International Business Environments and Operations

Part Two Comparative Environmental Frameworks

Chapter 3 The Political and Legal Environments Facing Business

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Introduction
Every country has its own political and legal environment Companies must determine where, when, and how to adjust their business practices without undermining the basis for success

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Introduction
Political and Legal Factors Influencing International Business Operations

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The Political Environment

Managers evaluate, monitor, and forecast political environments A countrys political system refers to the structural dimensions and power dynamics of its government that specify institutions, organizations, and interest groups, and define the norms that govern political activities
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Individualism vs. Collectivism

Individualism primacy of the rights and role of the individual Collectivism primacy of the rights and role of the community

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Political Ideology
A political ideology stipulates how society ought to function and outlines the methods by which it will do so Most modern societies are pluralistic
different groups champion competing political ideologies
Democrats vs. Republicans in the United States Democratic Party vs. Liberal Party in Japan
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Spectrum Analysis
A political spectrum outlines the various forms of political ideology Political freedom measures
the degree to which fair and competitive elections occur the extent to which individual and group freedoms are guaranteed the legitimacy ascribed to the general rule of law the freedom of the press
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Spectrum Analysis
The Political Spectrum

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Democracy
In a democracy
all citizens are politically and legally equal all are equally entitled to freedom of thought, opinion, belief, speech, and association all equally command sovereign power over public officials

Prominent types of democracy include

Representative Multiparty Parliamentary Social
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Totalitarianism
A totalitarian system subordinates the individual to the interests of the collective
dissent is eliminated through indoctrination, persecution, surveillance, propaganda, censorship, and violence

Prominent types of totalitarianism include

Authoritarianism Fascism Secular Theocratic
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The Standard of Freedom

Freedom House assesses political and civil freedom around the world Freedom House recognizes three types of political systems
Free Partly free Not free

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The Standard of Freedom

Map of Political Freedom, 2010

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Democracy: Recession and Retreat

Democracys retreat

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just 26 of the worlds democracies are full democracies

Worlds Population
12 % lives in a full democracy 37 % lives in a flawed democracy 14% lives in a hybrid regime 37% lives in an authoritarian regime
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Political Ideology and the MNE

What will the political map look like in the future?
The Washington Consensus
Champions democracy, freedom, the rule of law, and human rights

The Beijing Consensus

One-party system oversee a nominal democratic system whose citizens, cannot participate in decision making

The Clash of Civilizations

Irreconcilable cultural and religious differences between Islam and the West will trigger a backlash
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Political Risk
Political risk refers to the risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment Types:
Systemic Procedural Distributive Catastrophic
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Classifying Political Risk

Characteristics of Political Risk

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The Legal Environment

The legal system is the mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction Types:
Common law Civil law Theocratic law Customary law Mixed systems
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The Legal Environment

The Wide World of Legal Systems

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Trends in Legal Systems

What is the basis of rule in a country?
The rule of man
legal rights derive from the individual who commands the power to impose them associated with a totalitarian system

The rule of law

systematic and objective laws applied by public officials who are held accountable for their administration associated with a democratic system
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Operational Concerns
Operational issues
Starting a business Entering and enforcing contracts Hiring and firing local workers Closing down the business

In general
rich countries regulate less poor countries regulate more
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Intellectual Property: Rights and Protection

Intellectual property refers to creative ideas, expertise, or intangible insights that grant its owner a competitive advantage Intellectual property rights refer to the right to control and derive the benefits from writing, inventions, processes, and identifiers
no global patent, trademark or copyright exists
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