Chapter 3 Politics, Law, and Business Ethics. © Prentice Hall, 2008International Business 4e Chapter 3 - 2 Describe the three types of political systems

Chapter 3 - 1International Business 4e© Prentice Hall, 2008

Chapter 3Chapter 3Politics, Law, andPolitics, Law, andBusiness EthicsBusiness Ethics

© Prentice Hall, 2008 International Business 4e Chapter 3 - 2

• Describe the three types of political systems

• Discuss each cause of political risk and how firms can manage them

• Identify how the three legal systems are unique

• Identify global legal issues facing companies

• Discuss the roles of ethical behavior and social responsibility in international business

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Political IdeologiesPolitical Ideologies

Both private and public Both private and public groups need to balancegroups need to balance

each other’s powereach other’s power

Every aspect ofpeople’s lives must be

controlled to preserve order

Only individuals andOnly individuals andprivate groups canprivate groups can

preserve personal libertiespreserve personal liberties

TotalitarianismTotalitarianism AnarchismAnarchismPluralismPluralism


DemocracyDemocracy

Government leaders are elected by the wide participation of the people or their representatives

Freedom of expression

Periodic elections

Full civil and property rights

Minority rights

Nonpolitical bureaucracies


ImposedImposedauthorityauthorityImposedImposedauthorityauthority

Lack of Lack of constitutionalconstitutional

guaranteesguarantees

Lack of Lack of constitutionalconstitutional

guaranteesguarantees

RestrictedRestrictedparticipationparticipationRestrictedRestricted

participationparticipation

TotalitarianismTotalitarianism

Leaders govern without people’s supportLeaders govern without people’s support Government controls much of people’s livesGovernment controls much of people’s lives Leaders do not tolerate opposing viewpointsLeaders do not tolerate opposing viewpoints


Forms of TotalitarianismForms of Totalitarianism

Theocratic totalitarianism (totalitarian religious leadership)

Secular totalitarianism (military and bureaucratic leadership)

Tribal totalitarianismTribal totalitarianism

Communist totalitarianismCommunist totalitarianism

Right-wing totalitarianismRight-wing totalitarianism


Causes of Political RiskCauses of Political RiskCauses of Political RiskCauses of Political Risk

Conflict and violenceConflict and violenceConflict and violenceConflict and violence

Policy changesPolicy changesPolicy changesPolicy changes

Terrorism and kidnappingTerrorism and kidnappingTerrorism and kidnappingTerrorism and kidnapping

Local content requirementsLocal content requirementsLocal content requirementsLocal content requirements

Property seizureProperty seizureProperty seizureProperty seizure


Arises from:Arises from:

People’s resentment toward government

Territorial disputes between nations

Ethnic, racial, or religious disputes

Reduces ability to:Reduces ability to:

Obtain materials and equipment

Manufacture and distribute products

Protect employees’ lives and firm’s assets

Conflict and ViolenceConflict and Violence


Fly nonstop when possible and avoid unsecured areas of airports

During your stay, vary your routines and means of transportation

Keep a low profile and refrain from loud, flashy behavior

Give friendly but cautious answers to personal questions

Know local emergency procedures before trouble strikes

Security checklist for managers on business abroad:

Terrorism and KidnappingTerrorism and Kidnapping


Property SeizureProperty Seizure

ConfiscationForced transfer of assets from a company to the government

without compensation

ExpropriationForced transfer of assets from a company to the government

with compensationNationalization

Forced asset transfer to the government of an entire

industry


Policies and LawsPolicies and Laws

Foreign ownership

Investment levels

Business activities

Foreign ownership

Investment levels

Business activities

Policy changes restrict: Local content requirements:

Specify the portionof a good or service

to be supplied by local firms


Managing Political RiskManaging Political Risk

AdaptationAdaptationIncorporate risk intoIncorporate risk intobusiness strategiesbusiness strategies

AdaptationAdaptationIncorporate risk intoIncorporate risk intobusiness strategiesbusiness strategies

LocalizationLocalization

Development assistanceDevelopment assistance

Local equity / debtLocal equity / debt

InsuranceInsurance

PartnershipsPartnerships



Agencies specializingAgencies specializingin political-risk servicesin political-risk services

Current employeesCurrent employeeswith relevant informationwith relevant information

Information gatheringInformation gatheringGather data to betterGather data to better

predict and manage riskpredict and manage risk

Information gatheringInformation gatheringGather data to betterGather data to better

predict and manage riskpredict and manage risk



CorruptionCorruptionForeign Corrupt Practices Act

LobbyingLobbyingInfluencing local lawmakers

Influence local politicsInfluence local politicsPresent firm’s viewsPresent firm’s viewson political matterson political matters

Influence local politicsInfluence local politicsPresent firm’s viewsPresent firm’s viewson political matterson political matters


World’s Legal SystemsWorld’s Legal Systems

Common LawTradition, precedent, and usage

Civil LawCodified rules and statutes

Theocratic LawReligious teachings form law


Global Legal Issues IGlobal Legal Issues I

Intellectual property- Result of intellectual talent and abilities

- Piracy/counterfeits a serious problem

Patent Excludes all but the inventor from making, using, or selling the invention (WTO = 20 years)

Trademark Words or symbols that distinguish a product and its manufacturer ("Coca-Cola")

Copyright Freedom of creator to publish or dispose of original works as they choose ("Happy Birthday to You")


Global Legal Issues IIGlobal Legal Issues II

Standardization- Interpreting and applying laws uniformly

Product safety and liability- Responsibility for damage, injury, or death

Antitrust (antimonopoly) laws- Prevent market sharing, price fixing, and

unfair advantage Taxation

- Income, sales, consumption and VAT


Personal behavior in accordance with rules or standards for right conduct or morality

Ethical BehaviorEthical Behavior

Ethical relativismEthical relativismWhen in Rome,

do as the Romans

Ethical relativismEthical relativismWhen in Rome,

do as the Romans

Ethical absolutismEthical absolutismImport ethics

from home

Ethical absolutismEthical absolutismImport ethics

from home

Enron

Tyco

Worldcom

Parmalat (Italy)


Respect consumers’ rights

Guard workers’ rights

Protect the environment

Preserve employment

Encourage development

Improve health

Support education

Social ResponsibilitySocial Responsibility

Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies


International RelationsInternational Relations

Stable business environments

Improved business communications

Efficient distribution systems

Prompt and equitable dispute resolution

Expanded opportunities

Diminished risk levels

Favorable international political relations foster:


• Describe the three types of political systems

• Discuss each cause of political risk and how firms can manage them

• Identify how the three legal systems are unique

• Identify global legal issues facing companies

• Discuss the roles of ethical behavior and social responsibility in international business

Chapter ReviewChapter Review

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Chapter 3 Politics, Law, and Business Ethics. © Prentice Hall, 2008International Business 4e Chapter 3 - 2 Describe the three types of political systems