3 The Political, Legal, and Technological Environment Chapter 2The Political, Legal, and Technological Environment
4 The Political, Legal, and Technological Environment The specific objectives of this chapter are toINTRODUCE the basic political systems that characterize regions and countries around the world and offer brief examples of each and their implications for international management.PRESENT an overview of the legal and regulatory environment in which MNCs operate worldwide; highlight differences.REVIEW key technological developments as well as their impact on MNCs now and in the future.
5 Ideologies Individualism People should be free to pursue economic and political endeavors without constraint.David Hume, Adam Smith, AristotleIn business context, similar to capitalism and connected to free market societyPrivate property more successful, productive, and progressive than communal propertyBetterment of society related to level of freedom individuals have in pursuing economic goals
6 Ideologies Collectivism Views the needs or goals of society as a whole as more important than individual desiresPlatoDoes not value individual as suchNo rigid form of collectivism as societal goals differ greatly among culturesFascism: nationalism, authoritarianism, militarism, corporatism, collectivism, totalitarianism
7 Ideologies Socialism Socialism A moderate form of collectivism in which there is government ownership of institutions, and profit is not the ultimate goalKarl Marx, Friedrich Engels, Vladimir Ilyich LeninHas been practiced in China, North Korea, CubaDemocratic socialism is the more moderate formPracticed by Great Britain’s Labour Party, and in France, Spain, and GreeceCommunism is an extreme form of socialism.
8 Political Environment Ideologies underlie the actions of governmentsIdeas reflecting beliefs and values influencing the behavior and culture of nations and political systemsPolitical systems can be evaluated along two dimensionsRights of citizens based on a system of government (range from democratic to totalitarian)Focus of political system on individualism vs. collectivism.Democratic nations tend to emphasize individualism, and totalitarian nations tend to emphasize collectivismNo pure form of government
9 Political Systems Democracy System in which government is controlled by citizens either directly or through elections.European rootsDemocratic society cannot exist without at least a two-party systemOnce elected, representative is held accountable to electorate for actions (which limits power of government)
10 Political System Totalitarianism Only one representative party which exhibits control over every facet of political and human lifePower maintained by suppression of oppositionDominant ideals include media censorship, political repression, denial of rights and civil liberties
11 Political Environment Regional Example: China Emerging economic powerGovernment attempting to open up economySpeed up conversion of state enterprises into corporationsTrade liberalization a top priority since joining WTO in 2001Becoming a more open, democratic societyShift toward greater tolerance of individual freedomsSeeking to unleash a more dynamic market economy
12 Political Environment: Regional Example: Europe Privatization and economic liberalization reinforce EU-wide political and economic integrationPolitical power is variable and complexStrong opposition to U.S.-led intervention in Iraq sometimes spill over into business relationships and dealingsEurope is a large interwoven region economically, but contains vast cultural differences
13 Political Environment: Example: The Middle East In Iran and Saudi Arabia laws and government based on Islamic principlesBusiness conduct in Middle East similar to Western in many waysSeeking modern technology and have ability to pay for quality servicesWorldwide fallout from war on terrorism have made business environment risky and potentially dangerousArab Spring fallout: uncertain business environment
14 Legal and Regulatory Environment Confusion and challenge for the MNC due to many different laws and regulations in global business operationsDisparate legal frameworks can prevent MNCs from capitalizing on manufacturing economiesMNCs must carefully evaluate legal framework in each market before doing business
15 Global Foundations of Law Islamic lawSocialist lawCommon lawCivil or code law
16 Global Foundations of Law Islamic Law Derived from interpretation of Qur’an and teachings of Prophet MuhammadFound in Islamic countries: Middle East and Central Asia
17 Global Foundations of Law Socialist Law Origins in Marxist socialist systemContinues to influence regulations in former communist countriesMembers of former Soviet UnionPeoples’ Republic of ChinaVietnamNorth KoreaCuba
18 Global Foundations of Law Common Law Origins in English lawFoundation of legal system forUnited StatesCanadaEnglandAustraliaNew ZealandSeveral other nations
19 Global Foundations of Law Civil or Code Law Derived from Roman lawFound in non-Islamic and non-socialist countriesFranceSome Latin American countriesLouisiana in U.S.
20 International Law Sources Contains unwritten understandings Laws of individual countriesTreatiesUniversalMultilateralBilateralConventionsContains unwritten understandings
21 Basic Principles of International Law Sovereignty and Sovereign ImmunityInternational JurisdictionDoctrine of ComityAct of State DoctrineTreatment and Rights of AliensForum for Hearing and Settling Disputes
22 Principles of International Law Sovereignty and Sovereign Immunity Principle of sovereigntyAn 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.
23 Principles of International Law International Jurisdiction Nationality principleEvery country has jurisdiction over its citizens no matter where they are located.Territoriality principleEvery nation has the right of jurisdiction within its legal territory.Protective principleEvery country has jurisdiction over the behavior that adversely affects its national security, even if that conduct occurred outside the country.
24 Principles of International Law 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.
25 Principles of International Law 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.
26 Principles of International Law 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.Nations can also deport aliens; this may result in worker shortages.
27 Principles of International Law 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 aswhere the plaintiffs are locatedwhere the evidence must be gatheredwhere property to be used in restitution is located
28 Legal and Regulatory Issues Financial and services regulationForeign Corrupt Practices Act (FCPA)Bribes are the focus of investigations byU.S. Internal Revenue Service (IRS)Securities and Exchange Commission (SEC)Justice DepartmentIllegal to influence foreign officials throughPersonal paymentPolitical contribution BureaucratizationBureaucratizationPrivatization
29 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 partnersRequire MNCs produce a specific amount of produce in their countrySell local products at below cost or home market price
30 Technological Environment and Global Shifts in Production BiotechnologyNanotechnologySatellitesAutomatic translation telephonesArtificial intelligence and embedded learning technologyAdvancements in computer chip technologySupercomputers
31 Technological Environment and Global Shifts in Production BiotechnologyAgricultural and medical products through industrial use and manipulation of living organismsPharmaceutical competitionAlternative fuels (biofuels)E-businessBusiness to business (B2B)Business to consumer (B2C)E-retailingFinancial services (e-cash)
32 Technological Environment and Global Shifts in Production TelecommunicationsWirelessMerging of telephone and computerTechnology, outsourcing and offshoringTechnology has reduced and eliminated middle management and white collar jobsGlobal competition has forced some MNCs to outsource jobs to offshore productionsEmerging technology makes work more portableJob loss from technology can be especially devastating in developing countries.
33 Winners and Losers in Selected Occupations Percentage Change Forecasts for 2010–2020 continues
34 Winners and Losers in Selected Occupations Percentage Change Forecasts for 2010–2020
35 Review and DiscussIn what ways do different ideologies and political systems influence the environment in which MNC’s operate? Would these challenges be less for those operating in the EU than for those in Russia or China? Why or why not?How do the following legal principles impact MNC operations: the principle of sovereignty, the nationality principle, the territoriality principle, the protective principle, and principle of comity?
36 Review and DiscussHow will advances in technology and telecommunications affect developing countries? Give some specific examples.Why are developing countries interested in privatizing their state-owned industries? What opportunities does privatization have for MNCs?