Chapter 3 - 1International Business 4e© Prentice Hall, 2008
Chapter 3Chapter 3Politics, Law, andPolitics, Law, andBusiness EthicsBusiness Ethics
© Prentice Hall, 2008 International Business 4e Chapter 3 - 2
• Describe the three types of political systems
• Discuss each cause of political risk and how firms can manage them
• Identify how the three legal systems are unique
• Identify global legal issues facing companies
• Discuss the roles of ethical behavior and social responsibility in international business
Chapter PreviewChapter Preview
© Prentice Hall, 2008 International Business 4e Chapter 3 - 3
Political IdeologiesPolitical Ideologies
Both private and public Both private and public groups need to balancegroups need to balance
each other’s powereach other’s power
Every aspect ofpeople’s lives must be
controlled to preserve order
Only individuals andOnly individuals andprivate groups canprivate groups can
preserve personal libertiespreserve personal liberties
TotalitarianismTotalitarianism AnarchismAnarchismPluralismPluralism
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DemocracyDemocracy
Government leaders are elected by the wide participation of the people or their representatives
Freedom of expression
Periodic elections
Full civil and property rights
Minority rights
Nonpolitical bureaucracies
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ImposedImposedauthorityauthorityImposedImposedauthorityauthority
Lack of Lack of constitutionalconstitutional
guaranteesguarantees
Lack of Lack of constitutionalconstitutional
guaranteesguarantees
RestrictedRestrictedparticipationparticipationRestrictedRestricted
participationparticipation
TotalitarianismTotalitarianism
Leaders govern without people’s supportLeaders govern without people’s support Government controls much of people’s livesGovernment controls much of people’s lives Leaders do not tolerate opposing viewpointsLeaders do not tolerate opposing viewpoints
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Forms of TotalitarianismForms of Totalitarianism
Theocratic totalitarianism (totalitarian religious leadership)
Secular totalitarianism (military and bureaucratic leadership)
Tribal totalitarianismTribal totalitarianism
Communist totalitarianismCommunist totalitarianism
Right-wing totalitarianismRight-wing totalitarianism
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Causes of Political RiskCauses of Political RiskCauses of Political RiskCauses of Political Risk
Conflict and violenceConflict and violenceConflict and violenceConflict and violence
Policy changesPolicy changesPolicy changesPolicy changes
Terrorism and kidnappingTerrorism and kidnappingTerrorism and kidnappingTerrorism and kidnapping
Local content requirementsLocal content requirementsLocal content requirementsLocal content requirements
Property seizureProperty seizureProperty seizureProperty seizure
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Arises from:Arises from:
People’s resentment toward government
Territorial disputes between nations
Ethnic, racial, or religious disputes
Reduces ability to:Reduces ability to:
Obtain materials and equipment
Manufacture and distribute products
Protect employees’ lives and firm’s assets
Conflict and ViolenceConflict and Violence
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Fly nonstop when possible and avoid unsecured areas of airports
During your stay, vary your routines and means of transportation
Keep a low profile and refrain from loud, flashy behavior
Give friendly but cautious answers to personal questions
Know local emergency procedures before trouble strikes
Security checklist for managers on business abroad:
Terrorism and KidnappingTerrorism and Kidnapping
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Property SeizureProperty Seizure
ConfiscationForced transfer of assets from a company to the government
without compensation
ExpropriationForced transfer of assets from a company to the government
with compensationNationalization
Forced asset transfer to the government of an entire
industry
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Policies and LawsPolicies and Laws
Foreign ownership
Investment levels
Business activities
Foreign ownership
Investment levels
Business activities
Policy changes restrict: Local content requirements:
Specify the portionof a good or service
to be supplied by local firms
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Managing Political RiskManaging Political Risk
AdaptationAdaptationIncorporate risk intoIncorporate risk intobusiness strategiesbusiness strategies
AdaptationAdaptationIncorporate risk intoIncorporate risk intobusiness strategiesbusiness strategies
LocalizationLocalization
Development assistanceDevelopment assistance
Local equity / debtLocal equity / debt
InsuranceInsurance
PartnershipsPartnerships
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Managing Political RiskManaging Political Risk
Agencies specializingAgencies specializingin political-risk servicesin political-risk services
Current employeesCurrent employeeswith relevant informationwith relevant information
Information gatheringInformation gatheringGather data to betterGather data to better
predict and manage riskpredict and manage risk
Information gatheringInformation gatheringGather data to betterGather data to better
predict and manage riskpredict and manage risk
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Managing Political RiskManaging Political Risk
CorruptionCorruptionForeign Corrupt Practices Act
LobbyingLobbyingInfluencing local lawmakers
Influence local politicsInfluence local politicsPresent firm’s viewsPresent firm’s viewson political matterson political matters
Influence local politicsInfluence local politicsPresent firm’s viewsPresent firm’s viewson political matterson political matters
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World’s Legal SystemsWorld’s Legal Systems
Common LawTradition, precedent, and usage
Civil LawCodified rules and statutes
Theocratic LawReligious teachings form law
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Global Legal Issues IGlobal Legal Issues I
Intellectual property- Result of intellectual talent and abilities
- Piracy/counterfeits a serious problem
Patent Excludes all but the inventor from making, using, or selling the invention (WTO = 20 years)
Trademark Words or symbols that distinguish a product and its manufacturer ("Coca-Cola")
Copyright Freedom of creator to publish or dispose of original works as they choose ("Happy Birthday to You")
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Global Legal Issues IIGlobal Legal Issues II
Standardization- Interpreting and applying laws uniformly
Product safety and liability- Responsibility for damage, injury, or death
Antitrust (antimonopoly) laws- Prevent market sharing, price fixing, and
unfair advantage Taxation
- Income, sales, consumption and VAT
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Personal behavior in accordance with rules or standards for right conduct or morality
Ethical BehaviorEthical Behavior
Ethical relativismEthical relativismWhen in Rome,
do as the Romans
Ethical relativismEthical relativismWhen in Rome,
do as the Romans
Ethical absolutismEthical absolutismImport ethics
from home
Ethical absolutismEthical absolutismImport ethics
from home
Enron
Tyco
Worldcom
Parmalat (Italy)
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Respect consumers’ rights
Guard workers’ rights
Protect the environment
Preserve employment
Encourage development
Improve health
Support education
Social ResponsibilitySocial Responsibility
Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies
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International RelationsInternational Relations
Stable business environments
Improved business communications
Efficient distribution systems
Prompt and equitable dispute resolution
Expanded opportunities
Diminished risk levels
Favorable international political relations foster:
© Prentice Hall, 2008 International Business 4e Chapter 3 - 21
• Describe the three types of political systems
• Discuss each cause of political risk and how firms can manage them
• Identify how the three legal systems are unique
• Identify global legal issues facing companies
• Discuss the roles of ethical behavior and social responsibility in international business
Chapter ReviewChapter Review