Recording- Lecture 3 Political and Legal Environment

7/27/2019 Recording- Lecture 3 Political and Legal Environment

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BMA 734 International Business

Management

Lecture 3

The influence of political and legalenvironment on international

business


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Describe each main type of political system

Identify the origins of political risk and how managers

can reduce its effects

Describe each main type of legal system and the

important global legal issues

Explain ethics and social responsibility and key issues

facing international companies

Explain how international relations affect international

business activities

Chapter Objectives


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Background

Every country has its own political

and legal environmentCompanies must determine where,

when, and how to adjust their

business practices withoutundermining the basis for success


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Roles of History and Culture


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The Political Environment

Managers evaluate, monitor, and

forecast political environments

A countrys political system refers to the

structural dimensions and power

dynamics of its government that specifyinstitutions, organizations, and interest

groups, and define the norms that

govern political activities


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Political Systems

The system of government of nations

Two dimensions

Degree of collectivism versus individualism

Collectivism

Socialism

Individualism

Degree of democracy versus totalitarianism

Democracy

Totalitarianism


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Political Ideologies

Both private and public

groups need to balance

each others power

Every aspect of

peoples lives must be

controlled to preserve order

Only individuals and

private groups can

preserve personal liberties

Totalitarianism AnarchismPluralism


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Imposed

authority

Lack ofconstitutional

guarantees

Restricted

participation

Totalitarianism

Leaders govern without peoples support

Government controls much of peoples lives Leaders do not tolerate opposing viewpoints


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Forms of Totalitarianism

Theocratic totalitarianism(totalitarian religious leadership)

Secular totalitarianism(military and bureaucratic leadership)

Tribal totalitarianism

Communist totalitarianism

Right-wing totalitarianism


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Business in Totalitarian Nations

Risk Factors

Arbitrary nature ofbusiness can mean that

laws are vague or do not

exist

Bureaucrats mayinterpret laws however

they wish


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Democracy

Freedom of expression

Periodic elections

Full civil, property rights

Minority rights

Nonpolitical bureaucracies


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Types of Political Risk

Conflict and violence

Policy changes

Terrorism and kidnapping

Local content requirements

Property seizure


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Arises from:Peoples resentment

toward government

Territorial disputes

between nations

Ethnic, racial, orreligious disputes

Reduces ability to: Obtain materials

and equipment

Manufacture and

distribute products

Protect employees livesand firms assets

Conflict and Violence


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Fly nonstop when possible and avoid unsecuredareas of airports

During your stay, vary your routines and meansof transportation Keep a low profile and refrain from loud, flashy

behavior

Give friendly but cautious answers to personalquestions

Know local emergency procedures before troublestrikes

Security checklist for managers on businessabroad:

Terrorism and Kidnapping


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Property Seizure

ConfiscationForced transfer of assets from

a company to the government

without compensation

ExpropriationForced transfer of assets from

a company to the governmentwith compensation NationalizationForced asset transfer to the

government of an entire

industry


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Policies and Laws

Policy changes restrict: Local content

requirements:

Specify the portion

of a good or service

to be suppliedby local firms

Foreign ownership

Investment levels

Business activities


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Managing Political Risk I

AdaptationIncorporate risk into

business strategies

Localization

Development assistance

Partnerships

Insurance


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Managing Political Risk II

Agencies specializingin political-risk services

Current employees

with relevant informationInformation gathering

Gather data to better

predict and manage risk


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Managing Political Risk III

Corruption

Foreign Corrupt Practices Act

Lobbying

Influencing local lawmakersInfluence local politics

Present firms views

on political matters


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Legal Systems

Rules or laws that regulate behaviour andprocesses through which laws are enforced &grievances are redressed

Companies must observeHost country laws

Home country laws

International laws and treaties

Three main types of legal systems

Common law system

Civil law system

Theocratic law system


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Common Law

PrecedentPast cases before the courts

UsageHow laws are applied

TraditionNations legal history


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Civil Law

Rules and statutes

constitute a legal code

Defines all obligations,

responsibilities, and

privileges

Dates to Roman times in

the fifth century B.C.


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Theocratic Law

Legal tradition based on religious teachings

Islamic law Jewish law Hindu law


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Global Legal Issues I

Contract laws

Property rights

Ownership is established by use in common law system

Ownership is established through registration in civil law

system

Can be violated by either private or public actions

Intellectual property rights

Patents, copyrights, trademarks


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Global Legal Issues I-continue

Intellectual property- Result of intellectual talent and abilities

- Piracy/counterfeits a serious problem

PatentExcludes all but the inventor from making, using,

or selling the invention (WTO = 20 years)

TrademarkWords or symbols that distinguish a product and

its manufacturer ("Coca-Cola")

CopyrightFreedom of creator to publish or dispose of original

works as they choose ("Happy Birthday to You")


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Business Software Piracy

Source: Based on the Seventh Annual BSA and IDC Global Software Piracy Study(Washington, D.C.; Business Software Alliance, May 2010), Table 3, pp. 1415, (www.bsa.org/globalstudy).


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Rankings of Corruption byCountries (2008)

Source: Hill, C.W.L. 2013: 53.


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Global Legal Issues II

Standardization- Interpreting and applying laws uniformly

Product safety and liability

-Responsibility for damage, injury, or death

Taxation- Income, sales, consumption, and VAT

Antitrust (antimonopoly) laws

-Prevent market sharing, price fixing, and

unfair advantage


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Friedman View Cultural Relativism

UtilitarianismRighteous Moralism

Ethics and Social Responsibility

PHILOSOPHIES


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Fight to eliminate bribery and corruption

Improve labor conditions and guard human rights

Practice fair trade to help the disadvantaged

Protect the environment and conserve resources

Social Responsibility Issues

Go beyond legal obligations to balance

commitments to investors, customers,

communities, and other companies


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International Relations

Stable businessenvironments

Improved businesscommunications

Efficient distributionsystems

Expanded opportunities Diminished risk levels

Prompt and equitabledispute resolution

Favorable international

political relations foster:

Recording- Lecture 3 Political and Legal Environment

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