Ploitical Legal Env

7/28/2019 Ploitical Legal Env

1/25

THE CULTURAL, POLITICAL AND LEGAL

ENVIRONMENT OF INTERNATIONAL BUSINESS

Christopher T. Selvarajah

(Serial No. 50)

Facultyof BusinessStaff Papers

SWINBURNE INSTITUTE OF TECHNOLOGYA division of Swinburne Ltd


2/25

THE CULTURAL, POLITICAL AND LEGALENVIRONMENT OF INTERNATIONAL BUSINESS

Christopher T. Selvarajah

(Serial No. 50)

ISBN 0 85590 635 9

This paper should not be quoted or reproduced in whole or

inpart without the consent of the author, to whom allcomments and enquiries should be directed.

@ Selvarajah, C T, 1989


3/25


4/25

THE CULTURAL, POLITICALAND LEGAL ENVIRONMENT OF

INTERNATIONAL BUSINESS

C.T. Selvarajah

Abstract

A study of the elements of a domestic market and those ofan international market.may reveal many crucial differences,especially political, legal and cultural differences. Forexample, the "rules of the gamew of business in theinternational market are diverse, changeable and oftenunclear. The international firm may have to content withdifferent legal and ethical standards in different hostcountries. In this paper the parameters of the political,

legal, and the cultural environment of international businesswill be considered, The paper also relates how political,legal, and cultural incidents or situations may become\roadblocks1 to the smooth operation of business ventures inforeign countries. Misunderstandings and breakdown incommunication often arise from differences in perception byexecutives who are not from the same cultural, legal andpolitical background.

International investors need to know what elements in aforeign culture have the greatest influence over consumptionpatterns in general and particularly the consumptionbehaviour to their specific product. By reflecting on thelanguage, religion, demography, climate, values and beliefs,education, labour, roles of women, family, ethnic groups andother similar elements, the international business personwill be able to, not only participate in the internationaleconomy with a better perception of the situation, but alsobe able to cater for the needs of the international buyers.

INTRODUCTION

International business is not just an economic activityinvolving the exchange of goods and services. It is also acultural as well as a economic phenomenon. There is a

tendency for business organisations to be culture-bound. ManyAustralian and New Zealand companies are strongly inwardlooking. They are weary about stepping outside of theexisting culture of their business. For example, one of thestated investment strategy objective of Coles-Myers is todevelop new business in the "English speakingwworld, On theother hand, the Japanese company Daimaru, has a philosophy ofglobal expansion that transcends cultural spheres. To succeedin international business, one must break through thiscultural barrier by acquiring a knowledge of the diversecultural, legal and political constraints together with theeconomic aspects of the environments in which we wish to do

business.


5/25

Business firms considering entry into a foreign marketmust first make the same determinations as they would in adomestic market. The primary consideration is the product.Without attractive features that will satisfy foreigncustomers or users in terms of quality, price, performance orefficiency, decisions taken in all other areas will be

meaningless. The next major considerations are the degree ofinvolvement and the length of commitment by the firm. Havingdecided on the degree and proposed duration of an investment,the firm should evaluate where the proposed foreign venturefits into their global marketing plan, They must makeprovisions for any variations in operating proceduresrequired in the new market. Figure 1 illustrates some of thedifferences between the domestic and the internationalmarkets.

Figure 1: A comparison of different elements encounteredin the domestic and the internationalenvironment,

~omesticEnvironment International Environment1,Common business language 1,Multilingual2.0ne nationality 2,Multinational3.Common customs4.single major religion5.Uniform political andlegal culture6.Nationalism an advantage

7.Stable business environment8.Culturally acceptableethical and moral standards

3.Customs of amulticultural society4,Diverse religiousbeliefs and practices5,Diverse political andlegal culture6e~ationalismadisadvantage7.Changeable and unclearbusiness environment8.Unfamiliar and oftenunacceptable ethicaland moral standards

The price of success in international trading is anendless readiness to adapt to changes required of the firm bythe demands of the international economy. The challenge isfor multinational enterprises (MNEDs)to transcend blindersimposed by their home cultures. This is a formidable butessential task if operations in foreign cultures are tosucceed. MNE executives stationed overseas have to coordinateand assist marketing programs as well as personnel indifferent countries. Therefore, they need to be sensitive to

foreign cultures, politics and legal constraints and acquire


6/25

some understanding of them. This empathy is necessary, notonly for personal relations, but even more so forunderstanding and assisting operations in foreign markets.

THE NATURE 2WD CONCEPT OF CULTURE

Many local firms in Australia and New Zealand have thepotential of globalising their product, if not for their fearof stepping outside of their existing cultures. Disctronics,a small South Melbourne firm took the first step in 1986 andwithin 18 months had established successful manufacturingconcerns in the UK, US and Europe. They are now anacknowledged leader in the production of quality disc recordsinternationally.

