INTERNATIONAL BUSINESS FINAL NOTES
Name: Benjamin D Eyison Date:18th July 2013
Ch.3 The Political and Legal Environments Facing Business
Lecture 6: October 28th
Defition of Legal System: The mechanism for creating, interpreting, and enforcing the laws
in a specified jurisdiction.
Modern legal systems exhibit elements of constitutional law, criminal law, and civil and
commercial laws. Constitutional Law: sets the framework for the system of government
and defines the authority and procedure of political bodies to establish laws and regulations.
Criminal Law: safeguards society by specifying what conduct is criminal and prescribing
punishment to those who breach these standards. Civil and Commercial Laws: ensures
fairness and efficiency in business transactions.
For example, the US & UK have a common law system
Includes institutions and procedures to:
o ensure law & order o Resolve disputes o Protect property (including intellectual property) o Tax economic output
o Common law: is a legal system of jurisprudence based on judicial precedents. Also, it is based on tradition, judge-made precedent, and usage.
o Civil law: is a legal system of jurisprudence based on statutory laws. Also, it is based on the systematic codification of laws and codes.
o Theocratic law: is a legal system of jurisprudence based on religious teachings. It relies on religious doctrine, precepts, and beliefs to define the legal environment.
o Customary law: is based on norms of behavior practiced over a long period. Also, it is anchored in the wisdom of daily experience.
o Mixed systems: emerges when a nation uses two or more of the preceding legal systems.
Rule of Man - ultimate power resides in a person.
Rule of Law - institutes a just political and social environment, guarantees the enforceability of commercial contracts and business transactions, and safeguards personal property and
individual freedom. The rule of law holds that no individual is above laws that are clearly
specified, commonly understood, and fairly enforced.
o Level playing field for all
o Predictable and consistent application of laws o Transparency o Generally respected by public
Extraterritoriality: the extension of national laws beyond the home country
1. Means that companies from that country must abide certain rules no matter where they operate
Example: US nationals and Iran
Example: proposed Canadian legislation on mining companies
2. Depending on the law, may even catch those who have no connection to home country Example: Helms-Burton Act in US and effect on Sherritt International
Example: US Alien Tort Claims Act
Illegal in all countries, but may not be enforced Numerous international agreements and laws Can harm business in numerous ways
Example: BAE and Saudi Arabia
Lecture 7: November 04th
Political system structural dimensions & power dynamics of prevailing government. The fundamental goal of a political system is to integrate different groups into a functioning, self-
sustaining, and self-governing society. The test of a political system: uniting a society in the
face of divisive viewpoints. Success supports peace and prosperity. Failure leads to
instability, insurrection, and, ultimately, national disintegration.
Individualism rights, self-expression, and freedom tied to democracy. Individualism refers to the primacy of the rights and role of the individual. The principle that all men have
certain unalienable Rights that among these are Life, Liberty, and the pursuit of Happiness. The business implications of individualism hold that each person commands the right to
make economic decisions largely free of rules and regulations. Countries with an
individualistic orientation shape their marketplace with the idea of laissez-faire meaning
leave things alone!
Collectivism refers to the primacy of the rights and role of the group. This doctrine
emphasizes the primacy of the collective whether it is a group, party, class, society, nation, race, etc. over the interest of the individual. Collectivism in the business world holds that the ownership of assets, the structure of industries, the conduct of companies, and the actions
of managers must improve the welfare of society.
Totalitarianism single agent monopolizes political power. A totalitarian system subordinates the individual to the interests of the collective. A single agent in whatever form
such as an individual, an assembly, a committee, a junta, or a party monopolizes political power. Types of totalitarian systems include: Authoritarianism: the regime tolerates no
deviation from state ideology, Fascism: the control of peoples minds, souls, and daily existence and a social and political ideology with the primary guiding principle that the state
or nation is the highest priority, rather than personal or individual freedoms., Secular
totalitarianism: a single political party forms a government in which only party members
hold office, elections are controlled through unfair laws, dissent is tolerated as long as it does
not challenge the state, and organized religions, Theocratic totalitarianism: Under this
system, government is an expression of the preferred deity, with leaders often claiming to
represent the deitys interests on earth. Example, Taliban and Iran clergy.
POLITICAL RISK: Political Risk is defined as as the potential loss arising from a change in government policy. More precisely, political risk is the likelihood that political
decisions, events, or conditions will affect a countrys business environment in ways that will cost investors some or all of the value of their investment or force them to accept lower rates
of return. The global economic crisis had increase political risk in the world. The primary
types of political risk, from least to most disruptive, are: Systematic, Procedural, Distributive,
and Catastrophic. Distributive Distributive political risk is creeping expropriation, increased taxes on profits, elimination of foreign companies local property rights. Catastrophic Catastrophic political risk can devastate companies and countries. It disrupts the business environment in a way that affects every firm in the country. If such disruptions
spiral out of control, they devastate companies and countries.
The Rules of the Game -
Getting Started: Starting a business involves many legal activities: registering its
name, choosing the appropriate tax structure, getting licenses and permits, arranging
credit, and securing insurance. For example, starting a business is a straightforward
process in Australia, requiring one registration procedure that encompasses tax, labor,
and administrative declaration. Whereas in Africa, 75 days in Chad.
Making and Enforcing Contracts: Once up and running, managers turn to entering
and enforcing contracts with buyers and sellers. A contract is a binding legal
agreement that formally exchanges promises, the breach of which triggers legal
Hiring and Firing: No matter where you are operating, you will have to hire and,
when necessary, fire workers. Many countries have flexible firing rules; however
some have very robust rules. Necessary terminations are extremely difficult to
execute and often involve extensive negotiations and settlements. Companies think
twice, 10 times, before they hire new people (Hero Group)!
Bankruptcy / Closing Business: Finally, some countries make the task of closing a
General Relations (table 3.4): Singapore, New Zealand, Hong Kong, U.S. UK are
rated among the top 5 best place to conduct international business. Theyre all democratic political system, a common or civil-law legal system, and a doctrine of
the rule of law. In contrast, the majority of bottom-ranked countries have a totalitarian
political system, a mixed legal system, and a doctrine of the rule of man.
STRATEGIC CONCERNS: Operating concerns focus managers attention on day-to-day operations. Strategic concerns shift managers attention to long-term issues.
Marketplace Behavior (antitrust) National laws determine permissible practices in all forms of business activities, including sourcing, distributing, advertising, and pricing
products. Hence, countries permit and prohibit activities that then spur companies to
adjust their manufacturing configuration, their supply chain coordination, and their
marketing strategy. In France, the legal system regulates when transport trucks can use
motorways (non on Sundays) or when shops can hold sales (twice a year, on dates set by
Country of Origin: National laws affect the flow of products across borders. To determine charges for the right to import a product, host governments devise laws that
consider the products country of origin, namely the country of manufacture, production, or growth where a product comes from. The global credit crisis and its implications to
jobs have made issues of country of origin and local content regulation increasingly
provocative themes of political debate.