The Political, Legal, and

Technological Environment
❖ The specific objectives of this chapter are to
1. INTRODUCE the basic political systems that
characterize regions and countries around the
world and offer brief examples of each.
2. PRESENT an overview of the legal and
regulatory environment in which MNCs operate
worldwide.
3. REVIEW key technological developments as well
as their impact on MNCs now and in the future.

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 Political Environment

❖Ideology underlies the actions of government

➢ Reflects beliefs and values and behavior and
culture of nations and their political systems
❖Dimensions in evaluating political systems
➢ Rights of citizens based on a system of government,
ranging from democratic to totalitarian
➢ Focus of political system on individualism or
collectivism
❖Democratic nations emphasize individualism
❖Totalitarian nations lean toward collectivism
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 Ideologies
Individualism

❖Individualism
➢ People should be free to pursue economic and
political endeavors without constraint.
❖David Hume, Adam Smith, Aristotle
❖In business context, similar to capitalism and
connected to free market society
➢ Private property more successful, productive, and
progressive than communal property
➢ Betterment of society related to level of freedom
individuals have in pursuing economic goals

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 Ideologies
Collectivism

❖Collectivism
➢ Views needs or goals of society as a whole as
more important than individual desires.
❖Plato
❖Does not value individual as such
❖No rigid form of collectivism as societal goals
differ greatly among cultures
➢ Fascism: nationalism, authoritarianism, militarism,
corporatism, collectivism, totalitarianism

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 Ideologies
Socialism

❖ Socialism
➢ A form of collectivism in which there is government
ownership of institutions, and profit is not the
ultimate goal.
❖ Karl Marx, Friedrich Engels, Vladimir Ilyich Lenin
❖ Has been practiced in China, North Korea, Cuba
❖ Democratic socialism is the more moderate form
➢ practiced by Great Britain’s Labour Party, and in
France, Spain, and Greece
❖ Communism is extreme form of socialist thought

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 Political Systems
Democracy

❖Democracy
➢ System in which government is controlled by
citizens either directly or through elections.
❖European roots
❖Democratic society cannot exist without at
least a two-party system
➢ Once elected, representative is held accountable to
electorate for actions (which limits power of
government)

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 Political System
Totalitarianism

❖Totalitarianism
➢ Only one representative party which exhibits control
over every facet of political and human life
❖Power maintained by suppression of
opposition
➢ Dominant ideals include media censorship, political
repression, denial of rights and civil liberties

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 Political Environment
Regional Example: China
❖ Emerging economic power
❖ Government attempting to open up economy
➢ Speed up conversion of state enterprises into corporations
➢ Trade liberalization a top priority since joining WTO in 2001
➢ Becoming a more open, democratic society
➢ Greater tolerance of individual freedoms
➢ Worker retraining, low-cost housing and other programs
➢ Seeking to unleash a more dynamic market economy

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 Political Environment:
Example: The Middle East
❖In Iran and Saudi Arabia laws and government
based on Islamic principles
❖Business conduct in Middle East similar to
Western in many ways
– Seeking modern technology and have ability to pay
for quality services
– Worldwide fallout from war on terrorism have made
business environment risky and potentially
dangerous
– Arab Spring fallout: uncertain business environment

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 Legal and Regulatory
Environment
❖Confusion and challenge for the MNC due to
many different laws and regulations in global
business operations
❖Adhering to disparate legal frameworks can
prevent MNCs from capitalizing on
manufacturing economies
❖MNCs must carefully evaluate legal framework
in each market before doing business

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 Global Foundations of Law

1. Islamic law
2. Socialist law
3. Common law
4. Civil or code law

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 Global Foundations of Law
Islamic Law

❖Islamic law
➢ Derived from interpretation of Qur’an and teachings
of Prophet Muhammad
➢ Found in Islamic countries: Middle East and Central
Asia

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 Global Foundations of Law
Socialist Law

❖Socialist law
➢ Origins in Marxist socialist system
➢ Requires most property to be owned by state or
state enterprises
➢ Continues to influence regulations in former
communist countries
❖Members of former Soviet Union
❖Peoples’ Republic of China
❖Vietnam
❖North Korea
❖Cuba