Often the biggest barrier to international business isthe cultural situation. Why is this so? Basically the answerlies in people taking culture for granted. Culture is a

concept which everyone thinks they know but few can define.This is because culture is an intangible element and theparameter are not very clear. It is said to mean the totalway of life of a society. Yet when we look at the way theliterature is organised in most books on the environments ofinternational business, we see the separation of thepolitical, legal and the socio-economic environment from thecultural environment. Does this mean that the political-legaland the socio-economic conditions in a society are not theresult or reflection of the society's total way of life. Whatdo you think? Is this done for convenience of understandingissues that pertains to the environment? This judgment is

left to you.In the process of travelling in foreign lands, travellers

come face-to-face with cultural differences - between whatthey are used to in their homeland and what they encounter inforeign countries. Culture being an abstract and anintangible element, few can truly define it. Though culturecan be seen as a total way of life of a society, it rarelybecomes an issue between Australia and New Zealand because ofits close and similar pattern of economic, social andpolitical development since the landing of Captain Cook.There may be some differences and one that may be dominant inNew Zealand is the strong cultural contribution of the Maoriand the Pacific Islanders to the overall New Zealand culture.Culture1 manifests as social behaviour of communities, andunless we understand it, we may not be able to in marketing,identify the type of products and the forms of promotionsthat are culturally acceptable to people of diverse cultures.


7/25

4

The classic case in history of cultural apathy was theIndian Mutiny of 1857. The mutiny started due to theinsensitiveness of the ~ritishwhen they ordered that futureenlistment of Indians in the army was to carry with it anobligation overseas. Crossing the seas was forbidden undersevere religious penalties to high-cast Hindus, who formed alarge portion of the sepoy army. To this was added the

blunder of ordering the issue of greased cartridges in whichthe fat of pigs and cows had been used. Pork is forbidden tothe Muslims, and the cow is a sacred animal to the Hindus.

The above case is a lesson in history. Culturalenvironment and its social implications can seriously hamperthe progress of success in international business ifproperstudy and understanding of this factor is not undertakenprior to the commencement of international trade.

Apart from physical appearance we know that people aredifferent because they may speak different languages, they

may profess to have a religion different to what we generallybelieve, they may have laws and political systems quitedifferent to ours, Their values and attitudes to issues onmorality, ethics and everyday habits may be unacceptable toour way of life. They may be unaccustom to our materialculture and modern technology, The system of education may bedifferent. Their social patterns may be unique and consideredundesirable to our way of living. Are these differences,dimensions of the cultural environment? We believe they areif we accept the definition of Edward Taylor.

I1Cultureis the complex whole which includes knowledge,belief, art, morals, law, custom and any other

capabilities and habits acquired by man as a member ofsocietyw. p, )The various facets of this \complext whole are

interrelated in such a way that they operate as a system,that is, if a single aspect is changed it will affect theother parts and cause changes in the whole system.

This systems perspective of culture is important and theinterrelated nature of culture should be understood. Culturaldifferences affect the way business is done, the type ofproducts people buy and the forms of promotion which are

acceptable. Hence the cultural environment can seriouslyhamper the progress or success of international business ifprior study and understanding of this factor is notundertaken. In other words, it is imperative for foreignmarketers to learn the intricacies of cultural differencesfrom their own if they are to be effective in foreignmarkets.


8/25

Customs are outward appearance of culture. Customs arebased on tradition, that is, when a group adopts a certainway or procedure, it becomes custom. Many customs insocieties are lost in antiquity, but succeeding generationsare taught to respect and accept the customs as a necessaryfabric of the society. Customs can have their origins from,religion, politics, legal, social or any other cultural

factors of a community. Do we question why the Westernershandshake hands, when the Indians and Thais clasp their handin reverence, the Arabs bow while touching their forehead andthen the chest with their right hand and the Japanese bow,when greeting people?.Why is it impolite to receive or giveanything with the left hand in many asian societies? Wemayfind the answers to these habits and many more if we tried,but we do at most times take them as the done thing.

CULTURAL ENVIRONMENT: A SYSTEMS PERSPECTIVE

The cultural environment of international business

consists of a number of major components. Some of thesecomponents are found in Figure 2. There may be other elementsthat could be considered important but the componentsdescribed in the figure are seen as the major subsystemelements of the cultural system. All these cultural elementsmay be important to an MNE's operation but some of them arelikely to be more important than others. Therefore tounderstand culture, we have to know its contents, how thesystem operates and how its parts are interrelated.

Figure 2: The Cultural Environment on InternationalBusiness

Values &Attitudes

Relationships

Education

culture


9/25

CROSS-CULTURAL COMMUNICATION

children who grow up in two or more ethnic background canbecome bi-cultural or multicultural without fear of thecomplexities of any one of them. However this may not be the

case with older people. Misunderstandings and breakdown incommunication resulting in operational problems, often arisefrom differences in perception by expatriate executives whowork in a foreign environment. Cross-cultural communicationassumes that, though this may not be totally possible foradults, as most are not exposed to foreign cultures and areencultured (culture bound) into their own culture, even theycan learn about, adapt to and assimilate to a certain extentanother culture.

