2. The Political, Legal, and Technological Environment
The specific objectives of this chapter are:
EXAMINE some of the major changes that are currently taking place in the political environment of China, Europe, Russia, and Central and Eastern Europe.
PRESENT an overview of the legal and regulatory environment in which MNCs operate worldwide.
REVIEW key technological developments as well as their impact on MNCs now and in the future.

3. Political Environment
Change in government policies
MNCs must adjust their strategies and practices to accommodate the new perspectives and actual requirements
Less stable governments
Greater risk
Significant differences among political systems across countries and regions

4. Political Environment
China
Emerging economic power
Government’s desire to balance
National, immediate needs
Challenge of a free market economy and globalization
Government attempting to open up the economy
Speed up conversion of state enterprises into corporations
Expand capital markets by authorizing new stock listings
Sell off most of the 305,000 state enterprises (or let go bankrupt)
Worker retraining, low-cost housing and other programs
Reduce tariffs to 10 percent

5. Political Environment
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 interwoven region economically, but contains vast cultural differences

6. Political Environment
Russia
Neglect, corruption, and confusing changes in economic policy
Infrastructure is weak and a political quagmire
Legal
Financial
Trade sectors
Corruption interferes with attraction of more foreign investment

7. Key Elements of Russia’s WTO Accession Deal with the EU
Tariffs
Russia will not exceed an average’ tariff level of 7.6% for industrial goods, 11% for fishery products, and 13 % for agricultural goods.
Tariff rate quotas for fresh and frozen meat and poultry will be around 600 million ($720 million) per year.
Energy
Russian gas prices to domestic industrial users will gradually be increased.
Russia’s state gas corporation, Gazprom, will retain its export monopoly. Export duties on gas will be capped at 30%.
Airlines
Russia will revamp the charges currently applied to EU airlines flying over Siberia to make them cost-based and nondiscriminatory.
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8. Key Elements of Russia’s WTO Accession Deal with the EU
Banking
Russia will maintain a ban on foreign banks opening branches.
Under existing rules, foreign banks are allowed to open only wholly or partly owned subsidiaries.
Services
Russia has committed to cross-border provision and commercial establishment of certain services.
Sectors include telecoms, transport, financial services, postal, construction, distribution, environmental, news agency, and tourism.
Adapted from: Table 2-1: Key Elements of Russia’s WTO Accession Deal with the EU
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9. Political Environment
Central and Eastern Europe
Many of these countries have joined the EU
Movement from centrally planned to market economy plagued with problems in many countries
High unemployment
Economic slowdown
Large trade deficits
Some countries more successful in economic reforms
Estonia
Latvia
Lithuania

10. Political Environment
The Middle East
Doing business requires knowledge of
Regulations
Legal environment
Tax regimes
Accounting methods
Business structures
Import/export regulations
Manpower and labor regulations
Restrictions on foreign capital investment

11. Political Environment
The Middle East
Doing business in Middle Eastern countries is risky and potentially dangerous
War on terrorism
Afghanistan and Iraq wars
Israel—Arab conflicts
Rising tensions
Business requires knowledge of Islam
Religion and way of life
Framework of life and society
Islamic fundamentalists have become aggressive toward U.S. and its allies.

12. Legal and Regulatory Environment
Confusion and challenge of international business environment is heightened by
Differing laws and regulations in MNCs’ global business operations
Impact of these laws and regulations on ability to capitalize on economies of scale and scope
MNCs must carefully evaluate legal framework in each market in which they want to do business, before doing so

13. Four Global Foundations of Law
Derived from interpretation of the Qur’an and teachings of Prophet Muhammad
Found in Islamic countries
Middle East
Central Asia
Islamic Law

14. Four Global Foundations of Law
Comes from Marxist socialist system
Continues to influence regulations in former communist countries
Members of former Soviet Union
Peoples’ Republic of China
Vietnam
North Korea
Cuba
Requires most property to be owned by the state or state enterprises
Islamic Law
Socialist Law

15. Four Global Foundations of Law
Comes from English law
Foundation of legal system
United States
Canada
England
Australia
New Zealand
Islamic Law
Socialist Law
Common Law

16. Four Global Foundations of Law
Derived from Roman law
Found in non-Islamic and nonsocialist countries
France
Some Latin American countries
Louisiana in the U.S.
Islamic Law
Socialist Law
Common Law
Civil or Code Law

