International Business

1
International Business

• Chapter Three
• The Political and Legal Environments Facing
  Business

2
Political System Defined

• Political system the complete set of
  institutions, political organizations, and
  interest groups, the relationships amongst those
  institutions, and the political norms and rules
  that govern their functions. It can be based on
  individualism or collectivism.
• Political ideology the ideas that expresses the
  goals, theories, and aims of a political
  party/forum or a sociopolitical program

3
Democracy vs. Totalitarianism

• Democracy widespread citizen participation in
  the decision-making and governance processes,
  either directly or through elected
  representatives
• Totalitarianism the monopolization of power by a
  single agent opposition is neither recognized
  nor tolerated
• Democratic governments/institutions are on the
  rise after the fall of Berlin Wall in 1989

4
Fundamental Features of Democratic Political
Systems

• Freedom of opinion, expression, press, religion,
  association, and access to information
• Citizen power and access to the decision-making
  process
• Citizen equality before law
• Free, fair and regular elections
• Majority rule with minority protection
• Independent and fair court system
• Fair legal system Rule of Law prevails

5
Freedom House Comparative Measures of Freedom
6
Political Risk

• Political risk the expectation, i.e., the
  likelihood, that the political climate in a
  country will change in such a way that a firms
  operating position or investment value will
  deteriorate. Four types of political risks are
• Systemic a change in public policy that affect
  everyone
• Procedural bureaucratic delays, labor disputes,
  etc.
• Distributive tax and regulatory risk in
  respective industries
• Catastrophic random political events

7
Managing Political Risks

• Be a good corporate citizen (example participate
  in development projects, literacy etc.)
• Expand power bases through business relationships
  (example joint venture, licensing, political
  payoffs etc.)
• Study government attitude and participate
  government incentive programs
• Maintain good relationship with political allies,
  other embassies in the country

8
Legal System

• Legal system the mechanism for creating,
  interpreting, and enforcing the laws in a
  specified jurisdiction
• Types of legal systems
• Common law based on precedent, traditions
• Civil law based upon a set of laws that
  comprise a code
• Theocratic law based upon religious precepts
• Mixed systems are also possible.

9
Legal Issues in International Business

• Operational concerns
• Starting and closing a business
• Contract enforcement
• Hiring and firing employees
• Strategic concerns
• Marketplace behavior
• Country of origin issue
• Product safety and liability
• Legal jurisdiction
• Arbitration
• World Banks Ease of Doing Business

10
Chapter 3 Discussion Questions

• Define political system and explain why a
  business manager should study the political
  system of a country.
• How does democracy differ from totalitarianism?
  Will the conduct of business be different in the
  two systems?
• What is political risk? How can we manage
  political risk?
• Define the three types legal systems and their
  implications in international business.