The following pages describes how different cultures canbe categorised within a high to low context depending onexplicit or implicit behaviour generally of individuals indifferent countries,

High andLow context cultures

Every manager who works in a foreign environmentconfronts problems in adapting to the host country becausedifferences in economic and political and culturalenvironments complicate every decision. Howevertamongthesethe most troublesome often stems from largely hidden factors,that is, cultural factors. ~xecutivesof MNEtsimprove theirmanagement policies, and strategies only by understanding thedifferences between their own home environment and the

foreign environment in which they must operate.

Distinct cultural differentials exist not just betweenAsia and Europe, but even among the different countries ofAsia and Europe. Many countries, like Singapore and Malaysiawhere there are major ethnic groups(Malays, Chinese andIndians), also exhibit cultural diversity. This is definitelya problem to an expatriate who is accustom to an environmentthat exhibits cultural convergence.

Therefore creating business opportunities in oneenvironment can be turned into failures in another by

distinct societal differences. For example, when theinternationally acclaimed Nissan Pajero was introduced intoSouth America, it was not received with great enthusiasm, inall of the South American countries. The slogan "Have anaffair with a Pajero" translated in a local dialect meant"Have an affair with a gayn, On the other hand, recognisingvariations in the different societies will not automaticallyguarantee winning undertakings in that particular country.The importance of recognising, variations in practices due todifferences in culture will lead to the development of moreeffective approaches in market penetration.


10/25

7

Studies have shown that cultures can be categorisedwithin a high to low context, depending on the culturalreliance on verbal versus non-verbal cues formeaning andinterpretation of a situation. This measure is only acomparative study to give a guideline to the understanding ofpersonal relationships in broad categories of societies.Therefore when we compare one culture with another it may be

either more or less, high or low context. Figure 3 shows arough interpretation of the contextual relationship ofdifferent countries.

Figure 3: Contextual background of various countries

Japanese

\Arabian

\Latin American\-Spanish

EXPLICIT

\Italian

\French

IMPLICIT

\Scandinavian

HighContext

\German

\ LowSwiss context

Source: Cateora, P (1987) International Marketinq, Sixthedition, Irwin, Homewood,Illinois, p140.

Low context cultures: In low context cultures, for example,

Germany, personal relationships do not play such a vitalrole. In business, contracts carry more weight than on anagreement based on implied terms. Low context culture tend toexhibit the following characteristics:

. communication is written down as in contracts or isexplicitly verbalised;

. less reliance on non-verbal cues for understandingfactual meanings, except as support or reinforcer;

.speed is the essence of business negotiation;


11/25

. relationship is basically on a contractual basis;

, Change is essentially good, and fast at adapting tochange,

High context culture: In high context countries, like Japanand the Middle-east countries, personal relationships are

paramount in business dealings,Written contracts are often'statements of future undertakingf and will be realiseddepending on circumstances at that particular time. Forexample, the Pilbura project in north Western Australia hadawritten contract to supply natural gas to Japan. Japan hasbeen reluctant to honor the multibillion dollar contract asit believes the circunistances have changed since signing thecontract. The current situation is that there is a glut inthe supply of natural gas world wide with depressed prices.The following characteristics are generally exhibited by highcontext culture:

, communication is implied in a physical context orinternalised in the person;. reliance on verbal cues for understanding factualmeaning;

. deliberation and not speed is the essence of businessnegotiation;

. relationships are personal and based on trust;

, change is slow and change only if essential;

, seniority is respected and the meaning and understandingcome from looking at the position of the person in thecompany or relationship,

There are many stories that one hears of western managers .who have failed or did poorly in a foreign country,especially in Asia where they have tried to apply theirencultured standards. It is not unusual in countries likeIndia, Malaysia, Japan, and Korea to name a few, to lavishlyentertain business persons before considering any contractual

obligations. This process of 'understandingf

and exchangingviews can be lengthy and during this period there may not beany discussion about business in a direct sense. In India,for example, patience is a must in any negotiation, whetherit is with a government official or a business person. Timesense in India is more fluid. Australian business persons aredefinitly at a disadvantage when they are unable to claim for-.entertainment expanses and other fringe benefits that areavailable to other international business persons in foreigncountries as a tax allowance. Perhaps the AustralianGovernment is encultured in western business values that arenot applicable in the asian context.


12/25

CULTURE SHOCK

An understanding of culture shock and its impact onindividuals and the family is important to any business

person who considers a posting to a foreign.country. Cultureshock is stress related and can manifest either in physical

or in psychological health of the person or both. Cultureshock can cause stress, but culture shock in itself is not anillness, It is a process that most individuals go throughwhen exposed to a different culture and environment. Thetangible differences of the environment like, the appearanceof people, the ecological environment, the materialappearance of houses, the congestion in living space, thesmell and taste of food, sounds, climate, transport servicesand the like can cause physical stress. On the other hand theintangible differences, attributable to culture, like the theattitude and value systems, religious beliefs, customaryhabits, inability to understand the language and non-verbal

communication can contribute to psychological stress.

