1. Chapter 3 Politics, Law, and Business Ethics

2. 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
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International Business 4e

3. 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
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International Business 4e

4. 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
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5. 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
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International Business 4e

6. Forms of Totalitarianism
Theocratic totalitarianism
(totalitarian religious leadership)
Secular totalitarianism
(military and bureaucratic leadership)
Tribal totalitarianism
Communist totalitarianism
Right-wing totalitarianism
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7. Causes of Political Risk
Conflict and violence
Terrorism and kidnapping
Property seizure
Policy changes
Local content requirements
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8. 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
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International Business 4e

9. 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
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10. 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
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11. 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
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International Business 4e

12. Managing Political Risk
Localization
Development assistance
Local equity / debt
Insurance
Partnerships
Adaptation
Incorporate risk into
business strategies
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13. Managing Political Risk
Agencies specializing
in political-risk services
Current employees
with relevant information
Information gathering
Gather data to better
predict and manage risk
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14. Managing Political Risk
Corruption
Foreign Corrupt Practices Act
Lobbying
Influencing local lawmakers
Influence local politics
Present firm’s views
on political matters
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15. 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
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16. 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")
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17. 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
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International Business 4e

18. 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
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International Business 4e

19. 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
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International Business 4e

20. 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
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International Business 4e

21. 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