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 Global Foundations of Law
Common Law

❖Common law
➢ Origins in English law
➢ Foundation of legal system for
❖United States
❖Canada
❖England
❖Australia
❖New Zealand

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 Global Foundations of Law
Civil or Code Law

❖Civil or code law

➢ Derived from Roman law
➢ Found in non-Islamic and non-socialist countries
❖France
❖Some Latin American countries
❖Louisiana

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 International Law

• Sources
– Laws of individual countries
– Treaties
• Universal
• Multilateral
• Bilateral
– Conventions
• Multilateral
• Bilateral
• Contains unwritten understandings

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 Basic Principles
of International Law
❖Sovereignty and Sovereign Immunity
❖International Jurisdiction
❖Doctrine of Comity
❖Act of State Doctrine
❖Treatment and Rights of Aliens
❖Forum for Hearing and Settling Disputes

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Principles of International Law
Sovereignty and Sovereign Immunity

❖Principle of sovereignty
➢ An international principle of law which holds that
governments have the right to rule themselves as
they see fit.
➢ One country’s court system cannot be used to
rectify injustices or impose penalties in another
country unless that country agrees.

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Principles of International Law
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 the
behavior that adversely affects its national security,
even if that conduct occurred outside the country.

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Principles of International Law
Doctrine of Comity

❖Doctrine of comity
➢ A jurisdictional principle of international law which
holds that there must be mutual respect for the laws,
institutions, and government of other countries in
the matter of jurisdiction over their own citizens.

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Principles of International Law
Act of State Doctrine

❖Act of state doctrine

➢ A jurisdictional principle of international law which
holds that all acts of other governments are
considered to be valid by U.S. courts, even if such
acts are illegal or inappropriate under U.S. law.

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Principles of International Law
Treatment and Rights of Aliens

❖Treatment and rights of aliens

➢ Countries have the legal right to refuse admission
of foreign citizens and to impose special restrictions
on their conduct, right of travel, where they can stay,
and what business they may conduct.
➢ Nations can also deport aliens

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Principles of International Law
Forum for Hearing and Settling Disputes

❖Forum for hearing and settling disputes

➢ U.S. courts can dismiss cases brought before them
by foreigners; however, they are bound to examine
issues such as
❖where the plaintiffs are located
❖where the evidence must be gathered
❖where property to be used in restitution is located

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 Financial Services Regulation

❖Global financial crisis of 2008–2010

underscored:
➢ Integrated nature of financial markets around the
world
➢ Reality that regulatory failure in one jurisdiction had
severe and immediate impacts on others
❖Crisis and its broad economic effects have
prompted regulators to tighten the financial
services regulation

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 Foreign Corrupt Practices Act
(FCPA)
❖Makes it illegal to influence foreign officials
through personal payment or political
contributions
❖Objectives of the FCPA
➢ Stop U.S. MNCs from initiating or perpetuating
corruption in foreign governments
➢ Upgrade the image of both the United States and
its businesses abroad

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 Regulation of
Trade and Investment
❖ Individual countries use legal and regulatory policies to
affect the international management environment
❖ Country is perceived to engage in unfair trade
practices (WTO and similar agreements)
➢ Government support (subsidies)
➢ Require MNCs to accept local partners
– Require MNCs produce a specific amount of
produce in their country
– Sell local products at below cost or home market
price
❖ Response may be
➢ Retaliatory tariffs
➢ Restrictive trade regulations 2-26
Technological Environment and
Global Shifts in Production
❖ E-business:
➢ Business to business (B2B)
➢ Business to consumer (B2C)
➢ E-tailing
➢ Financial services (e-cash)
❖ Biotechnology
❖ Telecommunications
❖ Technology, outsourcing and offshoring:
➢ Technology has reduced and eliminated middle management
and white collar jobs
➢ Global competition has forced some MNCs to outsource jobs
to offshore productions
➢ Emerging technology makes work more portable
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