Political and Legal

Environment
International Business II

INTRODUCTION
Multinational Enterprises operate in different countries
with different political and legal conditions.

Analyze if the corporate policies will fit a desirable

political and legal environment.

Colombia Venezuela
Germany Greece
China Hong Kong
North Korea South Korea

POLITICAL ENVIRONMENT
It refers to:
Public Institutions:
Government.
Government Agencies.
Government owned Business.
Non public Institutions:
Interest Groups.

POLITICAL SYSTEM
Challenge

integration of people of different ethnic or

cultural backgrounds.

It is influenced by forces within & outside the

country
Internal Forces: Nature of population, size & influence of
corporations & governmental bureaucracies, & the strength
of the politicians.
External Forces: International agreements, NGOs,
Governmental organizations, etc.

POLITICAL SYSTEM
Political process functions:

Interest articulation.
Interest aggregation (bringing together different points
of view)
Policy making.
Policy implementation and adjudication.

BASIC POLITICAL
IDEOLOGIES

Political Ideology:
A body composed by complex ideas, theories and aims.
Liberalism
Conservatism
Pluralism
Language
Ethnic Background
Tribal Groups
Religion

Political Instability investors away.

BASIC POLITICAL
IDEOLOGIES

Principle of Identity
Obama Liberal democracy.
China Totalitarian Chinese Government.
Myanmar Fascist totalitarian government.

DEMOCRACY VS.
TOTALITARISM
Democracy

Democracy is a device that ensures we shall be

governed no better than we deserve. George Bernard
Shaw

Greeks all citizens should be equal politically and

legally, enjoy widespread freedoms, participate in the
political process.

 http://www.youtube.com/watch?v=Arn8Fp1jyok

CHARACTERISTICS OF A
DEMOCRATIC GOVERNMENT

1.
2.
3.
4.
5.
6.

Freedom of opinion, expression, press and freedom to organize.

Elections in which voters decide who is to represent them.
Limited terms for elected officials.
An independent and fair court system, with high regard for
individual rights and property.
A nonpolitical bureaucracy and defense infrastructure.
An accessibility to the decision-making process.

POLITICAL RIGHTS AND CIVIL

LIBERTIES

Political rights
Degree of fair and competitive elections.
Endowment of the elected representatives with
real power.
Political parties or groups.
Safeguards on the rights of minorities.

POLITICAL RIGHTS AND CIVIL

LIBERTIES

Civil liberties
Freedom of the press.
Equality under the law for all individuals.
The extent of personal social freedoms.
Freedom from extreme governmental
indifference and corruption.

RELIABILITY OF DEMOCRACY

Democracies from the 70s are unstable. Indonesia.

CIS.
Corruption, internal division, oligarchies, military
movements, destabilization from abroad.
Two countries with a McDonalds have never fought each
other

DEMOCRACY

Election Systems
USA Direct elections.
UK Parliament.
Israel Both

Degree of centralized control

Power to provinces
States
Regions
Departments
This leads to variations within a country challenge for
managers to locate a business.

DEMOCRACY
Democracies are not perfect, but
people believe that it is the best form
of government.
We need to:
Trust - Politicians and Corruption.
Confidence on the government.
% of population voting.

TOTALITARIANISM

Decision making is restricted to a few individuals.

Theocratic Totalitarianism
Religious leaders are the political leaders.
Iran, Afghanistan

Secular Totalitarianism
Control is enforced through military power.
Cambodia, Iraq, North Korea

SOME FORMS OF
TOTALITARIANISM

Fascism: Hitler, Mussolini, Franco

Control people (brainwash)

Authoritarianism: Pinochet, Apartheid in South Africa

to rule people.

Communism: Russia and China.

Equal distribution of wealth.

Not free countries share one or more

of the following characteristics:

1.
2.
3.

Muslim majority fundamentalist Islam.

Multiethnic societies.
Neocommunist or post communist society.

. Transition to democracy instability.

. Totalitarianism as an element of cohesion amidst the
differences.

THE IMPACT OF THE POLITICAL

SYSTEM ON MANAGEMENT
DECISIONS.

Evaluation of political risk

Political risk the probability that political conditions

could change in the future and its operations could
deteriorate in a foreign country.

Boycotts and interest groups.

FTA Colombia and US

England, France Foie Gras

INGREDIENTS FOR
POLITICAL RISK:

Types and causes of political risk.

Opinions of political leadership.

Moody leaders Hugo Chavez Evo Morales.

Civil disorder.
Crise conomique France 2008 2009 kidnapping of
personnel.

External relations
Animosities Colombia Equator

POLITICAL RISK REDUCTION

STRATEGIES
Local partners
Minimizing assets at risk
Political risk insurance

POLITICAL MOTIVATION
Self-preservation
Security
Prosperity
Prestige
Ideology
Cultural identity

HOST GOVERNMENT ACTIONS

* OWNERSHIP RESTRICTIONS
* BOYCOTTS OF FIRMS
* TAKEOVERS
EXPROPRIATION: legal or formal seizure. With or without
compensation.
CONFISCATION: expropriation without any compensation.
DOMESTICATION: it could be represented in forced sales.

ESTABLISHING A POLITICAL
STRATEGY
1.
2.
3.
4.
5.
6.
7.

Identify the issue. (e.g. environmental standards)

Define the political aspect of the issue. (is it within the
political domain?)
Assess the potential political action of other companies
and special-interest groups. (Greenpeace)
Identify important institutions and key individuals.
(lobby / bribery)
Formulate strategies. (key objectives, the major alternatives)
Determine the impact of implementation. (fallout at home
and at the host country)
Select the most appropriate strategy and implement it.

THE LEGAL ENVIRONMENT

Kinds of legal systems:

Common Law: Based on tradition, precedent, custom &
usage.
Civil Law: Based on a very detailed set of laws
organized into a code. Also called Codified Legal System.
Theocratic Law: Based on religious precepts.

REGULATORY CHANGE
ALTER: The company can bargain to get the government
to alter its policy or actions
AVOID: The company can make strategic moves that
bypas the impact of a governments action
ACCEDE: The company can adjust its operations to
comply with a government requirement.
ALLY: The company can attempt to avoid some risks of
government actions by seeking strategic alliances

LOBBYING

Lobbying is the practice and profession of influencing

governmental decisions, carried out by agents who
present the concerns of special interests to legislators
and administrators.
1830
Regulation of Lobbying Act of 1946

LOBBYIST

Activist usually paid by an interest group to promote

their positions to legislatures.
A lobbyist can also work to change public opinion
through advertising campaigns or by influencing 'opinion
leaders' or pundits, thereby creating a climate for the
change his or her employer desires.

ORGANIZATIONS THAT USE

LOBBYING

Corporations
Financial institutions
Labor unions
Professional associations
Educational groups
Medical interests
Farm alliances
public interest and social issue groups

Common Cause
Mothers Against Drunk Driving
the National Abortion and Reproductive Rights Action League
the National Rifle Association
the National Coalition for the Homeless