Political and Legal

Environment

© Oxford University Press 2015. All rights

reserved.
 Significance of understanding International
Political and Legal Environment
•An international firm needs to operate in countries having diverse
political and legal frameworks that, at times, conflict with its home
country.
•Value judgments made from the perspective of the home country
considerably hinders objective decision-making in the diverse
international scenario.
•Therefore, a thorough conceptual understanding of political and legal
environments affecting international marketing operations is needed.

© Oxford University Press 2015. All rights

reserved.
 International Political Environment

The political environment of the country of operation becomes

increasingly important for an internationalizing firm as it moves
from exports to foreign direct investment (FDI). Cordial political
relations between the firm’s home country and the host
countries have a direct favorable impact on its foreign
operations.

© Oxford University Press 2015. All rights

reserved.
 Political System

It comprise of various stakeholders, such as the government,

political parties with different ideologies, labour unions, religious
organizations, environmental activists, and various NGOs.

© Oxford University Press 2015. All rights

reserved.
 Political Ideology

A set of ideas or beliefs that people hold about

their political regime and its institutions about
their position and role in it.

© Oxford University Press 2015. All rights

reserved.
 Types of Government: Economic Systems

Communism: Form of government based on the concept of a classless society

where all the major factors of production are owned by the government and shared

by all the people rather than profit-seeking enterprises, for the benefit of the

society.

Socialism: A form of government where basic and heavy industries are operated by

the government so as to ensure social welfare objectives wherein small businesses

may be privately owned.

Capitalism: An economic system which provides complete freedom of private

ownership of productive resources and industries.

© Oxford University Press 2015. All rights

reserved.
Types of Government: Political Systems
Democracy: Government by the people where citizens are
directly involved in decision making.
Totalitarianism: Dictatorial form of centralized government,
usually in the hands of a dictator who regulates every aspect of
the state. Various forms of totalitarianism include
– Secular totalitarianism
– Fascist totalitarianism
– Authoritarian totalitarianism
– Communist totalitarianism
– Theocratic totalitarianism
© Oxford University Press 2015. All rights
reserved.
 Types of Government: Structure

• Parliamentary: The government consults its citizens from time to

time and the parliament has power to formulate and execute laws.
• Commonwealth Countries: Countries representing constitutional
monarchies which recognize Queen Elizabeth II as head of the sate
over an independent government.
• Monarchies: Countries that have monarchs as the heads of
government. There may be either constitutional or absolute
monarchies.

© Oxford University Press 2015. All rights

reserved.
Types of Government: Structure (contd)

• Theocracy: The rule of god where the civil leader is believed to

have a direct personal connection with god.

• Trade Embargos: Prohibiting trade completely with a country so as

to economically isolate it and apply political pressure on its

government.

• Trade Sanctions: Imposing selective coercive measures to restrict

trade from a country .

© Oxford University Press 2015. All rights
reserved.
Types of Government: Structure (contd)

Bureaucracy: Form of administration based on hierarchical

structure governed by a set of written rules and established
procedures. The term is often used to describe inefficient and
obstructive administrative process and red-tapism.

Terrorism: Systematic use of violence to create fear in general

public with an objective to achieve a political goal or convey a
political message.

© Oxford University Press 2015. All rights

reserved.
 International Legal Environment
• Firms operating internationally face major
challenges in conforming to different laws,
regulations, and legal systems in different
countries. International mangers need to
understand the types of legal systems
followed in the countries of their operations
before entering into legal contracts.

© Oxford University Press 2015. All rights

reserved.
 Judicial Independence and Efficiency

A fair judicial system also reduces political risks in overseas

markets. The level of judicial independence and efficiency differs
widely among countries.

© Oxford University Press 2015. All rights

reserved.
 International Legal Systems
Common Law: Law based on traditions, past practices, and legal
precedents set by the courts through interpretation of statutes,
legal legislations, and past rulings. It depends less on written
statutes and codes.

Common law originated from England and it is followed in most

of the former British colonies, such as India, United Kingdom, the
United States, Canada, Australia, and New Zealand

© Oxford University Press 2015. All rights

reserved.
 International Legal Systems (contd)
Civil Law: Law based on a comprehensive set of written statutes. It is
derived from the Roman law and is followed in most of continental
Europe, Japan, and Latin America.
Socialistic Law: Socialist law traditionally advocates ownership of most
property by the state or state-owned public enterprises, prohibiting
free entry to foreign firms.
This law is derived from the Marxist socialist system and continues to
influence legal framework in former communist countries, such as the
CIS, China, North Korea, Vietnam, and Cuba.

© Oxford University Press 2015. All rights

reserved.
International Legal Systems (contd)
• Theocratic Law: The legal system based on
religious doctrine, precepts, and beliefs. For
instance, the Hebrew law and the Islamic law
are derived from religious doctrines and their
scholarly interpretations.

© Oxford University Press 2015. All rights

reserved.
 Principles of International Law
• International law is less coherent compared to
domestic law since it embodies a multiplicity
of treaties and conventions besides the laws
of individual countries.

© Oxford University Press 2015. All rights

reserved.
 Principles of International Law(contd)

• Principle of Sovereignty
• International Jurisdiction
– Nationality Principle
– Territoriality Principle
– Protective Principle

• Doctrine of Comity
• Act of State Doctrine
• Treatment and Right of Aliens
• Forum for Hearing and Setting Disputes
© Oxford University Press 2015. All rights
reserved.
 UNITED NATIONS COMMISSION ON
INTERNATIONAL TRADE LAW (UNCITRAL)
• Established in 1966, UNCITRAL aims to reduce
and harmonize and unify the laws of
international trade.

© Oxford University Press 2015. All rights

reserved.