To overcome culture shock or to reduce the prolongedeffect,many expatriates avoid contact with foreign cultureand its surroundings unless absolutely necessary. Most of thetime is spent with their own country persons and there isvery little social contact with the host country's people,This attitude can be very detrimental to the company in thelong run, apart from having wasted an opportunity to learnabout a different culture and some aspects of thecomplexities of the global world.

To avoid posting people on foreign assignments who mayexperience extreme culture shock, the company should set up

procedures to screen individuals. It may not be possible toidentify encultured.individualsand the effect the foreignculture may have on them, however it is possible to reduce

-the effect by preparing them well beforehand for theassignment. It is also possible to avoid posting people whoare known to be unstable or. have serious problems withalcohol, drug abuse, unhappy marriage, and so on, Forexample, avoid posting a person with a high preference foralcohol to a strict Islamic countky.


13/25

The following are some of the recognisable stages ofculture shock that a person may go through when the persongoes to live in a different culture:

Stage 1: There is certain amount of excitement andkeenness to absorb the uniqueness of the culture andenvironment.

Stage 2: The excitement and keenness turns to frustrationwhen the absorption of the uniqueness of the culture andenvironment is in direct conflict with the persons owncultural heritage.

Stage 3: FrustratLon leads to resentment and avoidance ofthe culture,

- Stage 3 is the critical point. At this stage, the personhas virtually three options; either quit, seek the comfortsof home culture among ones own country persons or try againand persevere to understand and cope with the new cultureshock process,

The cultural shock process can repeat a number of times,before the person feels relatively comfortable and competentin the new environment, Persons who have sought the comfortsof their own home culture in the foreign environment mayexhibit either negative feelings towards the host nationalsor indifference.

In the following pages some of the cultural differencesthat may be considered as obstacles to the smooth operationof business in the international environment are considered.

In particular we will look at religion, language, ethnicmixture, literacy, customs, body language (non-verbalcommunication) and class structure,

RELIGION

In a muslim society, religion is considered not just asone aspect of life but it encompasses all things. Mostcountries with predominantly muslim population haveentrenched Islam as the official religion. The leaders ofgovernment, business and communities in Islamic countriesapproach Islam as an all-embarrassing, grand system

containing its own political, legal, economic, technological,social and cultural subsystems. However in countries wherethere is a presence of large minority ethnic groups, like~alaysiafor example, Islamic laws and laws based on theEnglish judicial system are found to operate side by side.1slamic laws are only for the muslim population while the thenon-muslim population of Malaysia come under the jurisdictionof the English legal system as found in Malaysia. An examplewill illustrate the uniqueness of this situation. When amuslim women and a non-muslim man or vice versa are found inclose approximately, the muslim person can be charged in the.Islamic Courts.whilethe non-muslim person goes free without


14/25

11

any conviction of a legal breach. Therefore in a singlecountry morality can be based on the faith one professes tohave.

When trading with Islamic nations, one should respectIslamic holidays, which include major holy days. Longweekends as in Australia and New Zealand are unusual in theIslamic, or for that matter in most Asian countries. In thesecountries not all holy days are holidays either. For exampleduring the month of Ramadan (Islamic holy month when muslimsobserve day-time fasting) and the fifteen days after ChineseNew Year are slow periods. In 1985, a large delegation ofeducators fromaMelbourne education institution foundthemselves in the midst of Chinese New Year celebrations whenthey arrived in Hong Kong to promote their education exportprogram. They returned soon after arrival, since it wouldhave costed them too much to stay till 'Chap Goh Meit, thefifteenth day (last day) of the new year.

Morality is tied to religious beliefs and customs asillustrated above. It is not unusual for a muslim to havefour wives, all at the same time. Muslims are also'prohibitedfrom consuming alcohol. In Saudi Arabia, the expatriatepopulation are allowed consumption of alcohol in restrictedareas away from the local population. It is also illegal formuslims to gamble, In Indonesia and Malaysia where there is agreater desire for liberalisation, it is only illegal for amuslim to consume alcohol or to exhibit anti Islamic habitsin public.

IANGUAGE andUNDERSTANDINGKnowing how to speak the same language as the nationals

in a desired foreign country is important for establishing acommunication channel. However effective communicationdepends on understanding the metaphysical as well as theliteral meaning of the language. There are clear differenceswhich exists between Westerners and Orientals in language andits interpretation of its meaning, for exampletthe Chinese,Japanese, and Korean manner of receiving and understandingreality. To a Westerner a problem can be conceptualised in alogical sequential set of connections based on abstract termsto express understanding and explanation. The Chinese,Japanese,and Korean languages are not capable of expressingabstract concepts. The oriental thinking is characterisedbyemphasis on the concrete or on the particular rather than onthe universals. Practicality and seeking reconciliation,harmony and balance; the Yin and the Yan concept is a centralforce. The oriental perception suggests that a unique orderpresides over all life creating universal harmony. This is incontradiction to the western concept of rationalism andindividualism.


