1. The Political and Legal Environments Facing Business
Chapter 3
The Political and Legal Environments Facing Business

2. Introduction Political and legal environment
Companies must determine where, when, and how to adjust their business practices without undermining the basis for success

3. The Political Environment
Managers evaluate, monitor, and forecast political environments
A country’s political system refers to the structural dimensions and power dynamics of its government that specify institutions, organizations, and interest groups, and define the norms that govern political activities

4. Political System
Institutions, political organizations, and interest groups
integrate different groups into a functioning, self-sustaining, and self-governing society
Success
Peace, prosperity
Failure
Instability, national disintegration

5. 3-5

6. Participants Government
Regulate international business activity through a complex system of institutions, agencies, and public officials.
Ministry of Economy
Ministry of Foreign Affairs
Ministry of Customs and Trade

7. Participants International organizations Regional economic blocs WTO
UN (UNCTAD- WB
Regional economic blocs EU
Lithuania- supermarket chain IKI- seperate entrances for fresh meat delivery of its 136 stores.
ASEAN
NAFTA

8. Participants Special Interest Groups: OECD
OPEC- powerful cartel- Saudi Arabia, Iran Venezuela, Nigeria, Indonesia
WWF
Greenpeace-Friends of the Earth; halting the construction of pipeline- 2012
Lego-Shell

9. LEGO-SHELL

11. Arctic cooperation and politics
Arctic Council,
the United States of America, Canada, Iceland, Norway, Sweden, Finland, Russia, and Denmark with Greenland and the Faroe Islands.
to a lesser extent other nations, such as United Kingdom, Germany, European Union and China.
NGOs and Academia play a large part in Arctic policy. Also important are intergovernmental bodies such as the United Nations (especially as relates to the Law of the Sea Treaty) and NATO.

12. Political system Success Failure Peace, prosperity Instability,
National disintegration

13. Political system

14. Individualism vs. Collectivism
primacy of the rights and role of the individual
Laissez-faire: self-regulating nature of the marketplace
Maximize personal performance

15. Individualism vs. Collectivism
primacy of the rights and role of the community
joint responsibility
government intervention - social welfare

16. Political Ideology
The system of ideas that expresses the goals, theories, and aims of a sociopolitical program
Most modern societies are pluralistic
different groups champion competing political ideologies
Democratic Party vs. Liberal Party in Japan

17. Spectrum Analysis
A political spectrum outlines the various forms of political ideology
North Korea

18. The Political Spectrum
Spectrum Analysis
The Political Spectrum

19. Democracy In a democracy
Wide participation by citizens in the decision-making process
Majority rule coupled with protection of individual and minority rights
all citizens are politically and legally equal
all are equally entitled to freedom of thought, opinion, belief, speech, and association
Fair and independent court system charged with protecting individual rights and property
Subordination of government to the rule of law.
Canada, Japan, US, Most European countries

20. Totalitarianism
A totalitarian system subordinates the individual to the interests of the collective
dissent is eliminated through indoctrination, persecution, surveillance, propaganda, censorship, and violence
Cuba, North Korea
Prominent types of totalitarianism include
Authoritarianism
state ideology
Fascism
controls people’s minds
Theocratic
religious principles

21. Political freedom
the degree to which fair and competitive elections occur
the extent to which individual and group freedoms are guaranteed
the legitimacy ascribed to the general rule of law
the freedom of the press

22. Fundamental Elements of Democratic Political Systems
Freedom
Opportunity and treatment before the law
Free, fair and regular elections

23. The Standard of Freedom
Freedom House assesses political and civil freedom around the world
Franklin Delano Roosevelt
Eleanor Roosevelt

24. The Standard of Freedom
Freedom House recognizes three types of political systems
Free: open political competition, respect for civil liberties, independent civic life, and independent media
Partly free: limited political rights and civil liberties, corruption, weak rules of law, ethnic and religious strife, unfair elections, and censorship.
Not free: few or no political rights and civil liberties.

25. The Standard of Freedom
Map of Political Freedom, 2010

26. Political Risk
Political risk refers to the risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment
Types:
Systemic
Procedural
Distributive
Catastrophic ?

27. Types of Political Risk
Systemic: impact all firms
new political leadership, taxation
Procedural
corruption, officials, clear goods through customs, open a factory - partisan judicial system

28. Types of Political Risk
Distributive
more profits in local economy – questioning distributive justice and fair share, cigarette business, US).
Creation of new laws that favor local firms.
Bolivia, Kazakhstan, Russia, Venezuela- modified tax regimes.
Catastrophic
every company, illegal regime change, civil disorder, terrorism

29. The Legal Environment
The legal system is the mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction
Conduct Business Transactions
Rights, Obligations

30. Types of Legal System
Common law (tradition, past practices, judge, courts) (Canada, US, UK)
Civil law (systematic codification of laws) (France, Germany, Turkey, Japan)
Theocratic law (religious doctrine) (Saudi Arabia)
Mixed systems (Hong Kong, Morocco)

31. Legal System
Theocratic law

32. The Wide World of Legal Systems
The Legal Environment
The Wide World of Legal Systems

33. Trends in Legal Systems

34. Trends in Legal Systems
What is the basis of rule in a country?
The rule of man
ultimate power resides in a person
legal rights derive from the individual who commands the power to impose them
associated with a totalitarian system
The rule of law
systematic and objective laws applied by public officials who are held accountable for their administration
associated with a democratic system

35. Trends in Legal Systems
Rule of Law
guarantees the enforceability of commercial contracts and business transactions
safeguards personal property and individual freedom (US, Japan)

36. Trends in Legal Systems
The Worldwide Distribution of the Rule of Law

37. Operational Concerns Operational issues China) In general
Starting a business (Hong Kong,
China)
Entering and enforcing contracts
Hiring and firing local workers
Closing down the business
In general
rich countries regulate less
poor countries regulate more

38. Strategic Concerns Strategic issues
Country of origin and local content
Marketplace behavior
Product safety and liability
Legal jurisdiction (Arbitration)
Intellectual property

39. Intellectual Property: Rights and Protection
Intellectual property refers to creative ideas, expertise, or intangible insights that grant its owner a competitive advantage
Intellectual property rights refer to the right to control and derive the benefits from writing, software, inventions, processes, and identifiers
“Global” patent, trademark or copyright ????

40. Intellectual Property: Rights and Protection
Attitudes towards intellectual property
Legal legacies
rule of man versus rule of law
Wealth, poverty, and protection
levels of economic development
protection and respect for innovation
Cultural orientation
Individualistic-US, Australia, individual ownership
Collectivistic- South Korea, Thailand, China; society welfare

41. The Driver of Change
Countries that generate intellectual property are strong advocates of protecting the ownership rights.

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