Chapter 3 - The Political and Legal Environment Facing Business

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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International Business

Environments & Operations

14e

Daniels ● Radebaugh ● Sullivan


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Chapter 3

The Political and Legal Environments

Facing Business


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Learning Objectives To discuss the philosophy and practices of the

political environment To profile trends in contemporary political

systems To explain the idea of political risk and

approaches to managing it To discuss the philosophy and practices of the

legal system To describe trends in contemporary legal systems To explain legal issues facing international

companies


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IntroductionLearning Objective 1: To discuss the philosophy and practices of the political environment


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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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IntroductionPolitical and Legal Factors Influencing International Business Operations


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The Political Environment

Managers evaluate, monitor, and forecast political environments

A country’s 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 AnalysisThe 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 FreedomMap of Political Freedom, 2010


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Trends in Political Ideologies

Learning Objective 2: To profile trends in contemporary political systems


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Third Wave of Democratization

Third Wave of Democratization number of democracies doubled in two

decades Engines of Democracy

1. The failure of totalitarian regimes to deliver economic progress

2. Improved communications technology3. Economic dividends of increasing political

freedom


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Democracy: Recession and Retreat

Democracy’s retreat just 26 of the world’s democracies are full

democracies Engines of totalitarianism

Economic development Inconsistencies Economics problems Standards of democracy


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Democracy: Recession and RetreatFreedom in the World: Number of Electoral Democracies


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Democracy: Recession and Retreat

Freedom in the World: Gains and Declines


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Political Ideology and the MNE

What will the political map look like in the future? The Washington Consensus The Beijing Consensus The Clash of Civilizations


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Political RiskLearning Objective 3: To explain the idea of political risk and approaches to managing it


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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 EnvironmentLearning Objective 4: To discuss the philosophy and practices of the legal system


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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 EnvironmentThe Wide World of Legal Systems


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Trends in Legal SystemsLearning Objective 5:To describe trends in contemporary 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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Trends in Legal SystemsThe Worldwide Distribution of the Rule of Law


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Legal Issues in IBLearning Objective 6: To explain legal issues facing international companies


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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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Strategic Concerns Strategic issues Country of origin and local content Marketplace behavior Product safety and liability Legal jurisdiction Intellectual property


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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

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Intellectual Property: Rights and Protection

Attitudes towards intellectual property Legal legacies

rule of man versus rule of law Wealth, poverty, and protection

levels of economic development Cultural orientation

individualism versus collectivism


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Chapter 3 - The Political and Legal Environment Facing Business