International Management

International Ninth Edition Luthans | Doh

Fred Luthans

Management Jonathan P. Doh

Ninth Edition

Chapter 2

The Political, Legal, and Technological

Environment
International Management Ninth Edition Luthans | Doh

The Political, Legal, and

Technological Environment
• The specific objectives of this chapter are to
1. INTRODUCE the basic political systems that
characterize regions and countries around the
world and offer brief examples of each and their
implications for international management.
2. PRESENT an overview of the legal and regulatory
environment in which MNCs operate worldwide;
highlight differences.
3. REVIEW key technological developments as well
as their impact on MNCs now and in the future.
International Management Ninth Edition Luthans | Doh

Political Environment
• Ideologies underlie the actions of governments
– Ideas reflecting beliefs and values influencing the behavior
and culture of nations and political systems
• Political systems can be evaluated along two
dimensions
1. Rights of citizens based on a system of government
(range from democratic to totalitarian)
2. Focus of political system on individualism vs. collectivism.
• Democratic nations tend to emphasize individualism,
and totalitarian nations tend to emphasize collectivism
– No pure form of government
International Management Ninth Edition Luthans | Doh

Ideologies
Individualism
• Individualism
– People should be free to pursue economic and
political activities without restriction.
• David Hume, Adam Smith, Aristotle
• In business context, similar to capitalism and
connected to free market society
– Private property more successful, productive, and
progressive than communal property
– Betterment of society related to level of freedom
individuals have in pursuing economic goals
International Management Ninth Edition Luthans | Doh

Ideologies
Collectivism
• Collectivism
– Views the needs or goals of society as a whole as
more important than individual desires
• Plato
• Does not value individual as such
• No rigid form of collectivism as societal goals
differ greatly among cultures
– Fascism: nationalism, authoritarianism, militarism,
corporatism, collectivism, totalitarianism
International Management Ninth Edition Luthans | Doh

Ideologies
Socialism
• Socialism
– A moderate form of collectivism in which there is
government ownership of institutions, and profit is
not the ultimate goal
• Karl Marx, Friedrich Engels, Vladimir Ilyich Lenin
• Has been practiced in China, North Korea, Cuba
• Democratic socialism is the more moderate form
– Practiced by Great Britain’s Labour Party, and in
France, Spain, and Greece
• Communism is an extreme form of socialism.
International Management Ninth Edition Luthans | Doh

Political Systems
Democracy

• Democracy
– System in which government is controlled by
citizens either directly or through elections.
• Democratic society cannot exist without at
least a two-party system
– Once elected, representative is held accountable
to electorate for actions (which limits power of
government)
International Management Ninth Edition Luthans | Doh

Political Systems
Democracy
( 1) an individual's right to freedom of expression, opinion, and organization
(2) a free media
(3) regular elections in which all eligible citizens are allowed to vote
( 4) universal adult suffrage
(5) limited terms for elected representatives
(6) a fair court system that is independent from the political system
(7) a nonpolitical state bureaucracy
(8) a nonpolitical police force and armed service
(9) relatively free access to state information
International Management Ninth Edition Luthans | Doh

Political System
Totalitarianism

• Totalitarianism
– Only one representative party which exhibits
control over every side of political and human life
• Power maintained by dominance of
opposition
– Dominant ideals include media censorship,
political repression, rejection of rights and civil
liberties
International Management Ninth Edition Luthans | Doh

Political Environment
Regional Example: China
• Emerging economic power
• Government attempting to open up economy
– Speed up conversion of state enterprises into
corporations
– Trade liberalization a top priority since joining WTO in
2001
– Becoming a more open, democratic society
– Shift toward greater tolerance of individual freedoms
– Seeking to release a more dynamic market economy
International Management Ninth Edition Luthans | Doh

Political Environment:
Regional Example: Europe
• Privatization and economic liberalization
reinforce EU-wide political and economic
integration
– Political power is variable and complex
– Strong opposition to U.S.-led intervention in Iraq
sometimes spill over into business relationships
and dealings
• Europe is a large linked region economically,
but contains vast cultural differences
International Management Ninth Edition Luthans | Doh

Political Environment:
Example: The Middle East
• In Iran and Saudi Arabia laws and government
based on Islamic principles
• Business conduct in Middle East similar to
Western in many ways
– Seeking modern technology and have ability to pay for
quality services
– Worldwide effect from war on terrorism have made
business environment risky and potentially dangerous
– Arab Spring effect: uncertain business environment
International Management Ninth Edition Luthans | Doh

Legal and Regulatory Environment

• Confusion and challenge for the MNC due to
many different laws and regulations in global
business operations
• Dissimilar legal frameworks can prevent MNCs
from capitalizing on manufacturing economies
• MNCs must carefully evaluate legal framework
in each market before doing business
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

