SLIDES ON TOPIC 3: LEGAL

AND POLITICAL ENVIRONMENT, AND

CORRUPTION
Dr. William Degbey
eKVY Introduction to International Business, Spring 2020
 Additional Reading From the book: Introduction to
Global Business – Understanding the International
Environment & Global Business Functions

Authors: Gaspar, Arreola-Risa, Bierman, Hise, Kolari

and Smith (International Edition - 2014)
 Political Systems
6–3

• Greek for “rule by the people”; form of

Democracy government in which all citizens have the
right to vote

Athenian • A pure form of democracy, in which all adult

citizens vote directly on matters affecting the
Democracy community

Representative • Form of government in which citizens vote to

elect given individuals to serve as their
Democracy representatives for a certain period of time

Totalitarian • System of government in which individuals

govern without the support or consent of the
Government citizenry; for example, a military dictatorship
 National Economic Ideologies
6–4

Communism Socialism Capitalism

The government The government Businesses are
or state owns plays a strong privately owned,
and controls all role in the strong individual
major factors of economy and incentives exist,
production and is may own stakes and the
philosophically in certain government
an economically businesses plays very little
classless society role in the
economy
 Political Risks
6–5

Political Risks
• The risks that political forces or problems
in a given country will have a meaningful
negative impact upon the conduct of
business in that country

Micropolitical Risk
• A political risk that only affects a certain
industry or set of firms in a given country

Macropolitical Risk
• A political risk that essentially affects
all businesses in a given country
 Political Risk and Global Terrorism
6–6

 Terrorism Risk Insurance Act of 2002

A United States law that after a certain deductible
provides U.S. businesses government insurance
coverage for the risk of terrorism
 Overseas Private Investment Corporation (OPIC)
A U.S. government agency that sells political risk
insurance to U.S. businesses operating in countries with
which the United States has a bilateral investment
treaty
 Corruption
6–7

A situation where businesses are able to illegally alter

relevant private and/or public decision making by way
Corruption of bribes, kickbacks, blackmail, extortion, and related
activities

Business corruption involving other private businesses,

Private individuals, or groups
corruption

The practice of making illegal payments to government

Public officials or engaging in blackmail, extortion or other
corruption related activities to obtain government contracts or
governmental approval for business activities
 EXHIBIT 6.2 TRANSPARENCY INTERNATIONAL BRIBE PAYERS INDEX 2008

1 Belgium 8.8 12 Spain 7.9

1 Canada 8.8 13 Hong Kong 7.6
3 Netherlands 8.7 14 South Africa 7.5
3 Switzerland 8.7 14 South Korea 7.5
5 Germany 8.6 14 Taiwan 7.5
5 United Kingdom 8.6 17 Brazil 7.4
5 Japan 8.6 17 Italy 7.4
8 Australia 8.5 19 India 6.8
9 France 8.1 20 Mexico 6.6
9 Singapore 8.1 21 China 6.5
9 United States 8.1 22 Russia 5.9

(Scores range from 0 to 10. The higher the score for the country, the lower the
likelihood of companies from this country to engage in bribery when doing business
abroad. Based on Transparency International’s 2008 Bribe Payers Survey of 2,742
senior business executives from 26 developed and developing countries, selected on
the basis of the size of their imports and foreign direct investment inflows.)
6–8
TRANSPARENCY INTERNATIONAL CORRUPTION PERCEPTIONS INDEX 2019 and

CORRUPTION PERCEPTIONS INDEX 2019

https://www.transparency.org/cpi2019

(Scroll down when you open the site above)

 The Legal Environment
6–10
Civil Law Common Law Theocratic Law
Legal System Legal System Legal System
• Is based on a • Is comprised of • Is based on a
comprehensive legislative bodies religious
listing of legal that enact less document and
rules in sets of specific legal religious
written codes of rules that give teachings
law judges or courts
considerable
authority in
interpreting these
rules based on
precedent and
other factors
 Types of Laws
6–11

Criminal Law

Contract Law

Tax Law

Antitrust Laws

Product Safety Law

Dispute Settlement Law

 Laws
6–12

Criminal Contract Tax Antitrust

Law Law Law Laws
Establishes Governs legally Deal with Promote “fair
which violations enforceable governmental competition”
of a nation’s agreements levying of taxes among
laws are crimes between parties on individuals businesses
punishable by to engage in and corporations
possible economic
incarceration exchange
 Antitrust (Anti-Monopoly) Law
6–13

 Collusion
 The practice of companies acting in a manner which
secretly thwarts competition amongst themselves
 Dividingup markets
 Collaborating to fix prices on goods and services

 Monopoly
 The situation where there is only a single seller of a
product in an industry and there are very high barriers
to enter that industry
 Product Safety Law
6–14

 Product Safety Law

 Establishes
the standards of product safety to which the
manufacturers and sellers of products are held
 Caveat Emptor (“Buyer Beware”)
 Placesthe burden of determining product safety on
consumers
 Caveat Venditor (“Seller Beware”)
 Places on manufacturers or sellers the burden of
making sure their products are safe or at least clearly
and explicitly warning consumers about the potential
safety risks of their products
 Dispute Settlement Law
6–15

Dispute
Settlement Litigation Arbitration
Law

The disputing
Involves bringing
Governs how parties designate
a dispute to a
disputes arising in a neutral private
publicly or
the conduct of person or group
governmentally
global business of persons to hear
run court of law
are settled and decide their
for resolution
dispute
 Intellectual Property Protections
6–16

 Intellectual Property
 Property that is the product of intellectual rather
than physical activity
 Intellectual Property Protections
 The limited monopoly rights legally granted by
a nation to the creator of intellectual property
 Patent
 Trademark
 Copyright
 Protecting Intellectual Property
6–17

Patent Trademark Copyright

• The right granted • A distinctive • The exclusive legal
to the inventor of phrase, name, right that authors,
a product or word, picture, playwrights,
process that symbol or design, publishers, artists,
excludes others or combination of composers,
from selling, these, that performers,
making, or using identifies a given photographers,
the invention for a business’ service or and other creators
certain period of product and is have to publish
time owned by said and disseminate
business their work as they
see fit.
 Loss of Intellectual Property
6–18
Protection
 Genericized Trademark
A trademark that has become so well known or
colloquial that it now describes a general class of
product or service, as opposed to a specific product or
service as intended by the trademark’s owner
 For a list of genericized trademarks,
click on the following link:
 Generic and genericized trademarks
 KEY TERMS

democracy terrorism
Athenian democracy Terrorism Risk Insurance Act
representative democracy of 2002
totalitarian government Overseas Private Investment
Corporation (OPIC)
communism
corruption
socialism
private corruption
capitalism
public corruption
economic risks
Foreign Corrupt Practices
political risks
Act (FCPA)
micropolitical risk
civil law legal system
macropolitical risk
common law legal system
6–19