17. Basic Principles of International Law
Sovereignty and Sovereign Immunity
Sovereignty and Sovereign Immunity
An international principle of law which holds that governments have the right to rule themselves as they see fit

18. Basic Principles of International Law
International Jurisdiction
A jurisdictional principle of international law which holds that every country has jurisdiction over its citizens no matter where they are located
Nationality principle
Territoriality principle
Protective principle
Sovereignty and Sovereign Immunity
International Jurisdiction

19. Basic Principles of International Law
Sovereignty and Sovereign Immunity
Doctrine of Comity
A jurisdictional principle of international law which holds that there must be mutual respect for the laws, institutions, and government of other countries in the matter of jurisdiction over their own citizens
International Jurisdiction
Doctrine of Comity

20. Basic Principles of International Law
Sovereignty and Sovereign Immunity
Act of State Doctrine
A jurisdictional principle of international law which holds that all acts of other governments are considered to be valid by U.S. courts, even if such acts are illegal or inappropriate under U.S. law
International Jurisdiction
Act of State Doctrine
Doctrine of Comity

21. Basic Principles of International Law
Sovereignty and Sovereign Immunity
Treatment and Rights of Aliens
Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conduct
Nations also can deport aliens
Treatment and Rights of Aliens
International Jurisdiction
Act of State Doctrine
Doctrine of Comity

22. Basic Principles of International Law
Forum for Hearing and Settling Disputes
Sovereignty and Sovereign Immunity
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 restitution is located
Treatment and Rights of Aliens
International Jurisdiction
Act of State Doctrine
Doctrine of Comity

23. Legal and Regulatory Issues
Foreign Corrupt Practices Act
Illegal to influence foreign officials through
Personal payment
Political contributions
When bribes removed, MNCs more willing to do business in that country
Restrictive bureaucratization
Government controls often inefficient and uncorrected
Local politics often prevail over national concerns
Privatization

24. 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
Response may be
Retaliatory tariffs
Restrictive trade regulations

25. 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
E-business
Business-to-business (B2B)
Business to consumer (B2C) transactions
e-tailing & financial services
Financial services (e-cash)

26. Technological Environment
Internet Access allows people to obtain information from millions of sources
Satellites will make it possible for everyone to send and receive voice, data, and digitized images through hand-held telephones
Automatic translation telephones will allow people to communicate in their own language to anyone in the world who has access to a telephone

27. Technological Environment and Global Shifts in Production
Telecommunications
Wireless or mobile telephone service
Economic growth hampered by poor communication services
Wireless is more affordable than installed phone lines
Some governments recognize the need to privatize this service
Technology, outsourcing and offshoring
Technology has reduced and eliminated some work in middle management and white-collar jobs
Global competition has forces some MNCs to outsource jobs to offshore productions (lower labor and other costs)
Emerging technology makes work more portable

28. Technological Environment (cont.)
Telecommunications
Most obvious dimension of the technological environment facing international management
Economic growth perceived to hinge on efficient communications
Technologic leapfrogging
Moving from the absence of telephones to the availability of wireless communications
Privatization of telecommunications occurring in some countries to acquire capital and technical know-how
MNCs unwilling to invest in telecommunications without the prospect of good financial return
Case of China

29. The Employment Fallout from Technology
Technology will affect the nature
and number of employees
technology has the potential to largely displace employees in all industries
Emerging information technology also makes work more portable
Changing economic dynamics
Increasing productivity / decreasing costs
Lost jobs, lowering wages

30. Expected Winners in Selected Occupations
Computer software engineers, applications
100
Computer support specialists 97
Computer software engineers, systems software 90
Network and computer systems administrators 82
Personal and home care aids 62
Medical assistants 52
-80
-60
-40
-20 20 40 60 80
100
Percentage change for
Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for

31. Expected Winners in Selected Occupations
Losers
Expected Winners in Selected Occupations
Railroad brake, signal, and switch operators
-61
-35
Telephone operators
-28
Loan interviewers and clerks
-26
Meter readers, utilities
-25
Farmers and ranchers
-20
Order clerks
-20
Insurance claims and policy processing clerks
-80
-60
-40
-20 20 40 60 80
100
Percentage change for
Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for