1. Politics and Law in Business

2. © Prentice Hall, 2006International Business 3e Chapter 3 - 2 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

3. © Prentice Hall, 2006International Business 3e Chapter 3 - 3 Political Ideologies Totalitarianism - Every aspect of people’s lives must be controlled to preserve order Pluralism - Both private and public groups need to balance each other’s power Anarchism - Only individuals and private groups can preserve personal liberties

4. © Prentice Hall, 2006International Business 3e Chapter 3 - 4 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

5. © Prentice Hall, 2006International Business 3e Chapter 3 - 5 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

6. © Prentice Hall, 2006International Business 3e Chapter 3 - 6 Forms of Totalitarianism Theocratic totalitarianism (totalitarian religious leadership) Secular totalitarianism (military and bureaucratic leadership) - Communist totalitarianism - Tribal totalitarianism - Right-wing totalitarianism

7. © Prentice Hall, 2006International Business 3e Chapter 3 - 7 Causes of Political Risk Conflict and violence Terrorism and kidnapping Property seizure Local content requirements Policy changes

8. © Prentice Hall, 2006International Business 3e Chapter 3 - 8 Conflict and Violence 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

9. © Prentice Hall, 2006International Business 3e Chapter 3 - 9 Security checklist for managers on business abroad: -Fly non-stop 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 Terrorism and Kidnapping

10. © Prentice Hall, 2006International Business 3e Chapter 3 - 10 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

11. © Prentice Hall, 2006International Business 3e Chapter 3 - 11 Policies and Laws Policy changes restrict - Foreign ownership - Investment levels - Business activities Local content requirements - Specify the portion of a good or service to be supplied by local firms

12. © Prentice Hall, 2006International Business 3e Chapter 3 - 12 Managing Political Risk Adaptation - Incorporate risk into business strategies Local equity / debt Localization Development assistance Partnerships Insurance

13. © Prentice Hall, 2006International Business 3e Chapter 3 - 13 Managing Political Risk Information gathering - Gather data to better predict and manage risk Current employees with relevant information Agencies specializing in political-risk services

14. © Prentice Hall, 2006International Business 3e Chapter 3 - 14 Influence local politics - Present firm’s views on political matters Lobbying - Influencing local lawmakers Corruption - Foreign Corrupt Practices Act Managing Political Risk

15. © Prentice Hall, 2006International Business 3e Chapter 3 - 15 World’s Legal Systems Common Law - Tradition, precedent and usage Civil Law - Codified rules and statutes Theocratic Law - Religious teachings form law

16. © Prentice Hall, 2006International Business 3e Chapter 3 - 16 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")

17. © Prentice Hall, 2006International Business 3e Chapter 3 - 17 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

18. © Prentice Hall, 2006International Business 3e Chapter 3 - 18 e-Government Stages 1. Each department has its own informational Website 2.Monetary transactions are conducted with each department 3.Multiple departments accessible through one Web “portal” 4.Customized portals give people power and inform agencies 5.People begin to identify with transactions, not agencies 6.e-Government services become fully integrated and personalized

19. © Prentice Hall, 2006International Business 3e Chapter 3 - 19 Ethical Behavior Personal behavior in accordance with rules or standards for right conduct or morality Ethical absolutism - Import ethics from home Ethical relativism - When in Rome, do as the Romans Enron Tyco Worldcom Parmalat (Italy)

20. © Prentice Hall, 2006International Business 3e Chapter 3 - 20 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

21. © Prentice Hall, 2006International Business 3e Chapter 3 - 21 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