International

Business
Environments & Operations
14e
Daniels

Radebaugh

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

Sullivan

3-1

Chapter 3
The Political and
Legal Environments
Facing Business
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-2

Learning Objectives

To discuss the philosophy and practices of the

political environment
To profile trends in contemporary political
systems
To explain the idea of political risk and
approaches to managing it
To discuss the philosophy and practices of the
legal system
To describe trends in contemporary legal systems
To explain legal issues facing international
companies
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-3

Introduction
Learning Objective 1:
To discuss the philosophy and practices of
the political environment

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-4

Introduction
Every country has its own political and
legal environment
Companies must determine where, when,
and how to adjust their business practices
without undermining the basis for success

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-5

Introduction
Political and Legal Factors Influencing International Business Operations

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-6

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 specify institutions,
organizations, and interest groups, and
define the norms that govern political
activities

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-7

Individualism vs. Collectivism

Individualism
primacy of the rights and role of the
individual
Collectivism
primacy of the rights and role of the
community

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-8

Political Ideology
A political ideology stipulates how
society ought to function and outlines the
methods by which it will do so
Most modern societies are pluralistic

different groups champion competing political

ideologies
Democrats vs. Republicans in the United
States
Democratic Party vs. Liberal Party in Japan

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-9

Spectrum Analysis
A political spectrum outlines the various
forms of political ideology
Political freedom measures

the degree to which fair and competitive

elections occur
the extent to which individual and group
freedoms are guaranteed
the legitimacy ascribed to the general rule of
law
the freedom of the press
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-10

Spectrum Analysis
The Political Spectrum

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-11

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
public officials

Prominent types of democracy include

Representative
Multiparty
Parliamentary
Social
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-12

Totalitarianism

A totalitarian system subordinates the

individual 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
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-13

The Standard of Freedom

Freedom House assesses political and civil
freedom around the world
Freedom House recognizes three types of
political systems

Free
Partly free
Not free

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-14

The Standard of Freedom

Map of Political Freedom, 2010

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-15

Trends in Political Ideologies

Learning Objective 2:
To profile trends in contemporary political
systems

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-16

Third Wave of Democratization

Third Wave of Democratization

number of democracies doubled in two

decades

Engines of Democracy
1.
2.
3.

The failure of totalitarian regimes to deliver

economic progress
Improved communications technology
Economic dividends of increasing political
freedom

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-17

Democracy:
Recession and Retreat

Democracys retreat

just 26 of the worlds democracies are full

democracies

Engines of totalitarianism

Economic development
Inconsistencies
Economics problems
Standards of democracy

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-18

Democracy:
Recession and Retreat
Freedom in the World: Number of Electoral Democracies

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-19

Democracy:
Recession and Retreat
Freedom in the World: Gains and Declines

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-20

Political Ideology and the MNE

What will the political map look like in the

future?

The Washington Consensus

The Beijing Consensus
The Clash of Civilizations

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-21

Political Risk
Learning Objective 3:
To explain the idea of political risk and
approaches to managing it

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-22

Political Risk
Political risk refers to the risk that
political decisions or events in a country
negatively affect the profitability or
sustainability of an investment
Types:

Systemic
Procedural
Distributive
Catastrophic
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-23

Classifying Political Risk

Characteristics of Political Risk

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-24

The Legal Environment

Learning Objective 4:
To discuss the philosophy and practices of
the legal system

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-25

The Legal Environment

The legal system is the mechanism for
creating, interpreting, and enforcing the
laws in a specified jurisdiction
Types:

Common law
Civil law
Theocratic law
Customary law
Mixed systems
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-26

The Legal Environment

The Wide World of Legal Systems

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-27

Trends in Legal Systems

Learning Objective 5:
To describe trends in contemporary legal
systems

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-28

Trends in Legal Systems

What is the basis of rule in a country?

The rule of man

legal rights derive from the individual who
commands the power to impose them
associated with a totalitarian system
The rule of law
systematic and objective laws applied by
public officials who are held accountable for
their administration
associated with a democratic system
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-29

Trends in Legal Systems

The Worldwide Distribution of the Rule of Law

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-30

Legal Issues in IB
Learning Objective 6:
To explain legal issues facing international
companies

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-31

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

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-32

Strategic Concerns
Strategic issues
Country of origin and local content
Marketplace behavior
Product safety and liability
Legal jurisdiction
Intellectual property

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-33

Intellectual Property:
Rights and Protection
Intellectual property refers 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
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-34

Intellectual Property:
Rights and Protection

Attitudes towards intellectual property

Legal legacies
rule of man versus rule of law
Wealth, poverty, and protection
levels of economic development
Cultural orientation
individualism versus collectivism

Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall

3-35

All rights reserved. No part of this publication may be reproduced, stored in

a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United States of America.
Copyright 2013 Pearson Education, Inc.
publishing as Prentice Hall

3-36