><ul><li>Destructive governmental actions </li></ul><ul><li>Harmful actions against people </li></ul><ul><li>Restrictions on the repatriation of profits </li></ul><ul><li>Differing points of view </li></ul><ul><li>Discriminatory taxation policies </li></ul>
  16. 16. Legal System Defined <ul><li>Legal system: the mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction </li></ul><ul><li>Generally, differences in the structure </li></ul><ul><li>of law influence the attractiveness of </li></ul><ul><li>a particular country as an investment site. </li></ul>
  17. 17. Types of Legal Systems <ul><li>Common law [based on precedent] </li></ul><ul><li>Civil law [based upon a set of laws that comprise a code] </li></ul><ul><li>Theocratic law [based upon religious precepts] </li></ul><ul><li>Customary law anchors itself in the wisdom of daily experience or important traditions. A mixed legal system emerges when two or more legal systems are used within a single country. </li></ul>
  18. 18. Map 3.3: Legal Systems in the World Today
  19. 19. Fig. 3.4: The Diffusion of Civil Law: A Selective Profile
  20. 20. Legal Issues in International Business <ul><li>Operational concerns </li></ul><ul><ul><li>ease of entry and exit </li></ul></ul><ul><ul><li>hiring and firing employees </li></ul></ul><ul><ul><li>contract enforcement </li></ul></ul><ul><li>Strategic concerns </li></ul><ul><ul><li>product safety and liability </li></ul></ul><ul><ul><li>marketplace behavior </li></ul></ul><ul><ul><li>product origin </li></ul></ul><ul><ul><li>legal jurisdiction </li></ul></ul><ul><ul><li>arbitration [continued] </li></ul></ul>
  21. 21. <ul><li>Intellectual property rights [IPRs]: ownership rights to intangible assets [copyrights, patents, trademarks, etc.] </li></ul><ul><li>Generally, less developed countries provide less protection for IPRs than do industrialized nations. Those countries with a more individualistic orientation view IPRs as intrinsically legitimate, but those with a more collectivist outlook extol the virtues of shared ownership. </li></ul>
  22. 22. Implications/Conclusions <ul><li>Many countries are in a state of political transition. Presently, there is a shift away from totalitarian governments toward more democratic political ideals and freer market principles. </li></ul><ul><li>[continued] </li></ul>
  23. 23. <ul><li>International business is affected by laws and regulations enacted both by countries and by international organizations. </li></ul><ul><li>Laws may be at cross-purposes; some may diminish the ability of firms to compete with foreign competitors. </li></ul>
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