Chapter 3:

Political systems and Political risks

 Outline
• Political systems:
– Politics and Culture
– Political participation
– Political ideologies
– Political systems in times of change
• Political risk:
– Types of political risk
– Managing political risk
 Political Systems

Definition:
• The stucture, processes and activities
• By which a nation governs itself
 Political Systems
Politics and culture
• Closely related
• A political system is rooted in the history and culture of its people
• Influential factors:

Race
Age
Populatiocomposition
Per capita
n income

Political
Systems
 Political Systems
Political participation
• 2 questions:Who? and To what extent?

• Can be WIDE: when people who are capable of

influencing the political system make an effort to do so or
NARROW: when few people participate.
Political Systems
 Political Systems
Political Ideology: TOTALITARIANISM

Definition: Totalitarian system is one in which

individuals govern without the support of the
people, tightly control people’s lives, and do
not tolerate opposing viewpoints
 Political Systems
Political Ideology: TOTALITARIANISM
3 Features:

I
m
p
Lacko

f
s
o

ce
R
estrico
n
sd
d
t
arit
P
tu
tA
icp
ai
u
to
in
t
al
o
gh
n
u
aro
n
tes
r
i
t
y
 Political Systems
Political Ideology: TOTALITARIANISM
Common System types:
– Theoractical:
Political system in which a country’s religious
leaders are also its politcal leaders

– Secular:
Political leaders rely on military and bureaucractic
powers:
 Political Systems
Political Ideology: TOTALITARIANISM
Secular Totalitarianism (cont):
– It takes 3 forms:
• Communist: Belief that social and economic euality can
be obtained only by establishing an all-powerful
Communist Party and by granting the government
ownership and control over all types of economic
activity.
 Political Systems
Political Ideology: TOTALITARIANISM
– Secular (cont):
• Tribal totalitarianism: one tribe (or ethnic group)
imposes its will on others with whom it share national
identity

• Right-wing totalitarianism: the government endorses

private ownership pf property and market-based
economy but grants few (if any) political freedoms.
Leaders generally
 Political Systems
Political Ideology: DEMOCRACY
Definition:
Political system in which government leaders are
elected directly by the wide participation of the
people or by their representives

Representative democarcy
Democracy in which citizens elect individuals from
their groups to present their political views
 Political Systems
Political Ideology: DEMOCRACY
• Representative democarcy
• Freedom of expression
• Periodic Elections
• Full Civil and Property Rights
• Minority rights
• Nonopolitical Bureaucracy
 Doing International Business in Different
Political Systems
• Doing business in totalitarian countries
– (+) can be less concerned with local political opposition
– (-) can be vey risky: individual bureaucrats interprete law;
easily hurt by the oppressive host policies
• Doing business in democracies
– Maintain stable business environments
– Private sector: independently owned firms that seek to
earn profit
– Capitalism aka Free Market
 Political Systems
Political Systems in Times of Change

https://www.youtube.com/watch?
v=N4r0VUybeXY
 Political Systems
• Political Systems in Times of Changes

https://www.youtube.com/watch?v=e8OEuj6-p
Vg
 Political Risks

Definition:
Likelyhood that a society will undergo
poltical changes that negatively affect
local business
 Political Risks
Types of political risks:
• Conflict and violence
• Terrorism and kidnapping
• Property seizure
• Policy changes
• Local content requirement
 Political Risks
Managing Political Risk
– Adaptation: Incorporating risk into business
strategies, with the help of local officials
4 strategies:
• Partnership
• Localization
• Development assistance
• Insurance
 Political Risks
Managing Political Risk (cont’)
– Information gathering: Gather information that
helps to predict and manage political risks
2 sources:
• Current employees with relevant information
• Agencies specializing in Political-risk services
– Political influence
• Lobbying
• Foreign Corrupt Practice Act