International Business Part Two Comparative Environmental Frameworks

Chapter Three The Political and Legal Environments Facing Business

Chapter Objectives
‡ To discuss the goals and functions of a political system ‡ To profile trends in the emergence and diffusion of contemporary political systems ‡ To explain the idea of political risk and describe approaches to managing it ‡ To understand how political and legal systems affect the conduct of business ‡ To describe trends in the evolution and diffusion of contemporary legal systems ‡ To discuss the issue of the rule of law versus the rule of man ‡ To explain legal issues facing international companies ‡ To explain the idea of intellectual property and to discuss areas of concern and controversy

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Definition of a Political System
‡ The complete set of institutions, political organizations, and interest groups, ‡ The relationships among institutions, and the political norms and rules that govern their functions

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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
‡ The system of ideas that expresses the goals, theories, and aims of a sociopolitical program ‡ Most modern societies are pluralistic² different groups champion competing political ideologies

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Democracy
‡ Wide participation by citizens in the decision-making process ‡ Five types: 
    Parliamentary Liberal Multiparty Representative Social
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Totalitarianism
‡ Restricts decision making to a few individuals ‡ Types: 
   Authoritarianism Fascism Secular totalitarianism Theocratic totalitarianism

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Trends in Political Systems
‡ Engines of democracy: 
Failure of totalitarian systems to deliver economic progress  Improved communication technology  Belief that democracy leads to improved standards of living

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Definition of Political Risk
‡ The risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment ‡ Types: 
Procedural  Distributive  Catastrophic
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Definition of a Legal System
‡ 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
‡ The preference for stability ‡ The influence of national legacies

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Bases of Rules
‡ Rule of Man ‡ Rule of Law

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Operational concerns that face managers worldwide
‡ ‡ ‡ ‡ Starting a business Entering and enforcing contracts Hiring and firing local workers Closing down the business

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Strategic concerns that face managers worldwide
‡ ‡ ‡ ‡ ‡ Product safety and liability Marketplace behavior Product origin Legal jurisdiction Arbitration

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Intellectual property
‡ Intangible property rights that are a result of intellectual effort ‡ Intellectual property rights refer to the right to control and derive the benefits from writing, inventions, processes and identifiers ‡ Local attitudes play a large role in piracy

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