Politics, Law, and Business Ethics 3 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

3 - 2 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Describe each main type of political system Identify the origins of political risk and how managers can reduce its effects Describe each main type of legal system and the important global legal issues Explain ethics and social responsibility and key issues facing international companies Explain how international relations affect international business activities Chapter Objectives

3 - 3 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Roles of History and Culture

3 - 4 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Political Ideologies 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 libertiesTotalitarianismAnarchismPluralism

Look at: - Who makes the decisions in the system - Number of personal freedoms and rights Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Democracy - Extensive individual rights and freedoms - All people take part in making the rules that govern them Totalitarianism - Most people excluded from making rules; political control is held by one person or small group - Limited rights and freedoms

3 - 7 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall ImposedauthorityImposedauthority Lack of constitutionalguarantees constitutionalguaranteesRestrictedparticipationRestrictedparticipation Totalitarianism  Leaders govern without people’s support  Government controls much of people’s lives  Leaders do not tolerate opposing viewpoints

3 - 8 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Forms of Totalitarianism Theocratic totalitarianism (totalitarian religious leadership) Secular totalitarianism (military and bureaucratic leadership) Tribal totalitarianism Communist totalitarianism Right-wing totalitarianism

3 - 9 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Business in Totalitarian Nations Risk Factors Arbitrary nature of business can mean that laws are vague or do not exist Bureaucrats may interpret laws however they wish

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Democracy Freedom of expression Periodic elections Full civil, property rights Minority rights Nonpolitical bureaucracies

How to find political system? - CIA World Factbook CIA World Factbook - (scroll up on info for type) What is the trend? - Map - Political Systems of the World in the 1900s Map - Political Systems of the World in the 1900s Measuring freedom - Freedom House Freedom House

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Political Parties Organized group of individuals who try to exercise power in a political system by winning control of the government or influencing governmental policy

Some countries have just a few political parties (U.S. and U.K. basically have 2) Some have a one party system where the person nominated by the party gets position (Japan) Some countries have many parties (South Africa has 8; Bolivia has 28)

Political environment matters because When economic freedoms are restricted, so may the ability of an international business to operate in the most efficient manner

- When political freedoms are restricted there are ethical and legal risks that have to be considered - Governments make the rules under which companies must operate

International Businesses most hope for…. stability

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Types of Political Risk Conflict and violence Policy changes Terrorism and kidnapping Local content requirements Property seizure

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Arises from:  People’s resentment toward government  Territorial disputes between nations  Ethnic, racial, or religious disputes Reduces ability to:  Obtain materials and equipment  Manufacture and distribute products  Protect employees’ lives and firm’s assets Conflict and Violence

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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 Security checklist for managers on business abroad: Terrorism and Kidnapping

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Property Seizure Confiscation Forced transfer of assets from a company to the government without compensation Expropriation Forced transfer of assets from a company to the government with compensation Nationalization Forced asset transfer to the government of an entire industry

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Policies and Laws Policy changes restrict: Local content requirements: Specify the portion of a good or service to be supplied by local firms  Foreign ownership  Investment levels  Business activities

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Managing Political Risk I Adaptation Incorporate risk into business strategies Adaptation Incorporate risk into business strategies Localization Development assistance Partnerships Insurance

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Managing Political Risk II Agencies specializing in political-risk services Current employees with relevant information Information gathering Information gathering Gather data to better predict and manage risk Information gathering Information gathering Gather data to better predict and manage risk

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Managing Political Risk III Corruption Foreign Corrupt Practices Act Lobbying Influencing local lawmakers Influence local politics Influence local politics Present firm’s views on political matters Influence local politics Influence local politics Present firm’s views on political matters

National Corrupt Practices ACT currents/2011/11/09/sec-breaks- enforcement-record-begins-tracking- fcpa-separately/ Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

What makes a country politically risky? dology.aspx Transparency International

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Discussion Question Incorporating political risk into business strategies by modifying operations, the product mix, or some other business element is called ____________. a. Specialization b. Globalization c. Localization

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Answer to Discussion Question Incorporating political risk into business strategies by modifying operations, the product mix, or some other business element is called ____________. a. Specialization b. Globalization c. Localization

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Common Law Precedent Past cases before the courts Usage How laws are applied Tradition Nation’s legal history

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Civil Law Rules and statutes constitute a legal code Defines all obligations, responsibilities, and privileges Dates to Roman times in the fifth century B.C.

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Theocratic Law Legal tradition based on religious teachings Islamic law Jewish law Hindu law

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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")

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Business Software Piracy Source: Based on the Seventh Annual BSA and IDC Global Software Piracy Study (Washington, D.C.; Business Software Alliance, May 2010), Table 3, pp. 14–15, (

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Global Legal Issues II  Standardization - Interpreting and applying laws uniformly  Product safety and liability - Responsibility for damage, injury, or death  Taxation - Income, sales, consumption, and VAT  Antitrust (antimonopoly) laws - Prevent market sharing, price fixing, and unfair advantage

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Discussion Question What are intellectual property rights and what is their significance to business?

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Answer to Discussion Question Intellectual property rights are legal rights to resources that result from intellectual abilities and any income these resources generate. Like other types of property, intellectual property can be traded, sold, and licensed in return for fees and/or royalty payments. Intellectual property laws are designed to compensate people whose property rights are violated.

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Friedman View Cultural Relativism Utilitarianism Righteous Moralism Ethics and Social Responsibility PHILOSOPHIES

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Fight to eliminate bribery and corruption Improve labor conditions and guard human rights Practice fair trade to help the disadvantaged Protect the environment and conserve resources Social Responsibility Issues Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall International Relations  Stable business environments  Improved business communications  Efficient distribution systems  Expanded opportunities  Diminished risk levels  Prompt and equitable dispute resolution Favorable international political relations foster:

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Discussion Question The philosophy of business ethics and social responsibility conveyed by the expression, “When in Rome, do as the Romans do,” is called the __________ view. a. Righteous moralist b. Cultural relativist c. Utilitarian

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Answer to Discussion Question The philosophy of business ethics and social responsibility conveyed by the expression, “When in Rome, do as the Romans do,” is called the __________ view. a. Righteous moralist b. Cultural relativist c. Utilitarian

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Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Discussion Question What are the three main features of totalitarianism and the five freedoms that democracies strive to provide?

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Answer to Discussion Question Totalitarian governments tend to share: imposed authority, a lack of constitutional guarantees, and restricted political participation. Democracies strive to provide: freedom of expression, periodic elections, full civil and property rights, minority rights, and nonpolitical bureaucracies.