15/25

The spoken and the written languages may also bedifferent in many societies. This is very true in the Indian,Malay and the Indonesian languages. There are separate setsof words that may be spoken but never used in a writtendocument, Also for example, in the Tamil language; languageof South India, the level and standard of commonly spokentamil is quite different to the official stage tamil,

Though Language is necessary for communication, what isnot so obvious is that some degree of common behaviour andway of thinking are necessary. In cross-culturalcommunication language is only one part, though an importantone. The way it is expressed, and how the language expressesthe attitudes, beliefs etc. are just as important.

ETHNIC COMPOSITION

In a foreign environment it is important that a \blankettcover to the understanding of culture of a particular country

is not given. For example to understand an Indonesianindividual and to know his basic character it is essentialthat one knows his ethnic origin, In Indonesia for example,it is generally accepted that the Javanese are refined,cultured in speech and manner and avoid open confrontationwith others. They are able to hide their emotions andfeelings. On the other hand, the inhabitants of northernSumatra, the Batak people are generally thought to beuninhibited and forthright in voicing opinions, People fromMadura andUjung Pandang are considered to be high temperedand quick to react to insults or threats.

In1988

the author on a visit to India had theopportunity of talking to an American student who wasresearching for a Phd, in the Gandhianphilosophy of non-violence. His impression of India was that the concept ofnon-violence was embodied in the south Indians more so thanthe north Indians, It is also generally accepted in Indiathat the south Indians are more docile and reserved thantheir northern counterpart.

The characteristics mentioned above will vary fromindividual to individual and ethnic group to ethnic group.Overlaying these cultural characteristics in the individualsof a particular country may be the influence of contact with

western living and modern standards and habits.

In establishing viable trading relationships with aforeign country one should attempt to understand the ethnicbackground and also the level of modernisation of the peoplewith whom successful business dealings are to be established.


16/25

13

LITERACY

At the turn of the century, the British imported labourfrom India, China andSri Lanka (Ceylon as it was then) towork the plantations, the tin mines and build thetransportation network to service the Malayan economy. TheSri Lankanfs and the Malayalee8s from the state of Kerala inIndia were specially brought in to supervise the labour forcebecause of their higher literacy. Therefore at any point intime we may be able to observe differences in literacy rateamong ethnic groups in a country. Also we may be able toobserve predominance of a particular ethnic or sex group inprofessions. In Malaysia, for example the legal and medicalprofessions are dominated by Indians andSri Lankans (TheIndian and Sri Lankanpopulation in Malaysia is 11% out of 16million people). In Australia and New Zealand, there are morewomen than men in clerical, secretarial and the teachingprofessions. In India, women out number men in the medicalprofession.

Many MNE8smay select countries to base theirmanufacturing concerns because of the availability of aliterate workforce, Literate workforce could mean less intraining cost and easier for the expatriate managers tocommunicate and to be understood.

CUSTOMS

Most societies are controlled by their customs whichdetermines the acceptable social behaviour. Adat (customs)governs the actions and behaviour of each and every Malay andIndonesian, Adat can vary from one region to another withinthe same country but it is strictly observed by the membersof that region, To a Malay or an Indonesian who observes acustom but does not know why, he calls it adat and there isno need for an explanation. Adat includes, ceremonies andduties for the dead, ownership of land, profit making,familial relationships, marriage customs,the way guests willbe treated, body language and so on, These customs arestrictly observed and foreign business persons shouldunderstand and not transgress them.

Adat also defines class structures and leadership. InSumatra, for example, there are two different structures

based on sex. The Minangkabau of central Sumatra arematrilineal society

-power and wealth are passed down

through the female line. The Batak8s of north Sumatra are apatrilineal society, with men having all rights. TheMinangkabaus who have settled in large numbers in Malaysiahave taken their customs along with them and practice itstrictly.


17/25

The above illustrations are only an example of thediverse customs and practices in the internationalenvironment. It is therefore important that the foreignerunderstands the importance of customs and its special role inuniting communities. Customs and practises of diverse groupsin a country can also be destructive, if unity is not sought.~ndonesiafound the answer in Pancasila (five tenets) and~alaysiain the Rukunegara (pillars of society). Both the~ancasilaand the Rukunegara are principles based on socialcohesion, for the purpose of unifying the country, which hasa divergence of culture. The Pancasila was developed by thelate President Sukarno prior to the declaration ofindependence in 1947, and it set out five basic ideals forthe new republic to follow. These five criteria weredeveloped after careful analysis of ancient customs andtraditions of the country and considerations for uniting thefuture of the country. The five principles are:

Belief in God: This is the keystone to the Pancasila. It

decreed total religious freedom should exist and soattempted to remove the possibility of religiouspersecution from the new nation.

