Chapter 3

The Political and

Legal Environments
Facing Business

3-1
 Learning Objectives
Discuss the philosophy and practices of the
political environment
Profile trends in contemporary political systems
Describe current trends in political ideologies and
their implications to MNEs choices
Explain political risk management
Compare the relative benefits and drawbacks of
proactive versus passive political risk
management
Discuss the principles and practices of the legal
system
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 Learning Objectives
Profile trends in contemporary legal
systems
Identify and describe key legal issues
facing international companies

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 Introduction
Every country has its own political and
legal environment
Companies must determine where, when,
and how to adjust their business practices
without undermining the basis for success

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 The Political Environment
Managers evaluate, monitor, and forecast
political environments
A countrys 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

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 Individualism vs. Collectivism
Individualism
primacy of the rights and role of the
individual
Collectivism
primacy of the rights and role of the
community

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 Political Ideology
A political ideology stipulates how
society ought to function and outlines the
methods by which it will do so
Most modern societies are pluralistic
different groups champion competing political
ideologies
Democrats vs. Republicans in the United
States
Democratic Party vs. Liberal Party in Japan

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 Spectrum Analysis
A political spectrum outlines the various
forms of political ideology
Political freedom measures
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 expression

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Spectrum Analysis
The Political Spectrum

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 Democracy
In a democracy
all citizens are politically and legally equal
all are equally entitled to freedom of thought,
opinion, belief, speech, and association
all equally command sovereign power over
public officials
Prominent types of democracy include
Representative
Multiparty
Parliamentary
Social
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 Totalitarianism
A totalitarian system subordinates the
individual to the interests of the collective
dissent is eliminated through indoctrination,
persecution, surveillance, propaganda,
censorship, and violence
Prominent types of totalitarianism include
Authoritarianism
Fascism
Secular
Theocratic

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 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
https://www.weforum.org/agenda/2016/11/america-s-
dominance-is-over
https://www.weforum.org/agenda/2017/01/china-new-
world-power-davos-2017/
https://www.weforum.org/agenda/2017/02/united-we-
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stand-divided-we-fall-president-tusk-s-letter-to-eu-leaders-
 The Legal Environment
The legal system is the mechanism for
creating, interpreting, and enforcing the
laws in a specified jurisdiction
Types:
Common law
Civil law
Theocratic law
Customary law
Mixed systems

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 Trends in Legal Systems
What is the basis of rule in a country?
The rule of man
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

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Trends in Legal Systems
The Worldwide Practice of the Rule of Law

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 Operational Concerns
Operational issues
Starting a business
Making and enforcing contracts
Hiring and firing local workers
Closing down the business
In general
rich countries regulate less
poor countries regulate more

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 Strategic Concerns
Country Characteristics
Marketplace Behavior and supply chain
Country of Origin and local content

Product safety and liability

Legal jurisdiction

Intellectual property
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 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, inventions, processes, and
identifiers
no global patent, trademark or copyright
exists

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 Intellectual Property:
Rights and Protection
Attitudes towards intellectual property
Historical legacies
rule of man versus rule of law

Economic circumstances
levels of economic development

Cultural orientation
individualism versus collectivism

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