political & legal enviroment facing business

8/13/2019 political & legal enviroment facing business

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2001 Prentice Hall 3-1

International BusinessbyDaniels and Radebaugh

Chapter 3Political and Legal

Environments Facing

Business


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ObjectivesTo discuss the different functions that political systems perform

To compare democratic and totalitarian political regimes and discusshow they can influence managerial decisions

To describe how management can formulate and implement strategies

to deal with foreign political environments

To study the different types of legal systems and the legal relationships

that exist between countriesTo examine the major legal issues in IB


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Cultural Influences on International Business

EXTERNALINFLUENCES

COMPETITIVE

ENVIRONMENT

PHYSICAL AND

SOCIETAL FACTORS

Political policies and

legal practices

Cultural factorsEconomic forces

Geographical influences

OPERATIONS

OBJECTIVES

MEANS

STRATEGY

Basic political

ideologies

Impact of the political

system on managementdecisions

Formulating and

implementing political

strategies

Legal environment


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The Political EnvironmentThe role of the political system is to integrate the society

Influences how business is conductedPolitical process functions

Interest articulation

Interest aggregationthe collection of interests in the political

system

Policy making Policy implementation and adjudication

MNE management

Lobbies governments on policies that affect business

Avoid appearances of inappropriate influence on the law


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Basic Political IdeologiesPolitical ideologya body of constructs, theories, and aims that

constitute a sociopolitical program Pluralist societydifferent ideologies coexist because there is no

one ideology accepted by all

difficult to understand the political environment in a pluralist

society

Ultimate test of any political system is its ability to hold a societytogether despite pressures from different ideologies

Ideologies also help bring countries together

The impact of ideological differences on national boundaries

Differences in political ideology have affected boundaries in

Europe

When operating in a foreign country, must understand the

potential sources of political tension and instability


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The Political Spectrum

TotalitarianismDemocracy

Democratic

Government

Nondemocratic

Government


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A Political SpectrumDemocracyinvolves wide participation by citizens in the decision-

making process Freedom of opinion, expression, press, and freedom to organize

Election of political representatives

Limited term of elected officials

Independent and fair court system

Nonpolitical bureaucracy and defense infrastructure Accessibility to the decision-making process

Democratic governments differ

Presidentialversus parliamentary

Number of important political parties

Amount of citizen participation in decision making Fragility and stability of new democracies

Democracy believed to be the best form of government


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Comparative Measuresof Freedom

1981 1990 1998

Free 35.9% 21.6% 40.0%

Partly Free 38.9 21.6 26.5

Not Free 20.0 40.0 33.5

Free Partly Free Not Free

Democracy

Totalitarianism

Political Rights

CivilLiberties


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A Political Spectrum (cont.)Totalitarianisma single party, individual, or group of individuals

monopolizes political power Neither recognizes nor permits opposition

Theocraticreligious leaders are political leaders

Seculargovernment often imposes order through military power

Totalitarianism takes several forms

Fascismdesires to control peoples minds and souls,converting them to its own faith

Authoritarianismdesires to control the people

Communismpolitical and economic systems are virtually

inseparable

equal distribution of wealth government ownership and control of resources


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Impact of the Political System on Management DecisionsPolitical Riskcaused by political instability

Promotes fear that operating position will deteriorate Tends to be higher in totalitarian regimes

Causes of political risk

Change in the opinions of political leadership

Civil disorderstemming from economic conditions, human rights

violations, or group animosity External relationsanimosity between host country and foreign

investors country

Types of political risk

Micropolitical actions are aimed at specific foreign investments

Macropolitical actions affect a broad spectrum of foreigninvestors


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Government Intervention in the EconomyIndividualistic paradigm

Belief in minimal government intervention in the economy Likely to be democratic and economically free

Promotes marketplace competition

regulates marketplace when competition by itself is unreliable

or unacceptable

Communitarian paradigm Government tends to be prestigious

thrives on a respected, centralized bureaucracy

May be democratic or authoritarian

stable political party or coalition in power

Government may start partnership with business

Government action toward business is not always consistent


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Formulating and Implementing Political StrategiesEstablishing a political strategy in the host country

Identify the issue Define the political aspect of the issue

Assess the potential political action of other companies and

special-interest groups

Identify important institutions and key people

Formulate strategies Determine the impact of implementation

Select the most appropriate strategy and implement

Implementing a strategymarshal whatever resources necessary to

accomplish the companys goals

Lobbyists educate and persuade government decision makers Enlist support of consumers


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Kinds of Legal SystemsCommon lawbased on tradition, precedent, custom, and usage

Interpretation by the courtsCivil lawcodified legal system

Based on a detailed set of laws that make up a code

Rules for business transaction included

Based on how the law is applied to the facts

Theocratic lawbased on religious precepts

e.g., Islamic law

has remained frozen

moral rather than commercial law

intended to govern all aspects of life

Consumer safeguardsdiffer in different legal systems

Deal with product liability issues


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The Legal ProfessionLawyers and their firms

Vary among countries in terms of how they practice law and serveclients

Most firms are quite small

Firms have expanded abroad in order to serve their clients

large legal firms often created through mergers or

correspondent relationships with firms in other countries Legal staffs have to understand local laws and practices


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Legal Issues in International BusinessAffect many aspects of IB

National laws May affect both domestic and foreign companies operating within

the countrys borders

health and safety standards

employment practices

antitrust prohibitions contractual relationships

environmental practices

patents and trademarks

May govern cross-border activities

investment of capital payment of dividends to foreign investors

customs and duties on imports

Documents

political & legal enviroment facing business