National Identity: National identity was to beestablished through the commonality of the Pancasila.This would be reinforced through a common language(Bahasa Indonesia), a common flag and a common nationalanthem. These common elements were to assist thedevelopment of a national spirit which will be reinforcedthrough common tasks (eg. education, sports etc.)Social Justice: This stated that all persons must beequal in such things as opportunity, in the eyes of thelaw, and also that no one should be deprived of theirneeds, whether they are physical or mental.

Humanitarianism: The philosophy of humanitarianismexisted within the adat, This preserved the localcustoms, traditions as unwritten laws, The pancasila wasto be supreme when there are conflicts between localcustoms and national interest.

Democracy: This principle looked to the future andstrived to recognise the need for all people to have a

say in the running of the new republic,

It can be argued that not all criteria of the Pancasilahave been equally applied since Merdeka (independence) whenviewed from the outside. Despite this the ideals of thePancasila have influencedIndonesia's changes over the past43 years.

Malaysia likewise adopted the Rukunegara as an effort tounite the people after the racial riots of May 13 1969. Ittoo after much deliberation decided that it needed a\charter8 to create national unity and a culture for the

nation.


18/25

In Australia and in New Zealand, the population istending to become more and more multi racial. In Australiathe Ministry for Ethnic Affairs was established in 1973 andrecently the concept of ~Multiculturalism8has surfaced as apolicy of the current Labour Government. What are theimplications of these moves? Perhaps Australia, too believes

that there has to be an official government directive forcreating a \united8Australia.

THE POLITICAL AND LEGAL ENVIRONMENT OF INTERNATIONAL BUSINESS

The discussion so far in this paper has been on the thecultural aspects of the international environment. Thissection does not address the issue of whether the politicaland legal dimensions of international business is part of thecultural environment or whether it stands alone. There issuch a thing as political culture, which then suggest that

politics and culture are either related or that politics is apart of culture. Perhaps instead of an academic debate on thecurrent state of the art of the place.ofpoliticalenvironment in international business, it may be far morevaluable to consider the relationship of politics and law toculture and perhaps the economic environment and how theyinfluence decisions of international business persons..

Culture has been establish as the foundation.on which thebehaviour of a society can be ascertained. It then determinesthe way in which the members of a society behave and conformto a set of unwritten rules. Political philosophy of asociety must then also be related to the social and culturalbehaviour of its members. The question now is whether apolitical philosophy of a society can influence changes inthe cultural and social values -as well as vice versa.

The answer to this lies in history, The cultural andsocial values of Imperial Russia, changed over the yearsafter the Russian Revolution of 1917 and similarly ofImperial China after the Chinese Revolution of 1947. Thecultural and social values of these two countries aredefinitely different now compared to pre-revolution. One mayargue that the desirable socio-cultural changes that may havetaken place in these two countries in the normal course of

cultural evolution was suppressed by oppressive regimes andthat the revolution was only a catalyst,

It can be said with some justification that revolutionsare not the normal pattern of cultural evolution except insocieties were their values attitudes and social behavioursare suppressed. Therefore in most democratic countries wherethere is freedom of expression, assembly and opportunities,the political climate and the political institutions reflectthe aspirations and expectations of the people,


19/25

16The implication for the international marketer of what we

have related so far is that, the cultural and social harmonyof a society need not always be the key measure of a stableenvironment. What happened in Iran in 1979 is a lesson thatno international person can forget. A study of the politicalenvironment of Iran pre-revolution would have, on paper showna stable and liberal western type government, an ancient

monarchy, and an obedient civil service. The culturalscanning of the environment would have shown a cultural andsocial system that had its roots in ancient Persia.Averystable environment with abundance in oil was indeedastrategic and a useful ally for many industrialised nationsof the west. The revolt of the Islamic clergy was a surpriseto the rest of the world and changed all of this.

POLITICAL SYSTEMS OF THE INTERNATIONAL ECONOMY

It is indeed a dangerous and a futile exercise tocategorise nations according to a set of politicalguidelines. There are as many different political systems asthere are countries. There may be common features orcharacteristics that may group political entities with thesesimilarities as countries professing to have a certainpolitical ideology. The two major systems of the world thatcan be grouped in this manner are the democratic systems andthe socialist systems.

Democratic systems

It would be improper-to group all countries whoseeconomies are based on free trade or having electedgovernments, as countries with similar democratic principlesand observing them to the same degree. For example, countrieslike Australia, New Zealand,Malaysia, India, and Singaporemay be grouped as countries that have the Westminister typeof parliamentary system. Obviously there are differences inall of them. For example, the Australian Federal Governmentand all Australian states except for Queensland havebicameral parliamentary systems (two parliamentary chambers

eg. the Senate and the House of Representatives) while NewZealand and Queensland have unicameralparliamentary systems(a single parliamentary chamber, that is, only the House ofRepresentatives). Malaysia professes to have a\guidedf


20/25

17

parliamentary democracy. Among the reasons why countries likeMalaysia and Indonesia have chosen the path of the guideddemocracy concept, two of the following are consideredimportant:

1. Recourse to the general public for mandate is notguaranteed for all major political decisions because of

the lack of, and the sophistica ion of the economy.

