The Political and Legal Environments Facing Business

I. INTRODUCTION For a multinational enterprise to succeed in countries with different political and legal environments, its management must carefully analyze the fit between its corporate policies and the political and legal conditions of each particular nation in which it operates. II. T E POLITIC!L EN"IRON#ENT A countrys political system integrates the various parts of its society into a viable, functioning whole. It also influences the extent to which government intervenes in business, and thus the way in which business is conducted both domestically and internationally. III. B!$IC POLITIC!L IDEOLO%IE$ A political ideology is the body of constructs, theories and aims that constitute a sociopolitical program (e.g., liberalism or conservatism . Pluralism indicates the coexistence of a variety of ideologies within a particular society. !he ultimate test of any political system is its ability to hold a society together. "hile shared ideologies create bonds within and among countries, differing ideologies tend to split societies apart. !. The Im&act o' Ideological Di''erences on National Boundaries

#istory, culture, politics and geography all contribute to the definition of national boundaries. "hen a political system collapses, those under the system often fragment into smaller sociopolitical groups. "hen operating in a foreign country, it is very important for managers to understand feelings that could cause political tension and instability. B. The Political $&ectrum $%&s may be able to operate effectively in both democratic and totalitarian regimes, but democracies usually offer greater economic freedom and enact more legal statutes designed to safeguard individual and corporate rights. '. Democrac(. A democracy represents a political system in which citizens participate in the decision(ma)ing and governance process, either directly or through elected representatives. *ontemporary democracies share the following characteristics+ freedom of opinion, expression and the press, freedom to organize, free elections, an independent and fair court system, a nonpolitical bureaucracy and defense infrastructure, and access to the decision(ma)ing process. %onetheless, in decentralized democracies (e.g., *anada and the -.A companies may still face different and sometimes even conflicting laws from one state or province to another. a. Political Rights and Civil Li)erties. Political rights include fair and competitive elections, the empowerment of elected representatives, the right to organize and the protection of minorities. Civil liberties include freedom of the press, e/uality under the law and personal freedoms.

b. $ta)ilit( in Democracies. $any democracies that have emerged since the early '012s are fragile and unstable. At the same time, confidence in politicians and government has generally declined in many of the more mature democracies. 3 .Totalitarianism. Totalitarianism represents a political system in which citizens seldom if ever participate in the decision(ma)ing and governance process, power is monopolized and opposition is neither recognized nor tolerated. In theocratic totalitarianism, religious leaders are also the political leaders. In secular totalitarianism, the government usually imposes order through military power. 4ariants of totalitarianism include fascism, authoritarianism and communism. I". T E I#P!CT OF T E POLITIC!L $*$TE# ON #!N!%E#ENT DECI$ION$ !. Political Ris+ Political risk reflects the expectation that the political climate in a foreign country will change in such a way that a firms operating position will deteriorate. '. T(&es and Causes o' Political Ris+. 5olitical actions that may adversely affect a firms operations would include government ta)eovers of property, operational restrictions and damage to property or personnel. In addition, civil unrest and disorder and antagonistic external relations (including boycotts and other forms of protest may also negatively impact a firms operations. 3. #icro and #acro Political Ris+s. Micro political risks are those aimed only at specific foreign investments (e.g., a particular $%& , whereas macro political risks affect a broad spectrum of foreign investors. B. %overnment Intervention in the Econom(

"hen companies move abroad, management must deal with governments that may have different attitudes about their roles in their respective economies6attitudes which may be inconsistent over time. -nder an individualistic paradigm the government believes in minimal interference in the economy, it may intervene to deal with mar)et defects but generally promotes mar)etplace competition. -nder a communitarian paradigm, however, whether democratic (7apanese or authoritarian (*hinese in nature, the government defines economic needs and priorities and partners with business in ma8or ways. ". FOR#UL!TIN% !ND I#PLE#ENTIN% POLITIC!L $TR!TE%IE$ Formulating political strategies may be more complicated than formulating competitive mar)etplace strategies. 9ogical steps include+ identifying the issues, defining the nature of the issues, assessing the potential actions of others, identifying )ey players, formulating alternative strategies, assessing the potential impact of particular activities and selecting and implementing the most appropriate strategy. "I. T E LE%!L EN"IRON#ENT $anagers must be aware of the legal systems in the countries in which their firms operate, the basic nature of the legal profession (both domestic and international and the

legal relationships that exist between and among countries. 9egal systems differ both in terms of the nature of the system and the degree of independence of the 8udiciary from the political process. !. ,inds o' Legal $(stems '. Common La-. Common law originated in the -nited :ingdom and is based upon tradition, precedent, custom and usage, therefore, courts play an important role in interpreting the law. 3. Civil La-. Civil law, also )nown as codified law, originated with the ;omans and is based upon a detailed set of laws that ma)e up a detailed code that includes rules for conducting business, courts play an important role in applying the law. <. Theocratic La-. Theocratic law is based upon religious precepts. !he best example is Islamic law, or Shaira. !he )ey for businesses is to adhere to the constraints of ancient Islamic laws while maintaining sufficient flexibility to operate in a modern global economy. B. Consumer $a'eguards =ifferent legal systems provide varying safeguards with respect to product liability and other legal issues. For example, access to and assistance from the legal community, legal fees and the ability to use foreign lawyers all differ across countries. C. The Legal Pro'ession Although lawyers and law firms vary in terms of how they practice law and service clients, $%&s must use lawyers for a variety of services, such as negotiating contracts, formalizing agent(distributor relationships and protecting intellectual property. 7ust as $%&s have expanded abroad to ta)e advantage of international business opportunities, law firms have expanded abroad to service their clients. !he )ey for managers doing business overseas is to choose a law firm with the needed expertise and overseas connections, whether through the companys own offices, a merger, or correspondent relationships. D. Legal Issues in International Business %ational laws may affect the business climate both within and beyond a countrys borders and pertain to both domestic and foreign firms. Areas addressed include health and safety standards, employment practices, antitrust prohibitions, contractual relationships, environmental practices, intellectual property, cross(border investment flows, tariffs and non(tariff barriers, to name but a few. In addition, international treaties among nations may also affect the nature and extent of business operations.