International Business Environments Operations 14 e Daniels Radebaugh

Chapter 3 The Political and Legal Environments Facing Business Copyright © 2013 Pearson Education,

Learning Objectives p p p To discuss the philosophy and practices of the political environment To profile trends in contemporary political systems To explain the idea of political risk and approaches to managing it To discuss the philosophy and practices of the legal system To describe trends in contemporary legal systems To explain legal issues facing international companies Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -3

Introduction Learning Objective 1: To discuss the philosophy and practices of the political environment

Introduction Every country has its own political and legal environment p Companies must determine where, when, and how to adjust their business practices without undermining the basis for success p Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -5

Introduction Political and Legal Factors Influencing International Business Operations Copyright © 2013 Pearson Education,

The Political Environment Managers evaluate, monitor, and forecast political environments p A country’s political system refers to the structural dimensions and power dynamics of its government that specify institutions, organizations, and interest groups, and define the norms that govern political activities p Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -7

Individualism vs. Collectivism Individualism n primacy of the rights and role of the individual p Collectivism n primacy of the rights and role of the community p Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -8

Political Ideology A political ideology stipulates how society ought to function and outlines the methods by which it will do so p Most modern societies are pluralistic p n different groups champion competing political ideologies p Democrats vs. Republicans in the United States p Democratic Party vs. Liberal Party in Japan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -9

Spectrum Analysis A political spectrum outlines the various forms of political ideology p Political freedom measures p n n the degree to which fair and competitive elections occur the extent to which individual and group freedoms are guaranteed the legitimacy ascribed to the general rule of law the freedom of the press Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -10

Spectrum Analysis The Political Spectrum Copyright © 2013 Pearson Education, Inc. publishing as Prentice

Democracy p In a democracy n n n p all citizens are politically and legally equal all are equally entitled to freedom of thought, opinion, belief, speech, and association all equally command sovereign power over public officials Prominent types of democracy include n n Representative Multiparty Parliamentary Social Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -12

Totalitarianism p A totalitarian system subordinates the individual to the interests of the collective n p dissent is eliminated through indoctrination, persecution, surveillance, propaganda, censorship, and violence Prominent types of totalitarianism include n n Authoritarianism Fascism Secular Theocratic Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -13

The Standard of Freedom House assesses political and civil freedom around the world p Freedom House recognizes three types of political systems p n n n Free Partly free Not free Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -14

The Standard of Freedom Map of Political Freedom, 2010 Copyright © 2013 Pearson Education,

Third Wave of Democratization p Third Wave of Democratization n p number of democracies doubled in two decades Engines of Democracy 1. 2. 3. The failure of totalitarian regimes to deliver economic progress Improved communications technology Economic dividends of increasing political freedom Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -17

Democracy: Recession and Retreat p Democracy’s retreat n p just 26 of the world’s democracies are full democracies Engines of totalitarianism n n Economic development Inconsistencies Economics problems Standards of democracy Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -18

Democracy: Recession and Retreat Freedom in the World: Number of Electoral Democracies Copyright ©

Democracy: Recession and Retreat Freedom in the World: Gains and Declines Copyright © 2013

Political Ideology and the MNE p What will the political map look like in the future? n n n The Washington Consensus The Beijing Consensus The Clash of Civilizations Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -21

Political Risk Learning Objective 3: To explain the idea of political risk and approaches

Political Risk Political risk refers to the risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment p Types: p n n Systemic Procedural Distributive Catastrophic Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -23

Classifying Political Risk Characteristics of Political Risk Copyright © 2013 Pearson Education, Inc. publishing

The Legal Environment Learning Objective 4: To discuss the philosophy and practices of the

The Legal Environment The legal system is the mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction p Types: p n n n Common law Civil law Theocratic law Customary law Mixed systems Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -26

The Legal Environment The Wide World of Legal Systems Copyright © 2013 Pearson Education,

Trends in Legal Systems Learning Objective 5: To describe trends in contemporary legal systems

Trends in Legal Systems p What is the basis of rule in a country? n n The rule of man p legal rights derive from the individual who commands the power to impose them p associated with a totalitarian system The rule of law p systematic and objective laws applied by public officials who are held accountable for their administration p associated with a democratic system Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -29

Trends in Legal Systems The Worldwide Distribution of the Rule of Law Copyright ©

Legal Issues in IB Learning Objective 6: To explain legal issues facing international companies

Operational Concerns p Operational issues n n p Starting a business Entering and enforcing contracts Hiring and firing local workers Closing down the business In general n n rich countries regulate less poor countries regulate more Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -32

Strategic Concerns Strategic issues p Country of origin and local content p Marketplace behavior p Product safety and liability p Legal jurisdiction p Intellectual property p Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -33

Intellectual Property: Rights and Protection Intellectual property refers to creative ideas, expertise, or intangible insights that grant its owner a competitive advantage p Intellectual property rights refer to the right to control and derive the benefits from writing, inventions, processes, and identifiers p n no “global” patent, trademark or copyright exists Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -34

Intellectual Property: Rights and Protection p Attitudes towards intellectual property n n n Legal legacies p rule of man versus rule of law Wealth, poverty, and protection p levels of economic development Cultural orientation p individualism versus collectivism Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 3 -35

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