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OVERVIEW
ANALYSIS OF POLITICAL, ECONOMIC AND LEGAL SYSTEMS

u Introduction

u Political Economy

u Political Systems

u Economic Systems

u Legal Systems

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Introduction
u International business is much more complex and dynamic than
domestic business
Political Economy
u Countries differs in many ways from one another Political
System
u Economic development,
u Education and skill level,
Introduction u Resources and knowledge
u Cultural practices
u Politics and political orientations,
u Laws and rules and regulations.
Political
Economy
u These effect the international business
u Benefits and cost;
Economic
u Risks associated with doing business in different countries; System Legal System
u The way in which operations in different countries should be
managed;
u The strategy international firms should pursue in different
countries.

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u Political Economy-
Refers to country’s
1. Political System
1. Economic,
2. Legal and u It refers to the structure
and system of government
3. Political systems. in a country, state or
nation.

u These systems are

interdependent; they u Political system can be
interact with and assessed in terms of
influence each other degree to which they

A. Emphasize collectivism as
Political Economy u A country political
economy has major
opposed to individualism
implication for the
international business B. Democratic or totalitarian.

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Collectivism vs Individualism Collectivism vs Individualism

u Socialist view further divided into 2 systems
u Communist- believe socialism can be achieved only
COLLECTIVISM
through revolution and totalitarian dictatorship.
North Korea, Russia, China.
u Refers to a political system that stresses the
primacy of collective goals over individual goals.

u Collectivism focused on the needs of society as a u Social Democrats- Those committed to achieving
whole and consider society more important than
individual freedoms.
socialism by democratic means. Norway, Sweden,
Austria, France, Germany
u Modern forms of collectivist system exist in shape
of Socialism
u Many state-owned enterprises perform poor and
u Socialists- Those who believe in public ownership
of the means of production for the common good
failed to succeed, and many nations implement
of society rather than an individual. privatization.

u The logic here that state is the sole owner of the

mean of production and economic phenomenon.
u The privatization drive in Pakistan and in the global
market since 1990.
u Can you name any Pakistani company that was
7 8 privatized?

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Collectivism vs Individualism Democratic vs. Totalitarian

u Democracy- the system in which government is select by the
Individualism- the opposite of people, exercised control either directly or through elected
representatives.
collectivism
u Totalitarianism- the form of government in which one person or
political party exercises absolute control over all spheres of
u Individual should have freedom human life and opposing political parties are prohibited.
over their economic and political
pursuits. u Communist Totalitarianism -A version of collectivism
favoring that socialism can be achieved only through a
totalitarian dictatorship.

u Individual freedom and self- u Theocratic Totalitarianism -A political system in which

express political power is monopolized by a party, group, or
individual that governs according to religious principles.

u Tribal Totalitarianism -A political system in which a party,

u Letting people and firms pursue group, or individual that represents the interests of a
their own self interests to achieve particular tribe (ethnic group) monopolizes political power.
the best overall good for society.
u Right-Wing Totalitarianism -A political system in which
political power is monopolized by a party, group, or
individual that generally permits individual economic
u Welfare of society is best served by freedom but restricts individual political freedom,
including free speech.
letting people pursue their own
economic and political self-interest,
9 rather than the collective 10

Economic and Political systems are

Political Ideology Economic System

interconnected.
2. Economic System
u In countries where individual goals
are given preferences over collective
goals- market economy or free
Individual goals Free Economy economy.
preferred Capitalism u There are three types of economic systems
Collective goals Command u In countries where collective goals
are given presences- the state may u The Market Economy (Capitalism)
preferred. State Economy take control over enterprises-
command economy.
control enterprises u The Command Economy

Individual goals + Mixed Economy

u In countries where economy system is
a mix of both- mixed economy u The Mixed Economy
state control (Hybrid)
Command Mixed Market
Economy Economy Economy

2. Economic System

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2. Economic System
2. Economic System Market Economy

u An economic system in which the interaction of

supply and demand determines the quantity in
which goods and services are produced.

u The goods and services that a country produces,

and the quantity in which they are produced is
determined by market forces (demand and supply)

u If the demand exceed the supply the prices will

raise

u If the supply exceed the demand the prices will

fall

u The role of the government is to encourage fair

13 14 and free competition in the market

2. Economic System
2. Economic System
Command Economy
u The goods and services that a country produces, and
the quantity in which they are produced, and the
prices at which they are sold are determined by the
government.

u Investments are made in the best interests of the

nation as a whole rather than in the interests of private
individuals.

u State owned businesses have little incentive to control

costs and be efficient because they cannot go out of
business (no competition)

u They are static with no innovation and improvement

u North Korea, Cuba, Sudan, Saudi Arab

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2. Economy
Mixed Economic System 3. Legal System
Legal system refers to
u the rules and regulation that devise and regulate
u It consist elements of Market economy and behaviors, and the mechanism through which we
Command economy. enforced the law and redress for grievances is
obtained

u Certain sectors of the economy are left to private

ownership and free market mechanisms, while u Regulate business practices.
other sectors have significant state ownership and
government planning.
u Define the way in which the business transactions
are to be executed
u Governments take over the ownership of troubled
firms considered vital to national interest. (Pakistan,
India, UK, USA, France etc.) u Set down the rights and responsibilities of those
involve in business

Example- 2018 Rs17bn bailout package for PIA

u The legal environments of countries differ in
2008 the U.S. government took an 80% stake
significant ways.
in AIG to stop that financial institution from collapsing.
u Differences in legal systems can affect the
PIA, Steel Mill, PTCL, Cement and Sugar industries attractiveness of a country as an investment
etc.
17 18 destination or market.

u Common law is based on the tradition, precedent, and

3. Legal System custom. When law courts interpret common law, they
consider for those characteristics.

u Tradition refers to a country’s legal history, precedent

to cases that have come before the courts in the past,
u Important- political ideology and and custom to the ways in which laws are applied in
specific situations.
legal system are interconnected
3. Legal u Common law can be found in Britain’s former
colonies (Pakistan, India, Bangladesh etc.), and USA.
Types of legal System System
u 1.Common law,
u 2.Civil law, and
u 3.Theocratic law

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3. Legal System
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Political Economy’s Effect on Business
u Business Contract- short contacts in civil law
(many issues are already covered in a civil
codes), while long and expansive contracts in
common law, because of the consideration of
explanation of every aspect.
(United Nations Convention on Contracts for
the International Sale of Goods (CISG)).
u Intellectual Property Rights- (copyrights,
patents, trademarks, and trade secrets etc.)
u Corruption (Foreign Corrupt Practices Act
(FCPA)
"Al-rashi Wal-murtashi Kila-huma Finnar"
u Product safety and liability- certifications etc.
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Civil Law
u A civil law system is
based on a detailed set of
laws organized into codes.
u Courts interpret civil law
with regard to these codes.
u Judges decisions in the
civil law are stick to the
code(s).
u Exp- Germany, France,
Japan, and Russia etc.
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3. Legal System
Theocratic Law
u A theocratic law system is one in which the law
is based on religious teachings.
u Islamic law (Sharia), Hindu law, Jewish law
u The foundation for Islamic law is the Quran,
the Sunnah, or Ijtihad (Ijma)
u There is no pure Sharia law (Muslim countries
have a blend of Sharia and Common law)
u Exp- Pakistan, UAE, Gulf countries, Iran, Egypt
and Malaysia etc. (Pakistan Shariat Court)
u The world finical system also incorporate
Islamic financial mode of transaction (Islamic
banking)