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.

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

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

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

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

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.

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.

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

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

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

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

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 2000-2010 Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010

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 2000-2010 Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010