1. Islamic law
2. Socialist law
3. Common law
4. Civil or code law
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Islamic Law

• Islamic law
– Derived from interpretation of Qur’an and
teachings of Prophet Muhammad
– Found in Islamic countries: Middle East and
Central Asia
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Socialist Law

• Socialist law
– Origins in Marxist socialist system
– Continues to influence regulations in former
communist countries
• Members of former Soviet Union
• Peoples’ Republic of China
• Vietnam
• North Korea
• Cuba
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Common Law

• Common law
– Origins in English law
– Foundation of legal system for
• United States
• Canada
• England
• Australia
• New Zealand
• Several other nations
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Civil or Code Law

• Civil or code law

– Derived from Roman law
– Found in non-Islamic and non-socialist countries
• France
• Some Latin American countries
International Management Ninth Edition Luthans | Doh

International Law
• Sources
– Laws of individual countries
– Treaties
• Universal
• Multilateral
• Bilateral
– Conventions
• Multilateral
• Bilateral
• Contains unwritten understandings
International Management Ninth Edition Luthans | Doh

Basic Principles
of International Law
• Sovereignty and Sovereign Immunity
• International Jurisdiction
• Doctrine of Comity
• Act of State Doctrine
• Treatment and Rights of Aliens
• Forum for Hearing and Settling Disputes
International Management Ninth Edition Luthans | Doh

Principles of International Law

Sovereignty and Sovereign Immunity

• Principle of sovereignty
– An international principle of law which holds that
governments have the right to rule themselves as
they see fit.
– One country’s court system cannot be used to
rectify injustices or impose penalties in another
country unless that country agrees.
International Management Ninth Edition Luthans | Doh

Principles of International Law

International Jurisdiction
• Nationality principle
– Every country has jurisdiction over its citizens no
matter where they are located.
• Territoriality principle
– Every nation has the right of jurisdiction within its
legal territory.
• Protective principle
– Every country has jurisdiction over the behavior that
adversely affects its national security, even if that
conduct occurred outside the country.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Doctrine of Comity

• Doctrine of comity
– A jurisdictional principle of international law that
holds that there must be mutual respect for the
laws, institutions, and governments of other
countries in the matter of jurisdiction over their
own citizens.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Act of State Doctrine

• Act of state doctrine

– A jurisdictional principle of international law that
holds that all acts of other governments are
considered to be valid by U.S. courts, even if such
acts are inappropriate under U.S. law.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Treatment and Rights of Aliens

• Treatment and rights of aliens

– Countries have the legal right to refuse admission
of foreign citizens and to impose special
restrictions on their conduct, their right of travel,
where they can stay, and what business they may
conduct.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Forum for Hearing and Settling Disputes

• Forum for hearing and settling disputes

– U.S. courts can dismiss cases brought before them
by foreigners; however, they are bound to
examine issues such as
• where the plaintiffs are located
• where the evidence must be gathered
• where property to be used in compensation is located
International Management Ninth Edition Luthans | Doh

Legal and Regulatory Issues

• Financial and services regulation
• Foreign Corrupt Practices Act (FCPA)
– Bribes are the focus of investigations by
• U.S. Internal Revenue Service (IRS)
• Securities and Exchange Commission (SEC)
• Justice Department
– Illegal to influence foreign officials through
• Personal payment
• Political contribution Bureaucratization
• Bureaucratization
• Privatization
International Management Ninth Edition Luthans | Doh

Regulation of Trade and Investment

• Individual countries use legal and regulatory
policies to affect the international management
environment.
• Country is perceived to engage in unfair trade
practices (WTO and similar agreements)
– Government support (subsidies)
– Require MNCs to accept local partners
– Require MNCs produce a specific amount of products
in their country
– Sell local products at below cost or home market price
International Management Ninth Edition Luthans | Doh

Technological Environment and Global

Shifts in Production
• Biotechnology
• Nanotechnology
• Satellites
• Automatic translation telephones
• Artificial intelligence and embedded learning
technology
• Advancements in computer chip technology
• Supercomputers
International Management Ninth Edition Luthans | Doh

Technological Environment and Global

Shifts in Production
• Biotechnology
– Agricultural and medical products through industrial
use and manipulation of living organisms
– Pharmaceutical competition
– Alternative fuels (biofuels)
• E-business
– Business to business (B2B)
– Business to consumer (B2C)
– E-retailing
– Financial services (e-cash)
International Management Ninth Edition Luthans | Doh

Technological Environment and Global

Shifts in Production
• Telecommunications
– Wireless
– Merging of telephone and computer
• Technology, outsourcing and offshoring
– Technology has reduced and eliminated middle
management and white collar jobs
– Global competition has forced some MNCs to
outsource jobs to offshore productions
– Emerging technology makes work more portable
– Job loss from technology can be especially devastating
in developing countries.