Daniels ib15inppt 03

Copyright © 2015 Pearson Education, Inc. 3-1

International Business

Environments & Operations

15e

Daniels ● Radebaugh ● Sullivan


Chapter 3The Political and

Legal Environments Facing Business


Learning Objectives Discuss the philosophy and practices of the

political environment Profile trends in contemporary political systems Describe current trends in political ideologies and

their implications to MNE’s choices Explain political risk management Compare the relative benefits and drawbacks of

proactive versus passive political risk management

Discuss the principles and practices of the legal system

Learning Objectives Profile trends in contemporary legal

systems Identify and describe key legal issues

facing international companies



IntroductionLearning Objective: Discuss the philosophy and practices of the political environment


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


IntroductionPolitical and Legal Factors Influencing International Business Operations


The Political Environment

Managers evaluate, monitor, and forecast political environments

A country’s 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


Individualism vs. Collectivism

Individualism primacy of the rights and role of the

individual Collectivism

primacy of the rights and role of the community


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


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 expression


Spectrum AnalysisThe Political Spectrum


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


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


The Standard of Freedom Freedom House, and independent

watchdog organization, assesses political and civil freedom around the world

Freedom House recognizes three types of political systems Free Partly free Not free


The Standard of FreedomMap of Political Freedom, 2013


Trends in Political Ideologies

Learning Objective: Profile trends in contemporary political systems


Third Wave of Democratization

Third Wave of Democratization number of democracies doubled in two

decades Engines of Democracy

1. The failure of totalitarian regimes to deliver economic progress

2. Improved communications technology3. Economic dividends of increasing political

freedom


Democracy: Recession and Retreat

Democracy’s retreat just 26 of the world’s democracies are full

democracies Engines of Authoritarianism

Political economy of growth Rhetoric vs. Reality - Inconsistencies Economic problems Who defines Democracy?


Democracy: Recession and Retreat

Freedom in the World: Gains and Declines


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


Political RiskLearning Objective: Explain political risk management


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


Classifying Political Risk Characteristics of Political Risk


The Legal EnvironmentLearning Objective: Discuss the principles and practices of the legal system


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


The Legal EnvironmentThe Wide World of Legal Systems


Trends in Legal SystemsLearning Objective:Profile trends in contemporary legal systems


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


Trends in Legal SystemsThe Worldwide Practice of the Rule of Law


Legal Issues in IBLearning Objective: Identify and describe key legal issues facing international companies


Operational Concerns Operational issues

Starting a business Making and enforcing contracts Hiring and firing local workers Closing down the business

In general rich countries regulate less poor countries regulate more


Strategic Concerns

Country Characteristics

Product safety and liability

Legal jurisdiction

Intellectual property


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


Intellectual Property: Rights and Protection

Attitudes towards intellectual property Historical legacies

rule of man versus rule of law Economic circumstances

levels of economic development Cultural orientation

individualism versus collectivism


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