The Political Environment of International Business

Anne-Charlotte Bazoud Gabrielle Colombier Franziska Guehlcke Marcus Bormann Arnaud Katz

Contents
I. Context II. Aims - Objectives

III. Political Environment of Business

IV. Political Environment of Business in Hong Kong

V. Conclusion

Context
Globalisation, liberalization of the World Economy
Set up in new markets, with different politic

Hong-Kong, English from 1842 to 1997

culture, laws, justice close from England, Very different politic from the rest of China

Aims - Objectives
Aim : describe the most important political factors for companies which set up overseas + focus on the political environment of Hong-Kong. Objectives: - make a clear distinction between totalitarism and democracy, capitalism and socialism - Demonstrate that the political environment is important in choosing the country to set up (for example war, corruption, economy opened to the other countries?) - Analyse the political environment of Hong Kong

Elements of the political environment that a business must consider in order to expand overseas

The Political Environment

Relatively uncontrollable factors outside the firm Technological Legal influence its decision-making that and Political Environment
Environment

Factors in government, the law and the regulatory system that affect the way an organisation operates
Environment Economic Socio-Cultural Environment

The Political Environment

SYSTEM Legal and Political Environment

STABILITY

POLICIES

SYSTEM
Includes the structures, processes, and activities by which a nation governs itself.

Political System

Totalitarian state Democratic state

SYSTEM
Totalitarian state Democratic state Imposed authority Freedom Lack of constitutional guarantees Rights Restricted participation

Companies might need to pay Stable business environment bribes to government thanks to laws The business law is vague Freedom and no censorship
Doing business seems to be a risky proposition Doing business in a democratic state seems to be safer than in a totalitarian state

SYSTEM
Political Ideology
Capitalist System Capitalist system Socialist system

Socialist System

- Private ownership of business - Public ownership of business is encouraged is the norm The political ideology affects - foreign government attitude towards profit repatriation. - foreign government attitude towards foreign direct investment

SYSTEM
Political relationships
Favorable political relationships foster stable business environments

increase international cooperation in many areas

lead to increase business opportunities and lower risk

The World Trade Organisation can facilitate political relationships

The WTO ensures that trade flows as smoothly, predictably and freely as possible.

STABILITY
Political Stability : A subjective governance indicator aggregated from a variety of sources and measuring perceptions of the likelihood of destabilization. (United Nations Development Programme web site)

Political Risk
The risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment.
(International Business environments and operations)

4 types of political risk

STABILITY
Systemic Political Risks When Political processes within a country do not routinely subject foreign operations to unfair treatment.
(International Business environments and operations)

Procedural Political Risks Its Political actions which create frictions that interfere with people, products or funds transactions between a company or a country.
(International Business environments and operations)

STABILITY
Distributive Political Risks When countries revise their distribution policies to capture greater benefits from foreign companies.
(International Business environments and operations)

Catastrophic Political Risks This is the Political developments that adversely affect the operations of all companies in a country. (International Business environments and operations)

POLICIES
TAXATION Governments use income and sales taxes which can vary from country to country.

POLICIES
PROPERTY
Intellectual Property
Property that results from peoples intellectual talent and abilitie.
(International Business An integrated approach)

Industrial Property Industrial property includes patents and trademarks.

(International Business An integrated approach)

Copyrights Copyrights give creators of original works the freedom to publish or dispose of them as they choose. (International Business An integrated approach)

The problem is that laws in some countries are softer than in others

POLICIES
PRODUCT SAFETY AND LIABILITY Product liability holds manufacturers, sellers, and others, including individual company officers, responsible for damage, injury, or death caused by defective products. (International Business An integrated approach)
The United States has the toughest product liability laws in the world following by Europe.

Enforcement of product liability laws differs from nation to nation.

Hong Kong Facts

British crown colony became Chinese territory in 1997
China is a Communist nation that values stability over individual freedoms Hong Kong is a Special Administrative Region

Population: 6,980,412 (July 2007 est.)

Hong Kong Political Environment

Capitalist System or Socialist System

China has signed the "one country, two systems" formula 50 years contract until 2047 Relatively high political stability

Hong Kong Political Environment

Totalitarian state or Democratic state

Limited democracy

The legal system based on the English common law

Basic Law which approved in 1990
Mini-Constitution"

Conclusion
The political environment has an important impact on the business There is a large field with many factors which the companies have to consider if they want to expand overseas Political environment is not stable and can change quickly The political environment creates advantages and disadvantages

Sources
http://www.pearsoncourses.com/ http://www.nytimes.com/specials/hongkong/ https://www.cia.gov/library/publications/the-worldfactbook/geos/hk.html
International business, environments and operations, Daniels, Radebaugh, Sullivan International business : an integrated approach, John J. WILD, Kenneth L. WILD, Jerry C.Y. HAN