The document discusses political environments facing businesses operating abroad. It notes that political systems provide the context for economic activity and differ between countries in their orientation toward individualism vs collectivism. Democracies grant citizens power through voting and come in various forms like parliamentary and representative. Totalitarian systems concentrate power in the state and demand unquestioning support of ideology. Political risk for businesses includes systematic, procedural, distributive, and catastrophic risks from changes in foreign political systems and conditions.

1. MBA 3
IB
Module 1
GLOBAL BUSINESS
ENVIRONMENT: POLITICAL
ENVIRONMENTS FACING
BUSINESS

2. INTRODUCTION
• Once a company leaves its home country, it operates in
markets with different political and legal systems
• Political environment contribute to business in which
managerial decisions must be made
• Keep in mind that firms looking to operate in foreign
countries must consider three points of view.

3. 1. Discard the belief that firms can directly
transfer to foreign environments the principles
and practices they had adapted in the home
environment
2. Accept that political and legal systems vary
among countries
3. Acknowledge that these differences impact how
firms capture opportunities and deflect threats

4. THE POLITICAL ENVIRONMENT
• Political system provides the context in which economic
activity is carried out
• It includes the complete set of institutions, political
organisations and interest groups as well as the
relationships among institutions and the political norms
and rules that govern their activities
• A political system ensures some level of stability in
social relations

5. 1. INDIVIDUALISM VERSUS COLLECTIVISM
• There are several ways to profile the similarities and
differences between political systems.
• You might ask certain questions like…
1. Should it endorse social equality or social hierarchy?
2. Should it emphasize individual liberty or collective
security?
3. Should it have jurisdiction in some or all areas of society?
4. What civil rights should it grant to citizens?
5. What remedies for redressing injustice should it allow?

6. • The answer to all these issues is issue of Individualism
Vs. Collectivism
• A powerful question is “ What is the general orientation
within a society concerning the primacy of individual
rights versus the needs of the larger community?”

7. I. PHILOSOPHICAL ORIENTATION
• Philosophically, this debate has spanned centuries
• All philosophers have engaged the issue of how
political systems can best serve the society that lives
under it
• Should it guarantee individual freedom in the pursuit of
economic self interest, or does society fare better when
individual rights are subordinated to collective goals?

8. II. INDIVIDUALIST ORIENTATION
• The example here is The US
• Here the political and government agencies play limited
roles in social transactions
• Countries with this approach encourage business to
support the good of community by promoting fair
competition
• The government and Business remains independent in
day to day practices.

9. III. COLLECTIVIST ORIENTATION
• This will be seen in Japan and China
• Here Government may intervene in certain cases ,
those involving the structure of industries, the conduct
of companies and actions of managers
• This is just to ensure that business practices are
benefitting the society

10. 2. POLITICAL IDEOLOGY
• It is a system of ideas that expresses the goals, theories
and aims of a sociopolitical program.
• Most modern societies are pluralistic- different groups
champion competing political ideology.
• Pluralism can also arise when two or more groups in a
country differ in language (Belgium), class structure (The
UK), ethnic background (South Africa), tribal groups
(Afghanistan), or religion (India). Such differences influence
the conduct of the political system.

11. THE POLITICAL SPECTRUM

12. I. DEMOCRACY
• In view of Abraham Lincoln, Democracy is a
Government “ of the people, for the people and by the
people”.
• Democracy is the system that endorses the rule of law
and grants the voting citizens the power to alter the
laws and structures of the government, to make all
decisions and to participate in elections that expresses
their decisions.

13. TYPES OF DEMOCRACY
A. Parliamentary: Citizens exercise political power by
electing representatives to a legislative branch of Govt
called parliament. The head here is Prime minister.
Examples include India and Australia.
B. Liberal: In Japan and New Zealand, in constitution
that specifically protects certain individual freedoms
such as freedom of speech, assembly and religion
and certain liberties like privacy and private
properties. All citizens here treated equally before law.

14. C. Multiparty: When 3 or more parties have the capacity
to gain control of govt the system is Multiparty
democracy. It prevents the leadership of single party.
Canada, Germany, Italy and Israel are some
examples.
D. Representative: It is a system in which people’s
elected representatives hold ultimate sovereignty.
They are charged with responsibility to work in
people’s interest. Example is The US.

15. E. Social: It advocates the use of democratic means to
achieve a gradual transition from capitalism to
socialism. Here they believe that society must reform
capitalism to avoid injustices. It is democratic
socialism. Examples are Norway and Sweden

16. THE ISSUES OF CENTRALIZATION
• The key issue among world’s democracies revolves
around the issue of appropriate degree of centralized
government control of social activities
• Central to democratic theory is the principle that the
decentralization of power into the hands of the public
officials
• Like in India Central Govt vests certain political rights to
different states and UTs

17. FUNDAMENTAL FEATURES OF DEMOCRATIC
POLITICAL SYSTEMS
• Freedom of opinion, expression, press, religion, association
and access to information
• Exercise of citizen power and civic responsibilities
• Citizen equality in opportunity and treatment before law
• Free, fair and Regular elections
• Protection of individual and minority rights
• Fair and independent court system
• Subordination of Govt to the rule of law

18. ASSESSING DEMOCRACY
• Free in that it exhibits elected rule, there is freedom of
expression, assembly, association, education and
religion
• Partly Free in that it exhibits limited political rights and
liberties, in such nations there are corruptions,
violence, one party dominance, unfair elections etc
• Not free in that it denies basic rights and liberties by
autocrats, dictatorships, etc

19. II. TOTALITARIANISM
• In this system, a single agent, whether an individual,
group or party monopolizes political power and tries to
mobilize the population toward two ends:
i. Unquestioning support for the official state ideology
ii. Opposition to activities that run counter to the goals of
the state
• For e.g. In China One child policy has been applied by
the state and a couple who have two children will be
fined.

20. TYPES OF TOTALITARIANISM
A. Authoritarianism: It is in North Korea where citizens
have to follow state, Day to Day life reflects
unquestioning obedience to state authority.
B. Fascism: It was existed in Italy, where it includes all
values human and spiritual but having the control of
people’s life.
C. Secular: Here a single party forms a Govt in which
only that party members hold office. E.G. China has
Communist Party Govt

21. D. Theocratic: Political power is monopolized by a party,
group or individual that governs according to religious
principles. E.g. is Iran.

22. 3. POLITICAL RISK
I. Systematic: Political change creates systematic risk
that impact all firms whose activities are affected by
the political system. Say for example, rejecting
individualism in favor of collectivism.
II. Procedural: Each day, people. Products and funds
move from point to point. A corrupt system may have
this risk as at point to point they charge some extra
money.

23. III. Distributive: Revising tax codes, regulatory structure
and monitory policy for foreign companies to secure
distributive justice.
IV. Catastrophic: Random political development that
adversely affect business operations, e.g. war
situation, ethnic discord etc that disturbs business
environment.