BI0013

International Business
Governmental and Legal
System

ACCOUNTING PROGRAM
The Political Environment
Every country has its own political and legal
environment
Companies must determine where, when, and
how to adjust their business practices to succeed
• Managers evaluate, monitor, and forecast
political environments
• A country ʼ s 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
Individualism vs. Collectivism
Our political system emanates from our
philosophical belief or orientation, our thought
process, how we want to govern ourselves
Individualism: primacy of the rights and role of the
individual
Collectivism: primacy of the rights and role of the
community
Political Ideology
A political ideology stipulates how society ought to
function and outlines the methods by which it will do so.
It affects government spending, trade, and investment.
Most modern societies are pluralistic
different groups champion competing political
ideologies, examples: Democrats vs. Republicans in
the United States
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
Totalitarianism
A totalitarian system subordinates the individual to the
interests of the collective
monopolization of power by a single agent‐‐opposition is
neither recognized nor tolerated.
dissent is eliminated through indoctrination, persecution,
surveillance, propaganda, censorship, and violence
Prominent types of totalitarianism include
Authoritarianism
Fascism
Secular
Theocratic
The Standard of Freedom
Freedom House, and independent watchdog
organization, assesses political and civil freedom
around the world
Freedom House recognizes three types of
political systems
Free
Partly free
Not free
The Standard of Freedom
Map of Political Freedom, 2013
Third Wave of
Democratization
 Third Wave of Democratization
 number of democracies doubled in two decades
 Engines of Democracy
1. The failure of totalitarian regimes to deliver
economic progress
2. Improved communications technology
3. Economic dividends of increasing political
freedom
Democracy:
Recession and Retreat
• Democracy’s retreat
• just 26 of the world ’ s democracies are full
democracies
• Engines of Authoritarianism
• Political economy of growth
• Rhetoric vs. Reality ‐ Inconsistencies
• Economic problems
• Who defines Democracy?
Democracy:
Recession and Retreat
Freedom in the World: Gains and Declines
Political Ideology and the
MNE
MNE adapts to the political ideology of the
country
What will the political map look like in the
future?
The Washington Consensus
The Beijing Consensus
The Clash of Civilizations
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 of Political Risk: Systemic, Procedural,
Distributive, Catastrophic
Political Risk may involve Nationalization by the
State (Confiscation, Expropriation, and
Domestication)
Classifying Political Risk
Characteristics of Political Risk
Managing Political Risks
• Be a good corporate citizen (example: participate
in development projects, literacy etc.)
• Expand power bases through business
relationships (example: joint venture, licensing,
political payoffs etc.)
• Study government attitude and participate
government incentive programs
• Maintain good relationship with political allies,
other embassies in the country
The Legal Environment
The legal system is the mechanism for creating,
interpreting, and enforcing the laws in a specified
jurisdiction.
Types:
• Common law [based on precedent, traditions]
• Civil law [based upon a set of laws that comprise a
code]
• Theocratic law [based upon religious precepts]
Customary law [local customs and practices, example‐
indigenous societies]
Mixed systems
The Legal Environment
The Wide World of Legal Systems
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
Trends in Legal Systems
The Worldwide Practice of the Rule of Law
Implication for Managers
Operational concerns/issues
Starting a business
Making and enforcing contracts
Hiring and firing local workers
Closing down the business
Strategic concerns/issues
Country Characteristics
Product safety and liability
Legal jurisdiction
Intellectual property
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
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