Political and Legal Environment International Business II
INTRODUCTIONMultinational Enterprises operate in different countrieswith different political and legal conditions.• Analyze if the corporate policies will fit a desirable political and legal environment.• Colombia – Venezuela• Germany – Greece• China – Hong Kong• North Korea – South Korea
POLITICAL ENVIRONMENTIt refers to: Public Institutions: Government. Government Agencies. Government owned Business. Non public Institutions: Interest Groups.
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.
POLITICAL SYSTEMPolitical process functions: – Interest articulation. – Interest aggregation (bringing together different points of view) – Policy making. – Policy implementation and adjudication.
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.
BASIC POLITICAL IDEOLOGIES Principle of Identity Obama Liberal democracy. China Totalitarian Chinese Government. Myanmar Fascist totalitarian government.
DEMOCRACY VS. TOTALITARISMDemocracy• Democracy is a device that ensures we shall be governed no better than we deserve. George Bernard Shaw• Greeks all citizens should be equal politically and legally, enjoy widespread freedoms, participate in the political process.
CHARACTERISTICS OF A DEMOCRATIC GOVERNMENT1. 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.
POLITICAL RIGHTS AND CIVIL LIBERTIES Political rights Degree of fair and competitive elections. Endowment of the elected representatives with real power. Political parties or groups. Safeguards on the rights of minorities.
POLITICAL RIGHTS AND CIVIL LIBERTIES Civil liberties Freedom of the press. Equality under the law for all individuals. The extent of personal social freedoms. Freedom from extreme governmental indifference and corruption.
RELIABILITY OF DEMOCRACY Democracies from the 70’s are unstable. Indonesia. CIS. Corruption, internal division, oligarchies, military movements, destabilization from abroad. Two countries with a McDonalds have never fought each other…
DEMOCRACY• Election Systems – USA Direct elections. – UK Parliament. – Israel Both• Degree of centralized control – Power to provinces – States – Regions – Departments • This leads to variations within a country challenge for managers to locate a business.
DEMOCRACY Democracies are not perfect, but people believe that it is the best form of government.We need to:• Trust - Politicians and Corruption.• Confidence on the government.• % of population voting.
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
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.
Not free countries share one or more of the following characteristics:1. Muslim majority – fundamentalist Islam.2. Multiethnic societies.3. Neocommunist or post communist society.• Transition to democracy instability.• Totalitarianism as an element of cohesion amidst the differences.
THE IMPACT OF THE POLITICAL SYSTEM ON MANAGEMENT DECISIONS.• Evaluation of political risk• Political risk the probability that political conditions could change in the future and its operations could deteriorate in a foreign country.• Boycotts and interest groups. – FTA Colombia and US• England, France – Foie Gras
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
POLITICAL RISK REDUCTION STRATEGIESLocal partnersMinimizing assets at riskPolitical risk insurance
POLITICAL MOTIVATIONSelf-preservationSecurityProsperityPrestigeIdeologyCultural identity
HOST GOVERNMENT ACTIONS* OWNERSHIP RESTRICTIONS* BOYCOTTS OF FIRMS* TAKEOVERSEXPROPRIATION: legal or formal seizure. With or withoutcompensation.CONFISCATION: expropriation without any compensation.DOMESTICATION: it could be represented in forced sales.
ESTABLISHING A POLITICAL STRATEGY1. 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.
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.
REGULATORY CHANGEALTER: The company can bargain to get the governmentto alter its policy or actionsAVOID: The company can make strategic moves thatbypas the impact of a government’s actionACCEDE: The company can adjust its operations tocomply with a government requirement.ALLY: The company can attempt to avoid some risks ofgovernment actions by seeking strategic alliances
LOBBYING Lobbying is the practice and profession of influencing governmental decisions, carried out by agents who present the concerns of special interests to legislators and administrators. 1830 Regulation of Lobbying Act of 1946
LOBBYIST Activist usually paid by an interest group to promote their positions to legislatures. A lobbyist can also work to change public opinion through advertising campaigns or by influencing opinion leaders or pundits, thereby creating a climate for the change his or her employer desires.
ORGANIZATIONS THAT USELOBBYING• Corporations• Financial institutions• Labor unions• Professional associations• Educational groups• Medical interests• Farm alliances• public interest and social issue groups – Common Cause – Mothers Against Drunk Driving – the National Abortion and Reproductive Rights Action League – the National Rifle Association – the National Coalition for the Homeless