Professional Documents
Culture Documents
Chapter Three
The Political and Legal
Environments Facing
Business
Chapter Objectives
• To discuss the different goals and functions of
political systems
• To profile trends in the emergence and diffusion
of political systems
• To identify the idea of political risk and
approaches to managing it
• To understand how different political and legal
systems affect the conduct of business
• To profile trends in the evolution and diffusion of
legal systems
• To examine the major legal issues facing
international business companies
• To profile the idea of intellectual property and the
bases of concern and controversy
3-2
Political System Defined
3-3
Fig. 3.1: Political and Legal
Influences on
International Business
3-4
Ways to Assess Political
Systems
• Individualistic
-people accept the primacy of individual freedoms
in the political, economic, and cultural realms
-people believe in minimal government intervention
• Collectivist
-people reason that the needs of society take
precedence over the needs of the individual
-people believe that it is the government’s role
to define the needs and priorities of the country
Collectivist paradigms may be either democratic (Japanese)
or authoritarian (Chinese) in nature.
3-5
Political Ideology Defined
3-6
Types of Political Ideologies:
The Two Extremes
• 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
3-7
Fig. 3.2: The Political
Spectrum
3-8
Features of Contemporary
Democratic Systems
• freedom of opinion, expression,
and the press
• freedom to organize
• free elections
• limited terms for elected officials
• an independent and fair court system
• a nonpolitical bureaucracy
and defense infrastructure
• citizen access to the decision-making
process
3-9
Fig. 3.3: Comparative
Measures
of Freedom
3-10
Map 3.2: Global Trends in
Freedom: Political Freedom
2004
3-11
Trends in Political Systems
• Totalitarian regimes continue to fail as citizens
challenge the right of the state to govern.
• Many who champion democracy truly believe
that greater political freedom also leads to
economic freedom and higher standards of
living.
Differentialism, i.e., the clash of civilizations,
refers to the arguments that apparently innate and
irreconcilable difference amongst cultures can
trigger a backlash against Western ideas regarding
political rights and civil liberties.
3-12
Political Risk Defined
3-13
Types of Political Risk
[ranging from the least to the most
destructive]
3-14
Leading Sources of Political
Risk
• Expropriation or nationalization
• International war or civil strife
• Unilateral breaches of contract
• Destructive governmental actions
• Harmful actions against people
• Restrictions on the repatriation of profits
• Differing points of view
• Discriminatory taxation policies
3-15
Legal System Defined
3-16
Types of Legal Systems
3-17
Map 3.3: Legal Systems
in the World Today
3-18
Fig. 3.4: The Diffusion of Civil
Law:
A Selective Profile
3-19
Legal Issues in International
Business
• Operational concerns
– ease of entry and exit
– hiring and firing employees
– contract enforcement
• Strategic concerns
– product safety and liability
– marketplace behavior
– product origin
– legal jurisdiction
– arbitration [continued]
3-20
• Intellectual property rights [IPRs]:
ownership rights to intangible assets
[copyrights, patents, trademarks, etc.]
3-21
Implications/Conclusions
3-22
• International business is affected by laws and regulations
enacted both by countries and by international
organizations.
• Laws may be at cross-purposes; some may diminish the
ability of firms to compete with foreign competitors.
3-23