International Business and

Trade
Political and Legal Environments Facing Business
Learning Goals and Standards
• To discuss the different goals and functions of political
systems.
• To profile trends in the emergence and diffusion of
political system.
• To identify the idea of political risk and approaches to
managing it.
• To understand how different political and legal
systems affect the conduct of business.
Learning Goals and Standards
• To profile trends in evolution and diffusion of legal
system.
• To explain the major legal issues facing international
companies.
• To profile the idea of intellectual property and the
basis of concern and controversy.
Introduction
Political and legal systems across countries both
converge and vary. The cultural and legal, and economic
systems create the potential benefits, costs, and
challenges of the business environment in a country.
Political systems can be assessed according to two
dimensions: the degree to which they emphasize
individualism as opposed to collectivism, and the degree
to which they are democratic as opposed to totalitarian.
Introduction

Collectivism reasons that the needs of society take

precedence over the needs of the individual.
Collectivism encourages state intervention in society in
the belief that government's role is to define the needs
and priorities of a country. Individualism sees the
primacy of the individual's freedoms in the political,
economic, and cultural realms.
Introduction

Individualism endorses minimal intervention in the

economy by the government. Democracy and
totalitarianism are at opposite ends of the political
spectrum. In a representative democracy, there is wide
participation in the decision-making process.
Lesson Presentation
The role of the political system is to integrate society.
Political process functions include
• Interest articulation
• Interest aggregation
• Policy making
• Policy implementation and adjudication
Lesson Presentation
Individualism refers to the primacy of the rights and
role of the individual.
Collectivism refers to the primacy of the rights and role
of the community.
Political officials and agencies have a limited role in an
individualistic society.
Political officials and agencies have an extensive role in
a collectivist society.
Lesson Presentation
Political ideology a body of construct, theories, and
aims that constitute a sociopolitical program.
Pluralism the coexistence of different ideologies.
The ultimate test of any political system is its ability to
hold a society together despite pressures from different
ideologies.
The two extremes on the political spectrum are
democracy and totalitarianism.
Lesson Presentation
Democratic system involve wide participation by
citizens in the decision making process.
Representative democracy majority rule is achieved
through periodic elections.
The defining feature of democracy is freedom.
Factors for evaluating freedom.
• Political rights
• Civil liberties
Lesson Presentation
In terms of political freedom a country rated as either.
• Free in that it has a high degree of political rights and
civil liberties.
• Partly free in that it has tolerable degrees of political
rights and civil liberties.
• Not free in that it has low degrees of political rights
and civil liberties.
Lesson Presentation
In a totalitarian system, decision making is restricted to
a few individuals.
Authoritarianism one person or a small group has
absolute control over all others.
Fascism extreme form of nationalism that calls for the
supremacy of the state.
Secular totalitarianism control is enforced through
military power
Lesson Presentation
Theocratic totalitarianism religious leaders are the
political leaders.
The trend towards democracy is increasing. Key drivers
include
• Breakdown of totalitarian regimes.
• Improved communication technology
• Higher standards of living
Lesson Presentation
The internet, by liberating communication, constrained
government’ capability to regulate information flows
within and across countries.

Political risk the risk that political decisions or events in

a country negatively affect the profitability or
sustainability of an investment.
Lesson Presentation
Types of political risk
• Systematic
• Procedural
• Distributive
• Catastrophic
A legal system is the mechanism for creating,
interpreting, and enforcing the laws in a specified
jurisdiction.
Lesson Presentation
Legal system differ from country to country.
Government action isn’t always consistent different
agencies may have different attitudes towards business
issues.
A common law system is based on tradition, precedent,
custom and usage, and interpretation by the courts.
A civil law system is also called a codified legal system.
Lesson Presentation
A theocratic legal system is based on religious precepts.
A customary legal system follows the wisdom of daily
experience.
A mixed legal system combines elements of other
systems.
Trends are apparent in the adoption of legal systems
across countries.
Lesson Presentation
Impact on laws on international business
• National laws affects all local business activities.
• National laws affect cross border activities.
• International treaties and conventions may govern
some cross border transactions.
Legal regulations either impact day to day operations or
affect companies long term competitiveness.
Lesson Presentation
Operational concerns include
• Starting a business.
• Entering and enforcing contracts.
• Hiring and firing a local workers.
• Closing down the business.
Lesson Presentation
Strategic concerns include
• Product safety and liability.
• Marketplace behavior
• Product origin
• Legal jurisdiction
• Arbitration
Intellectual property the general term for intangible
property rights that are a result of intellectual effort.
Lesson Presentation
Intellectual property right refer to the right to control
and derive the benefits from writing, inventions,
processes, and identifiers.
Legal problems and conditions complicate specifying,
regulating, and enforcing intellectual property rights.
Generally, poorer countries provide weaker legal
protection of intellectual property than do rich
countries.
Lesson Presentation
Cultural attitudes influence the protection of intellectual
property rights. Individualist societies are more vigilant
than collectivist societies.
Integration
“Whoever claims to love God yet hates a brother or
sister is a liar. For whoever does not love their brother
and sister, whom they have seen, cannot love God,
whom they have not seen”. 1 John 4:20
What political and legal environments facing business
today? Site a country and explain the real situation.
Assessment
What political and legal factors influence the
distribution of the following and What political and
legal variables would you recommend?
a. Power (electricity)
b. Water
c. Telco