Chapter 3

Governmental and
Legal Systems

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 Introduction
 Every country has its own political and
legal environment
 Companies must determine where, when,
and how to adjust their business practices
without undermining the basis for success

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 Introduction
Political and Legal Factors Influencing International Business Operations

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 The Political Environment
 Managers evaluate, monitor, and forecast
political environments
 A country’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

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 Individualism vs. Collectivism
 Individualism
 primacy of the rights and role of the
individual
 Collectivism
 primacy of the rights and role of the
community

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 Political Ideology
 A political ideology stipulates how
society ought to function and outlines the
methods by which it will do so
 Most modern societies are pluralistic
 different groups champion competing political
ideologies
 Democrats vs. Republicans in the United

States
 Democratic Party vs. Liberal Party in Japan

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 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 of the press

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Spectrum Analysis
The Political Spectrum

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 Democracy
 In a democracy
 all citizens are politically and legally equal
 all are equally entitled to freedom of thought,
opinion, belief, speech, and association
 all equally command sovereign power over
public officials
 Prominent types of democracy include
 Representative
 Multiparty
 Parliamentary
 Social

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 Totalitarianism
 A totalitarian system subordinates the
individual to the interests of the collective
 dissent is eliminated through indoctrination,
persecution, surveillance, propaganda,
censorship, and violence
 Prominent types of totalitarianism include
 Authoritarianism
 Fascism
 Secular
 Theocratic

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 The Standard of Freedom
 Freedom House assesses political and civil
freedom around the world
 Freedom House recognizes three types of
political systems
 Free
 Partly free
 Not free

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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

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 Democracy:
Recession and Retreat
 Democracy’s retreat
 just 26 of the world’s democracies are full
democracies
 Engines of totalitarianism
 Economic development
 Inconsistencies
 Economics problems
 Standards of democracy

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 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:
 Systemic
 Procedural
 Distributive
 Catastrophic

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Classifying Political Risk
Characteristics of Political Risk

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 The Legal Environment
 The legal system is the mechanism for
creating, interpreting, and enforcing the
laws in a specified jurisdiction
 Types:
 Common law
 Civil law
 Theocratic law
 Customary law
 Mixed systems

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 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

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 Operational Concerns
 Operational issues
 Starting a business
 Entering and enforcing contracts
 Hiring and firing local workers
 Closing down the business
 In general
 rich countries regulate less
 poor countries regulate more

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 Strategic Concerns
 Strategic issues
 Country of origin and local content
 Marketplace behavior
 Product safety and liability
 Legal jurisdiction
 Intellectual property

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 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

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 Intellectual Property:
Rights and Protection
 Attitudes towards intellectual property
 Legal legacies
 rule of man versus rule of law

 Wealth, poverty, and protection

 levels of economic development

 Cultural orientation
 individualism versus collectivism

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