Equitable participation of all sectors of the populationin the development of the economy is not possible ordesireable in the short term. The reasons for thisseemingly unfair dis-tributionof justice is often basedon the desire to redress improper development of thedifferent sectors of the national economy. In other wordsequity participation is for a latter date when imbalancesin such matters as the distribution of wealth, education,occupation, health care has been redressed.

Singapore is considered by many observers as atotalitarian government with all political power vested in aparliamentary system where the ruling party has been in powerfor the last 30 years with Mr Lee Quan Yew as the Primerduring all that time. It may be that the media was unfair toMr Lee in the early years of nationhood. From a \tyrant8 heis now acknowledged as an able statesman. The media nowfondly refer's to him as the \benevolent dictatorr.

India is often mentioned as the most democratic country.Not many democratic countries are tolerant to all politicalleanings. Even the USA has a communist phobia. Australia andNew Zealand have isolated effectively the communist partiesfrom the main stream of political power. In India thecommunist operate within the democratic system and at mosttimes are the ruling parties in at least one, often twostates in India. In jest, an Indian autotaxi driver said thatIndia is too democratic for its own good. Everyone wants tohave a say and nothing gets done because either everyone islistening or talking and there is no doing. As an observerfrom the outside perhaps there is some wisdom in hisstatement.

In order to give a broader view to the term democracy,the following specifications are essentials

.

The nationals of a state either directly or indirectlyelect their rulers based on majority rule.

. The right to rule is decided through periodic publicmandate.

. Basic rights of freedom of movement, speech, andparticipation are observed.


21/25

The specifications identified above can be applied to aspectrum of different democratic systems.At one end of thespectrum we have elected governments that are basicallytotalitarian. South Korea certainly has a totalitarianpolitical system but champions free enterprise and trade.~ikewise,Thailand has a stable and a successful economybased on the concept of free enterprise, and to all extent

and purpose, exhibits a democratic system. However, militarydictatorships in Thailand are not uncommon. On the otherextreme end of the spectrum we have countries like Australiaand New Zealand where governments are elected and the \realtpower is with the people.

Ademocratic parliamentary system has the potential toelect any party to power whatever the political philosophy

may be, This is demonstrated in India where the states ofKerala and West Bengal are often in the hands of communistparties.

Socialist systems

Like the democratic parliamentary systems the socialistsystems also have their differences, The distinction betweencommunist and non-communist is important in internationalbusiness because of the ramification it has on global tradingpatterns. Communist nations by virtue of their socialistphilosophy are centrally planned economies. In the field ofinternational business, trade is more or less restricted totrading within either the communist or non-communist sphereof influence.

The restrictions imposed on intertrade between the twospheres of control based on political ideology are basicallydue to distrust of each other and to decrease the othersglobal influence. The democratic society believe that thecommunist systems have a basic philosophy of taking over therest of the world and making it communist, while thecommunist believe that the capitalist society that thedemocratic systems represents are for the rich and theminority at the expanse of the greater population, Theseideological differences have hampered the growth of globaltrade and have restricted it to either side of the political\camps'.

International investors hesitate to commit resources tolocations where they may have little or no control overaspects of business operations. Frequently ownership orinvestment in a communist country is discouraged or evenprohibited. Until recently direct investment was virtuallynonexistent because of these restrictions, There are somechanges taking place on a global scale with both SovietRussia and China liberalising on their 'closed doors1

policies.


22/25

19

The consequences of the isolationist policies of manycommunist countries, especially the Soviet \blocf and untilrecently China, has been that the trade figures are\guesstimatesf only. Although the communist world comprisesapproximately one-third of the world population and one infive human being is a chinese, the approximate total worldtrade between communist and non-communist is less than 6% and

approximately 10% of worlds trade is generated from centrallyplanned economies.

The communist countries (excluding China) regionalorganisation is the Council for Mutual Economic Assistance(CMEA or COMECON) which was formed in 1949 under theleadership of the Soviet Union. The purpose of this Council

.

was to provide economic assistance to the war-torn communistcountries of eastern europe, but also in part as aretaliation against the establishment of the Organisation forEuropean Economic Cooperation (OECD), formed in 1948. All the

members of OECD countries are non-communist,

Comecon has made efforts to bring members under onecentralised plan to coordinate long-term production goals.This effort is being frustrated by the divergent views of themembers and their reluctance to become mere suppliers of rawmaterials for the Soviet Union, The intrazonal trade withinthe Comecon is about 60%- This however is not purely due toany successful intrazonal trade negotiations but due to thestrong control by the soviet Union and the lack of currencyconvertibility.

