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International Business
Environments and Operations
Part Two
Comparative EnvironmentalFrameworks
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Chapter 3
The Political
and Legal
Environments
Facing
Business
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Introduction
Every country has its own political and legalenvironment
Companies must determine where, when, andhow to adjust their
business practices withoutundermining the basis for success
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IntroductionPolitical and Legal Factors Influencing
International Business Operations
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The Political Environment
Managers evaluate, monitor, and forecastpolitical
environments
A countrys political system refers to thestructural dimensions
and power dynamics of its
government that specify institutions,organizations, and interest
groups, and definethe norms that govern political activities
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Individualism vs. Collectivism Individualism
primacy of the rights and role of the individual
Collectivism
primacy of the rights and role of the
community
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Political Ideology
Apolitical ideologystipulates how societyought to function and
outlines the methods bywhich it will do so
Most modern societies are pluralistic
different groups champion competing politicalideologies
Democrats vs. Republicans in the United States
Democratic Party vs. Liberal Party in Japan
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Spectrum Analysis Apolitical spectrum outlines the various
forms of political ideology
Political freedom measures
the degree to which fair and competitive electionsoccur
the extent to which individual and group freedomsare
guaranteed
the legitimacy ascribed to the general rule of law
the freedom of the press
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Spectrum AnalysisThe Political Spectrum
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Democracy
In a democracy 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 publicofficials
Prominent types of democracy include Representative Multiparty
Parliamentary
Social
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Totalitarianism
Atotalitarian system subordinates theindividual to the interests
of the collective
dissent is eliminated through indoctrination,persecution,
surveillance, propaganda, censorship,and violence
Prominent types of totalitarianism include
Authoritarianism Fascism Secular Theocratic
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The Standard of Freedom
Freedom House assesses political and civilfreedom around the
world
Freedom House recognizes three types ofpolitical systems
Free
Partly free Not free
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The Standard of FreedomMap of Political Freedom, 2010
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Democracy:
Recession and Retreat Democracys retreat
just 26 of the worlds democracies are full
democracies
Worlds Population
12 % lives in a full democracy 37 % lives in a flawed
democracy
14% lives in a hybrid regime
37% lives in an authoritarian regime
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Political Ideology and the MNE What will the political map look
like in the future?
The Washington Consensus Champions democracy, freedom, the rule
of law, and human rights
The Beijing Consensus One-party system oversee a nominal
democratic system whose
citizens, cannot participate in decision making The Clash of
Civilizations
Irreconcilable cultural and religious differences between Islam
andthe West will trigger a backlash
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Political Risk Political riskrefers to the risk that
political
decisions or events in a country negatively affect
the profitability or sustainability of aninvestment
Types:
Systemic Procedural
Distributive
Catastrophic
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Classifying Political RiskCharacteristics of Political Risk
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The Legal Environment
The legal system is the mechanism forcreating, interpreting, and
enforcing the laws in
a specified jurisdiction
Types:
Common law
Civil law Theocratic law
Customary law
Mixed systems
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The Legal EnvironmentThe Wide World of Legal Systems
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Trends in Legal Systems
What is the basis of rule in a country?
The rule of man
legal rights derive from the individual whocommands the power to
impose them
associated with a totalitarian system
The rule of law
systematic and objective laws applied by publicofficials who are
held accountable for theiradministration
associated with a democratic system
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Operational Concerns
Operational issues
Starting a business
Entering and enforcing contracts
Hiring and firing local workers
Closing down the business
In general rich countries regulate less
poor countries regulate more
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Intellectual Property:Rights and Protection Intellectual
propertyrefers to creative ideas,
expertise, or intangible insights that grant its
owner a competitive advantage
Intellectual property rights refer to the right
to control and derive the benefits from writing,inventions,
processes, and identifiers
no global patent, trademark or copyright exists
