The Political, Legal, and Technological Environment

Chapter Two

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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The Political, Legal, andTechnological Environment

The specific objectives of this chapter are to

1. INTRODUCE the basic political systems that

characterize regions and countries around the

world and offer brief examples of each.

2. PRESENT an overview of the legal and

regulatory environment in which MNCs operate

worldwide.

3. REVIEW key technological developments as well

as their impact on MNCs now and in the future.

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IdeologiesIndividualism

IndividualismPeople should be free to pursue economic and

political endeavors without constraint.

David Hume, Adam Smith, Aristotle In business context, similar to capitalism and

connected to free market societyPrivate property more successful, productive, and

progressive than communal propertyBetterment of society related to level of freedom

individuals have in pursuing economic goals

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IdeologiesCollectivism

CollectivismViews needs or goals of society as a whole as more

important than individual desires.

PlatoDoes not value individual as suchNo rigid form of collectivism as societal goals

differ greatly among culturesFascism: nationalism, authoritarianism, militarism,

corporatism, collectivism, totalitarianism

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IdeologiesSocialism

SocialismA moderate form of collectivism in which there is

government ownership of institutions, and profit is not the ultimate goal.

Karl Marx, Friedrich Engels, Vladimir Ilyich Lenin Has been practiced in China, North Korea, Cuba Democratic socialism is the more moderate form

practiced by Great Britain’s Labour Party, and in France, Spain, and Greece

Communism is extreme form of socialist thought

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Political Environment

Ideologies underlie the actions of governments Ideas reflecting beliefs and values influencing the behavior

and culture of nations and political systems

Political systems can be evaluated along two dimensions1. Rights of citizens based on a system of government (range

democratic to totalitarian)

2. Focus of political system on individualism vs. collectivism.

Democratic nations tend to emphasize individualism and totalitarian nations tend to emphasize collectivism No pure form of government

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Political SystemsDemocracy

DemocracySystem in which government is controlled by

citizens either directly or through elections.

European rootsDemocratic society cannot exist without at

least a two-party systemOnce elected, representative is held accountable to

electorate for actions (which limits power of government)

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Political SystemTotalitarianism

TotalitarianismOnly one representative party which exhibits control

over every facet of political and human life

Power maintained by suppression of oppositionDominant ideals include media censorship, political

repression, denial of rights and civil liberties

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Political EnvironmentRegional Example: China

Emerging economic power Government attempting to open up economy

Speed up conversion of state enterprises into corporations Trade liberalization a top priority since joining WTO in 2001 Becoming a more open, democratic society Greater tolerance of individual freedoms Worker retraining, low-cost housing and other programs Seeking to unleash a more dynamic market economy

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Political Environment:Regional Example: Europe

Privatization and economic liberalization reinforce EU-wide political and economic integrationPolitical power is variable and complexStrong opposition to U.S.-led intervention in Iraq

sometimes spill over into business relationships and dealings

Europe is a large interwoven region economically, but contains vast cultural differences

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Political Environment:Example: The Middle East

In Iran and Saudi Arabia laws and government based on Islamic principles

Business conduct in Middle East similar to Western in many waysWorldwide fallout from war on terrorism have made

business environment risky and potentially dangerous

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Political Environment:Example: Russia

Neglect and confusing changes in economic policy

Infrastructure is weak and a political quagmireCorruption interferes with attraction of more

foreign investment

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Legal and Regulatory Environment

Confusion and challenge for the MNC due to many different laws and regulations in global business operations

MNCs must carefully evaluate legal framework in each market before doing business

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Global Foundations of Law

1. Islamic law

2. Socialist law

3. Common law

4. Civil or code law

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Global Foundations of Law Islamic Law

Islamic lawDerived from interpretation of Qur’an and teachings

of Prophet MuhammadFound in Islamic countries: Middle East and Central

Asia

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Global Foundations of Law Socialist Law

Socialist lawOrigins in Marxist socialist systemRequires most property to be owned by state or

state enterprisesContinues to influence regulations in former

communist countries Members of former Soviet UnionPeoples’ Republic of ChinaVietnamNorth KoreaCuba

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Global Foundations of LawCommon Law

Common lawOrigins in English lawFoundation of legal system for

United StatesCanadaEnglandAustraliaNew Zealand

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Global Foundations of LawCivil or Code Law

Civil or code lawDerived from Roman lawFound in non-Islamic and non-socialist countries

FranceSome Latin American countriesLouisiana

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Basic Principles of International Law

Sovereignty and Sovereign ImmunityInternational JurisdictionDoctrine of ComityAct of State DoctrineTreatment and Rights of AliensForum for Hearing and Settling Disputes

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Principles of International Law Sovereignty and Sovereign Immunity

Principle of sovereigntyAn international principle of law which holds that

governments have the right to rule themselves as they see fit.

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Principles of International Law International Jurisdiction

Nationality principleHolds that every country has jurisdiction over its

citizens no matter where they are located.

Territoriality principleHolds that every nation has the right of jurisdiction

within its legal territory.

Protective principleHolds that every country has jurisdiction over the

behavior that adversely affects its national security, even if that conduct occurred outside the country.

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Principles of International LawDoctrine of Comity

Doctrine of comityA jurisdictional principle of international law which

holds that there must be mutual respect for the laws, institutions, and government of other countries in the matter of jurisdiction over their own citizens.

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Principles of International LawAct of State Doctrine

Act of state doctrineA jurisdictional principle of international law which

holds that all acts of other governments are considered to be valid by U.S. courts, even if such acts are illegal or inappropriate under U.S. law.

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Principles of International LawTreatment and Rights of Aliens

Treatment and rights of aliensCountries have the legal right to refuse admission

of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conduct.

Nations can also deport aliens

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Principles of International LawForum for Hearing and Settling Disputes

Forum for hearing and settling disputesU.S. courts can dismiss cases brought before them

by foreigners; however, they are bound to examine issues such aswhere the plaintiffs are locatedwhere the evidence must be gatheredwhere property to be used in restitution is located

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Legal and Regulatory Issues

Financial and services regulationForeign Corrupt Practices Act

Illegal to influence foreign officials throughpersonal paymentpolitical contribution

Restrictive bureaucratizationPrivatization

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Regulation of Trade and Investment

Individual countries use legal and regulatory policies to affect the international management environment

Country is perceived to engage in unfair trade practices (WTO and similar agreements)Government support (subsidies)Require MNCs to accept local partners

Response may beRetaliatory tariffsRestrictive trade regulations

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Technological Environment andGlobal Shifts in Production

BiotechnologyNanotechnologySatellitesAutomatic translation telephonesArtificial intelligence and embedded learning

technologyAdvancements in computer chip technologySupercomputers

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Technological Environment andGlobal Shifts in Production

E-business: Business to business (B2B) Business to consumer (B2C) E-tailing Financial services (e-cash)

Telecommunications Technology, outsourcing and offshoring:

Technology has reduced and eliminated middle management and white collar jobs

Global competition has forced some MNCs to outsource jobs to offshore productions

Emerging technology makes work more portable

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Expected Winners and Losersin Selected Occupations

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Review and Discuss

1. In what ways do different ideologies and political systems influence the environment in which MNC’s operate?

2. How do the following legal principles impact MNC operations: the principle of sovereignty, the nationality principle, the territoriality principle, the protective principle, and principle of comity?

3. How will advances in technology and telecommunications affect developing countries? Give some specific examples.