This document discusses the political and legal environments that international businesses must navigate. It defines key concepts like political systems, ideologies, and forms of government. Totalitarianism and its various forms are explained. Characteristics of democratic governments are provided. The document also covers types of political risk, host government actions, establishing political strategies, and different legal systems. Regulatory changes are outlined regarding how companies can alter, avoid, accede to, or ally with government actions.

1. Political and Legal
Environment
International Business II

2. POLITICAL ENVIRONMENT
It refers to:
 Public Institutions:
Government.
Government Agencies.
Government owned Business.
 Non public Institutions:
Interest Groups.

3. POLITICAL SYSTEM
• Challenge  integration of people of different ethnic or
cultural backgrounds.
• It is influenced by forces within & outside the
country
– Internal Forces: Nature of population, size & influence of
corporations & governmental bureaucracies, & the strength
of the politicians.
– External Forces: International agreements, NGO’s,
Governmental organizations, etc.

4. BASIC POLITICAL
IDEOLOGIES
• Political Ideology:
– A body composed by complex ideas, theories and aims.
• Liberalism
• Conservatism
• Pluralism
– Language
– Ethnic Background
– Tribal Groups
– Religion
• Political Instability  investors away.

5. CHARACTERISTICS OF A
DEMOCRATIC GOVERNMENT
1. Freedom of opinion, expression, press and freedom to organize.
2. Elections in which voters decide who is to represent them.
3. Limited terms for elected officials.
4. An independent and fair court system, with high regard for
individual rights and property.
5. A nonpolitical bureaucracy and defense infrastructure.
6. An accessibility to the decision-making process.

6. TOTALITARIANISM
 Decision making is restricted to a few individuals.
 Theocratic Totalitarianism
 Religious leaders are the political leaders.
 Iran, Afghanistan
 Secular Totalitarianism
 Control is enforced through military power.
 Cambodia, Iraq, North Korea

7. SOME FORMS OF
TOTALITARIANISM
• Fascism: Hitler, Mussolini, Franco
– Control people (brainwash)
• Authoritarianism: Pinochet, Apartheid in South Africa
– to rule people.
• Communism: Russia and China.
– Equal distribution of wealth.

8. INGREDIENTS FOR
POLITICAL RISK:
• Types and causes of political risk.
• Opinions of political leadership.
– Moody leaders  Hugo Chavez – Evo Morales.
• Civil disorder.
– Crise économique France 2008 – 2009 kidnapping of
personnel.
• External relations
– Animosities  Colombia – Equator

9. HOST GOVERNMENT ACTIONS
* OWNERSHIP RESTRICTIONS
* BOYCOTTS OF FIRMS
* TAKEOVERS
EXPROPRIATION: legal or formal seizure. With or without
compensation.
CONFISCATION: expropriation without any compensation.
DOMESTICATION: it could be represented in forced sales.

10. ESTABLISHING A POLITICAL
STRATEGY
1. Identify the issue. (e.g. environmental standards)
2. Define the political aspect of the issue. (is it within the
political domain?)
3. Assess the potential political action of other companies
and special-interest groups. (Greenpeace)
4. Identify important institutions and key individuals. (lobby
/ bribery)
5. Formulate strategies. (key objectives, the major alternatives)
6. Determine the impact of implementation. (fallout at home
and at the host country)
7. Select the most appropriate strategy and implement it.

11. THE LEGAL ENVIRONMENT
• Kinds of legal systems:
• Common Law: Based on tradition, precedent, custom &
usage.
• Civil Law: Based on a very detailed set of laws
organized into a code. Also called Codified Legal System.
• Theocratic Law: Based on religious precepts.

12. REGULATORY CHANGE
ALTER: The company can bargain to get the government
to alter its policy or actions
AVOID: The company can make strategic moves that
bypas the impact of a government’s action
ACCEDE: The company can adjust its operations to
comply with a government requirement.
ALLY: The company can attempt to avoid some risks of
government actions by seeking strategic alliances