International Business Part Two Comparative Environmental Frameworks

International Business
Part Two
Comparative Environmental
Frameworks
Chapter Three
The Political and Legal
Environments Facing Business
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Chapter Objectives
• To discuss the goals and functions of a political system
• To profile trends in the emergence and diffusion of contemporary
political systems
• To explain the idea of political risk and describe approaches to
managing it
• To understand how political and legal systems affect the conduct of
business
• To describe trends in the evolution and diffusion of contemporary
legal systems
• To discuss the issue of the rule of law versus the rule of man
• To explain legal issues facing international companies
• To explain the idea of intellectual property and to discuss areas of
concern and controversy
3-2
Political and Legal Factors
Influencing International Business
Operations
3-3
Definition of a Political System
• The complete set of institutions, political
organizations, and interest groups,
• The relationships among institutions, and
the political norms and rules that govern
their functions
3-4
Individualism vs. Collectivism
• Individualism: primacy of the rights and
role of the individual
• Collectivism: primacy of the rights and role
of the community
3-5
Political Ideology
• The system of ideas that expresses the
goals, theories, and aims of a
sociopolitical program
• Most modern societies are pluralistic—
different groups champion competing
political ideologies
3-6
The Political Spectrum
3-7
Democracy
• Wide participation by citizens in the decision-
making process
• Five types:
 Parliamentary is where government is appointed by parliamentary
representatives as opposed to a 'presidential rule' wherein the President is both head of state
and the head of government and is elected by the voters.
 Liberal is a representative democracy in which the ability of the elected representatives

to exercise decision-making power is subject to the rule of law, and usually moderated by a
constitution that emphasizes the protection of the rights and freedoms of individuals, and which
places constraints on the leaders and on the extent to which the will of the majority can be
exercised against the rights of minorities
 Multiparty is a system in which three or more political parties have the capacity to
gain control of government separately or in coalition.
3-8
Fundamental Features of
Democratic Political Systems
Representative democracy is a form of government founded on the principle of
elected individuals representing the people, as opposed to either autocracy or direct
democracy.
Social A political theory advocating the use of democratic means to achieve a gradual
transition from capitalism to socialism.
3-9
Totalitarianism
• Restricts decision making to a few individuals
• Types:
 Authoritarianism (pure dictatorship)
 Fascism ( extreme right-wing totalitarian nationalist
movement in Italy)
 Secular totalitarianism (gov uses imposes order
through military power Cambodia, Haiti, Iraq) also
called communism
 Theocratic totalitarianism (religious leaders)
3-10
Trends in Political Systems
• Engines of democracy:
 Failure of totalitarian systems to deliver
economic progress
 Improved communication technology
 Belief that democracy leads to improved
standards of living
3-11
Definition of Political Risk
• The risk that political decisions or events
in a country negatively affect the
profitability or sustainability of an
investment
• Types:
 Procedural
 Distributive
 Catastrophic
3-12
Definition of a Legal System
• The mechanism for creating, interpreting,
and enforcing the laws in a specified
jurisdiction
• Types:
 Common law (Common law uses past court decisions as precedents. It is used in the US
and 26 other countries of English origin or influence)
 Civil law (Civil law represents a comprehensive set of laws organized into code. It is used in about
70 countries, including Japan and many in Europe)
 Theocratic law (Islamic law is based on religious beliefs and combines common, civil, and
indigenous laws to varying degrees)
 Customary law (Traditional Law)

 Mixed systems
3-13
The Diffusion of Civil Law
3-14
Trends in Legal Systems
• The preference for stability
• The influence of national legacies
3-15
Bases of Rules
• Rule of Man
• Rule of Law
3-16
Operational concerns that face
managers worldwide
• Starting a business
• Entering and enforcing contracts
• Hiring and firing local workers
• Closing down the business
3-17
Strategic concerns that face
managers worldwide
• Product safety and liability
• Marketplace behavior
• Product origin
• Legal jurisdiction
• Arbitration
3-18
Intellectual property
• Intangible property rights that are a result

of intellectual effort
• Intellectual property rights refer to the right
to control and derive the benefits from
writing, inventions, processes and
identifiers
• Local attitudes play a large role in piracy
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3-19

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International Business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

 Liberal is a representative democracy in which the ability of the elected representatives

 Customary law (Traditional Law)

• Intangible property rights that are a result

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