2-1

International Management,
5th ed.

Part One:
Environmental
Foundation

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 Hodgetts
2-2
and Luthans

International
Management,
5th ed.

Chapter Two

The Political, Legal, and

Technological Environment
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 2-3
Objectives of the Chapter

 EXAMINE some of the major changes that are

currently taking place in the political
environments of China, Europe, Russia, and
Central and Eastern Europe
 PRESENT an overview of the legal and regulatory
environments in which MNCs operate worldwide
 REVIEW key technological developments as well
as their impact on MNCs now and in the future

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 2-4
Political Environment
 Components include:
 Government policies that affect MNCs
 Stability of the government of the host country
 China
 Has a complex political environment in which the
government is:
 Speeding up program to convert state enterprises into
shareholder-owned corporations
 Expanding capital markets by authorizing new stock listings
 Allowing government bodies to sell of state enterprises
 Accelerating worker retraining, building low-cost housing, and
providing other social services
 reducing tariffs

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 2-5
Political Environment (cont.)
 China (cont.)
 MNCs face major obstacles when doing business with
and in China
 Government regulations
 Lack of qualified employees
 Active involvement of government institutions in business
affairs
 Europe
 Changing political situation
 MNCs doing business with individual countries risk
action by the EU itself
 Businesses must be aware of political happenings in the
immediate area as well as throughout the continent

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 2-6
Political Environment (cont)
 Russia
 Bleak economic outlook
 Neglect, corruption, and confusing economic policy
 Decaying infrastructure
 Reform stalled by a political quagmire
 Government must keep the economy on an even keel
while attracting more foreign investment
 Central and Eastern Europe
 Political situation is in a state of flux
 Poland
 Government plan to streamline the economy and get the
country moving has been fraught with problems
 Economy has proven resilient

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 2-7
Political Environment (cont.)
 Central and Eastern Europe (cont.)
 Hungary
 One of strongest economies in Central Europe
 More foreign investment in Hungary than any other post-
communist European country
 Czech Republic
 Quick transition to privatization
 Economy suffered initially but appears to be on the rebound
 Balkan countries and former republics of the Soviet
Union
 Still face severe economic problems
 Reform proceeded more slowly than other countries in the area

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 2-8
Foundations of the World’s Law

Laws of the World

Islamic Socialist
Law Law Common Civil or
- based on the - derived from Law Code Law
Qur’an and Marxism - derived from - derived from
teachings of - continues to English law Roman law
the Prophet influence - foundation for - found in non-
Mohammed regulations in legal systems Islamic and
- found in most countries from in Western nonsocialist
Islamic the former democracies countries
countries Soviet Union

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 2-9
Legal and Regulatory Environment

Basic Principles of International Law

 Sovereignty and Sovereign Immunity
 Sovereignty principle holds that governments have the right to
rule themselves as they see fit
 International Jurisdiction
 Nationality principle holds that every country has jurisdiction
over its citizens no matter where they are located
 Territoriality principle holds that every nation has the right of
jurisdiction within its legal territory
 Protective principle holds that every country has jurisdiction over
behavior that adversely affects its national security, even if the
conduct occurred outside that country

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 2-10
Legal and Regulatory Environment
(cont.)
 Basic Principles of International Law (cont.)
 Doctrine of Comity
 There must be mutual respect for the laws, institutions, and
government of other countries in the matter of jurisdiction over
their own citizens
 Act of State Doctrine
 All acts of other governments are considered to be valid by
U.S. courts, even if such acts are inappropriate in the U.S.
 Treatment and Rights of Aliens
 Countries have the legal right to refuse admission of foreign
citizens and to impose special restrictions on their conduct
 Forum for Hearing and Settling Disputes
 U.S. courts can dismiss cases brought before them by aliens

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 2-11
Legal and Regulatory Environment
(cont.)
 Examples of Legal and Regulatory Reform
 Foreign Corrupt Practices Act (FCPA) - 1977
 U.S. made it illegal to influence foreign officials through
personal payment or political contributions
 Critics fear loss of business where bribery is a tradition
 Experience has shown that:
 MNCs can live within the guidelines established by the FCPA
 Foreign governments have applauded FCPA investigations
 Bureaucratization
 Restrictive, inefficient foreign bureaucracies are problematic
 Japan has found it difficult to streamline its bureaucracies
 Red tape increased the cost of doing business in Japan
 Bureaucracies make it difficult to open Japanese markets

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 2-12
Legal and Regulatory Environment
(cont.)
 Examples of Legal and Regulatory Reform
(cont.)
 Privatization
 Governments throughout the world are selling state-
owned properties to private enterprises
 Examples include:
 Deregulation of German telecommunications
 Chinese military ordered to sell more than 10,000
companies

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 2-13
Technologies That Will
Influence International Business

Artificial Internet
Biotechnology
Intelligence

Automatic
Silicon International
Translation
Chips Business
Telephones

Supercomputers Satellites
Nanotechnology

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 2-14
Technological Environment
 Technology is changing at lightening speed
 E-Business
 Terminology
 E-tailers - electronic retailers
 B2C - electronic business to consumer
 B2B - electronic business to business
 E-cash - electronic cash
 E-tailing and financial services will most affect global
customers
 Prepaid smart cards will give way to global digital cash
 Need a system to resolve conversions of different national
currencies

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 2-15
Technological Environment (cont.)
 Telecommunications
 Most obvious dimension of the technological
environment facing international management
 Economic growth perceived to hinge on efficient
communications
 Technologic leapfrogging
 Moving from the absence of telephones to the availability of
wireless communications
 Privatization of telecommunications occurring in some
countries to acquire capital and technical know-how
 MNCs unwilling to invest in telecommunications without the
prospect of good financial return
 Case of China

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 2-16
Technological Environment (cont.)
 Employment Fallout from Technology
 Changing technology affects the nature and number of
employees required to conduct operations
 Employee displacement likely in all industries
 Emerging information technology makes work more
portable
 Positives of the new technology
 Lowers cost of doing business worldwide
 Productivity likely to increase
 Prices likely to decline
 Negatives of the new technology
 Employees will lose their jobs
 Wages may be reduced

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 2-17
Figure 2-1
Winners in Selected Occupations
Home-health workers
Computer systems
analysts, programmers
Travel agents

Childcare workers

Guards

Restaurant cooks

Nurses
Gardeners/
groundskeepers
Lawyers

Teachers

Janitors and cleaners

0 20 40 60 80 100 120 140 160
Percentage Change for 1992-2005
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 2-18
Figure 2-1
Losers in Selected Occupations
Bank tellers
Electrical/electronic
assemblers
Typists/word
processors
Machine-tool
operators
Textile workers

Switchboard operators

Packaging/filling machine
operators
Phone/cable TV installers
and repairers
Directory-assistance
operators

-50 -40 -30 -20 -10 0

Percentage Change for 1992-2005
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