Chapter 3 Politics, Law, and Business Ethics

International Business 4e Chapter Preview Describe the three types of political systems Discuss each cause of political risk and how firms can manage them Identify how the three legal systems are unique Identify global legal issues facing companies Discuss the roles of ethical behavior and social responsibility in international business © Prentice Hall, 2008 International Business 4e

Political Ideologies Totalitarianism Anarchism Pluralism Both private and public groups need to balance each other’s power Every aspect of people’s lives must be controlled to preserve order Only individuals and private groups can preserve personal liberties Totalitarianism Anarchism Pluralism © Prentice Hall, 2008 International Business 4e

International Business 4e Democracy Government leaders are elected by the wide participation of the people or their representatives Freedom of expression Periodic elections Full civil and property rights Minority rights Nonpolitical bureaucracies © Prentice Hall, 2008 International Business 4e

International Business 4e Totalitarianism Leaders govern without people’s support Government controls much of people’s lives Leaders do not tolerate opposing viewpoints Imposed authority Lack of constitutional guarantees Restricted participation © Prentice Hall, 2008 International Business 4e

Forms of Totalitarianism Theocratic totalitarianism (totalitarian religious leadership) Secular totalitarianism (military and bureaucratic leadership) Tribal totalitarianism Communist totalitarianism Right-wing totalitarianism © Prentice Hall, 2008 International Business 4e

Causes of Political Risk Conflict and violence Terrorism and kidnapping Property seizure Policy changes Local content requirements © Prentice Hall, 2008 International Business 4e

International Business 4e Conflict and Violence Arises from: Reduces ability to: People’s resentment toward government Territorial disputes between nations Ethnic, racial, or religious disputes Obtain materials and equipment Manufacture and distribute products Protect employees’ lives and firm’s assets © Prentice Hall, 2008 International Business 4e

Terrorism and Kidnapping Security checklist for managers on business abroad: Fly nonstop when possible and avoid unsecured areas of airports During your stay, vary your routines and means of transportation Keep a low profile and refrain from loud, flashy behavior Give friendly but cautious answers to personal questions Know local emergency procedures before trouble strikes © Prentice Hall, 2008 International Business 4e

Property Seizure 1 2 3 Confiscation Expropriation Nationalization Forced transfer of assets from a company to the government without compensation 2 Expropriation Forced transfer of assets from a company to the government with compensation 3 Nationalization Forced asset transfer to the government of an entire industry © Prentice Hall, 2008 International Business 4e

Policies and Laws Local content requirements: Policy changes restrict: Foreign ownership Investment levels Business activities Specify the portion of a good or service to be supplied by local firms © Prentice Hall, 2008 International Business 4e

Managing Political Risk Localization Development assistance Local equity / debt Insurance Partnerships Adaptation Incorporate risk into business strategies © Prentice Hall, 2008 International Business 4e

Managing Political Risk Agencies specializing in political-risk services Current employees with relevant information Information gathering Gather data to better predict and manage risk © Prentice Hall, 2008 International Business 4e

Managing Political Risk Corruption Foreign Corrupt Practices Act Lobbying Influencing local lawmakers Influence local politics Present firm’s views on political matters © Prentice Hall, 2008 International Business 4e

World’s Legal Systems Common Law Civil Law Theocratic Law Tradition, precedent, and usage Civil Law Codified rules and statutes Theocratic Law Religious teachings form law © Prentice Hall, 2008 International Business 4e

International Business 4e Global Legal Issues I Intellectual property Result of intellectual talent and abilities Piracy/counterfeits a serious problem Patent Excludes all but the inventor from making, using, or selling the invention (WTO = 20 years) Trademark Words or symbols that distinguish a product and its manufacturer ("Coca-Cola") Copyright Freedom of creator to publish or dispose of original works as they choose ("Happy Birthday to You") © Prentice Hall, 2008 International Business 4e

International Business 4e Global Legal Issues II Standardization Interpreting and applying laws uniformly Product safety and liability Responsibility for damage, injury, or death Antitrust (antimonopoly) laws Prevent market sharing, price fixing, and unfair advantage Taxation Income, sales, consumption and VAT © Prentice Hall, 2008 International Business 4e

International Business 4e Ethical Behavior Personal behavior in accordance with rules or standards for right conduct or morality Enron Tyco Worldcom Parmalat (Italy) Ethical absolutism Import ethics from home Ethical relativism When in Rome, do as the Romans © Prentice Hall, 2008 International Business 4e

Social Responsibility Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies Respect consumers’ rights Guard workers’ rights Protect the environment Preserve employment Encourage development Improve health Support education © Prentice Hall, 2008 International Business 4e

International Relations Favorable international political relations foster: Stable business environments Improved business communications Efficient distribution systems Prompt and equitable dispute resolution Expanded opportunities Diminished risk levels © Prentice Hall, 2008 International Business 4e

International Business 4e Chapter Review Describe the three types of political systems Discuss each cause of political risk and how firms can manage them Identify how the three legal systems are unique Identify global legal issues facing companies Discuss the roles of ethical behavior and social responsibility in international business © Prentice Hall, 2008 International Business 4e