Chapter Three

The Political and Legal Environments Facing Business

International Business Part Two

Comparative Environmental Frameworks

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• To discuss the goals and functions of a political system• To profile trends in the emergence and diffusion of contemporary

political systems• To explain the idea of political risk and describe approaches to

managing it• To understand how political and legal systems affect the conduct of

business• To describe trends in the evolution and diffusion of contemporary

legal systems• To discuss the issue of the rule of law versus the rule of man• To explain legal issues facing international companies• To explain the idea of intellectual property and to discuss areas of

concern and controversy

Chapter Objectives

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Definition of a Political System

• The complete set of institutions, political organizations, and interest groups,

• The relationships among institutions, and the political norms and rules that govern their functions

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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

• The system of ideas that expresses the goals, theories, and aims of a sociopolitical program

• Most modern societies are pluralistic—different groups champion competing political ideologies

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Democracy

• Wide participation by citizens in the decision-making process

• Five types: Parliamentary Liberal Multiparty Representative Social

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Totalitarianism

• Restricts decision making to a few individuals

• Types: Authoritarianism Fascism Secular totalitarianism Theocratic totalitarianism

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Trends in Political Systems

• Engines of democracy: Failure of totalitarian systems to deliver

economic progress Improved communication technology Belief that democracy leads to improved

standards of living

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Definition of Political Risk

• The risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment

• Types: Procedural Distributive Catastrophic

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Definition of a Legal System

• 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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Trends in Legal Systems

• The preference for stability

• The influence of national legacies

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Bases of Rules

• Rule of Man

• Rule of Law

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Operational concerns that face managers worldwide

• Starting a business

• Entering and enforcing contracts

• Hiring and firing local workers

• Closing down the business

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Strategic concerns that facemanagers worldwide

• Product safety and liability

• Marketplace behavior

• Product origin

• Legal jurisdiction

• Arbitration

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• Intangible property rights that are a result of intellectual effort

• Intellectual property rights refer to the right to control and derive the benefits from writing, inventions, processes and identifiers

• Local attitudes play a large role in piracy

Intellectual property