Another serious hindrance to international business isthe poor relationship between china and the Soviet Union.Though the severing of relationship began as a border disputeit was ideological differences that has virtually destroyedall relations between the two, One major difference was theapproach taken by the countries towards economic development.China took the path of agriculture whilst the soviet Unionwas more interested in industrialisation as the major thrustin economic development.

The easing of US and other western democratic nation'sdiplomatic ties with many communist countries, notably theSoviet Union and Vietnam, and the reopening of China tointernational trade have increased prospects for better

global trade,

L e g a l s y s t e m s

In every legal system, the law of the land functionswithin the particular social and cultural context of thecountry and cannot be treated separately. For example, tounderstand the role of law in Japanese business their view oflitigation has to be understood.


23/25

The annual rate of litigation trials in Japan issignificantly lower than that of industrialised countries.The US is said to have ten times as many litigation, the UKthree times as many and West Germany twice as many on acomparable population. This remarkable lack of litigation canbe traced to the social and cultural factors that havehistorically led the Japanese to prefer informalmeans ofdispute settlement. It is true to say that the Japanese arenot renowned for their frequent court appearance. This isreflected by the very small number of lawyers in the country.

The legal framework of any country reflects the socialvalues of the country.. For example, in criminal law, theIndian Penal Code was adopted by the British for her colonieslike Malaya, Singapore andBurmabecause of the similarsocial and cultural values of the inhabitants. There areoccasions when the judicial processes have been transplanted,like trial by jury or trial by judge from one country toanother. The British system of justice and its mechanics are

now.part of many of its former colonies. After World War 11,Japan cut its ties with feudal laws and adopted a legalsystem based on the democracies of western europe and theUnited States. The system'comprised of a various mixture ofcivilian and common law components. For example, the criminalprocedure was heavily influenced by US constitutionalprinciples, the criminal law was modelled closely onnineteenth century German concepts, and the Japanesepolitical system is generally speaking, a Westminister styleknown as the Diet.

The Japanese social system-values harmony, compromise andstable interpersonal relationships as of the utmostimportance, and there is strong belief that open conflictshould not occur. Antithesis to the Japanese is the westernvalues based on the egalitarian ethos. The emphasis is one ofindividual worth and equality with little or no emphasis oncommunality. The legal systems of the west definitelyreflects this philosophy, especially when we consider thelitigation process.

REVIEW

The understanding and adapting to the cultural, politicaland legal environment is important in any internationaloperation or transaction. changing perceptions and adaptingto a foreign environment may cause problems and lead toculture shock. If the international business person isencultured and exhibits attitudes that may either offend orshow insensitiveness to foreign culture and social customsthe consequences may be grave to the company and to theperson. The choice and screening of persons for aninternational assignment is very important.


24/25

The dimensions of the cultural environment may well bethe single most important factor to a foreign business personin the preparations of plans and strategies. MNE's may beable to control the product offered to a market - itspromotion, price, and distribution methods, but may not haveany control over the cultural environment within which these

plans must be implemented. Therefore foreign business personsmust attempt to anticipate the eventual effect ofuncontrollable elements and the planning of marketingstrategies should take account of this. The success ofbusiness in the international environment basically dependson how the individuals of the company are able to relate tothe environment. Being comfortable and adapting to thedifferences are essential.

In this paper there has been a conscious effort toemphasise the cultural ,social, political, and legalenvironment of Australia's and New Zealand's immediateneighbours. The west pacific countries are growing inimportance and are predicted to become major trading partnersfor Australia and New Zealands. Hopefully this shift inemphasis will also counter balance the lopsidedness ofcurrent literature heavily biased towards the European andthe American environments.


25/25

REFERENCES

Cateora, P.R, (1987), International Marketinq, Sixth Edition,Irwin, Homewood, Illinois.

Dalton, B, (1985), Indonesia Handbook, Third Edition, MoonPublications, Chicago.

Daniels, J.D. and Radebaugh, L.H, (1986), InternationalBusiness: Environments andO~erations,Wesley-Addison,Reading, Massachusetts.

Hall, E.T, (1977), Bevond Culture, Anchor Books, New York.Hall, E.T, (1979), Learning the Arabs8 Silent Language,Ps ~cholow oday,August.Legge, J.D, (1977), Indonesia, Second Edition, Prentice Hall,Sydney.

Selvarajhh, C.T, (1989), Host Na.tiona1 Control of~ultinationalcorporations and the Response ofMultinationals, In International Business, Donald Lee(~ditor)Third~dition,Deakin University.Siebert, H, (1989),Socio-economic, Political, and CulturalDimensions of Doing International ~usiness,In InternationalBusiness, Donald Lee (Editor) Third Edition, DeakinUniversity.

Soemardjan, S, (1986), Business and Culture in Indonesia,Confederation of Australian Industry.Taylor, E.B, (1971), Primitive Culture, John Murray, London.Tersptra,V, (1984), The Cultural Environment ofInternational Business, Second Edition, South-WesternPublishing, Cincinnati.

Documents

Ploitical Legal Env