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International

Business
Environments & Operations
Governmental and Legal
System

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The Political Environment
 Every country has its own political and legal
environment
 Companies must determine where, when, and
how to adjust their business practices to succeed
 Managers evaluate, monitor, and forecast political
environments
 A country’s political system refers to the
structural dimensions and power dynamics of its
government that specify institutions,
organizations, and interest groups, and define
the norms that govern political activities
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Individualism vs. Collectivism
 Our political system emanates from our
philosophical belief or orientation, our
thought process, how we want to govern
ourselves
 Individualism: primacy of the rights and role
of the individual
 Collectivism: primacy of the rights and role of
the community

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Political Ideology
 A political ideology stipulates how society
ought to function and outlines the methods by
which it will do so. It affects government
spending, trade, and investment.
 Most modern societies are pluralistic
 different groups champion competing political
ideologies, examples: Democrats vs.
Republicans in the United States

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Spectrum Analysis
 A political spectrum outlines the various
forms of political ideology
 Political freedom measures
 the degree to which fair and competitive
elections occur
 the extent to which individual and group
freedoms are guaranteed
 the legitimacy ascribed to the general rule of
law
 the freedom expression

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Totalitarianism
 A totalitarian system subordinates the
individual to the interests of the collective
 monopolization of power by a single agent--
opposition is neither recognized nor tolerated.
 dissent is eliminated through indoctrination,
persecution, surveillance, propaganda,
censorship, and violence
 Prominent types of totalitarianism include
 Authoritarianism
 Fascism
 Secular
 Theocratic
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The Standard of Freedom
 Freedom House, and independent
watchdog organization, assesses political
and civil freedom around the world
 Freedom House recognizes three types of
political systems
 Free
 Partly free
 Not free

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The Standard of Freedom
Map of Political Freedom, 2013

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Third Wave of Democratization
 Third Wave of Democratization
 number of democracies doubled in two
decades
 Engines of Democracy
1. The failure of totalitarian regimes to deliver
economic progress
2. Improved communications technology
3. Economic dividends of increasing political freedom

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Democracy:
Recession and Retreat
 Democracy’s retreat
 just 26 of the world’s democracies are full
democracies
 Engines of Authoritarianism
 Political economy of growth
 Rhetoric vs. Reality - Inconsistencies
 Economic problems
 Who defines Democracy?

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Democracy:
Recession and Retreat
Freedom in the World: Gains and Declines

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Political Ideology and the MNE
 MNE adapts to the political ideology of the
country
 What will the political map look like in the
future?
 The Washington Consensus
 The Beijing Consensus
 The Clash of Civilizations

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Political Risk
 Political risk refers to the risk that
political decisions or events in a country
negatively affect the profitability or
sustainability of an investment
 Types of Political Risk: Systemic,
Procedural, Distributive, Catastrophic
 Political Risk may involve Nationalization
by the State (Confiscation, Expropriation,
and Domestication)

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Classifying Political Risk
Characteristics of Political Risk

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Managing Political Risks
 Be a good corporate citizen (example:
participate in development projects,
literacy etc.)
 Expand power bases through business
relationships (example: joint venture,
licensing, political payoffs etc.)
 Study government attitude and participate
government incentive programs
 Maintain good relationship with political
allies, other embassies in the country
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The Legal Environment
 The legal system is the mechanism for
creating, interpreting, and enforcing the
laws in a specified jurisdiction.
 Types:
 Common law [based on precedent, traditions]
 Civil law [based upon a set of laws that
comprise a code]
 Theocratic law [based upon religious precepts]
 Customary law [local customs and practices,
example- indigenous societies]
 Mixed systems
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The Legal Environment
The Wide World of Legal Systems

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Trends in Legal Systems
 What is the basis of rule in a country?
 The rule of man
 legal rights derive from the individual who
commands the power to impose them
 associated with a totalitarian system

 The rule of law


 systematic and objective laws applied by
public officials who are held accountable for
their administration
 associated with a democratic system

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Trends in Legal Systems
The Worldwide Practice of the Rule of Law

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Implication for Managers
 Operational concerns/issues
 Starting a business
 Making and enforcing contracts
 Hiring and firing local workers
 Closing down the business
 Strategic concerns/issues
 Country Characteristics
 Product safety and liability
 Legal jurisdiction
 Intellectual property
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Intellectual Property:
Rights and Protection
 Intellectual property refers to creative
ideas, expertise, or intangible insights that
grant its owner a competitive advantage
 Intellectual property rights refer to the
right to control and derive the benefits
from writing, inventions, processes, and
identifiers
 no “global” patent, trademark or copyright
exists

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Intellectual Property:
Rights and Protection
 Attitudes towards intellectual property
 Historical legacies
 rule of man versus rule of law

 Economic circumstances
 levels of economic development

 Cultural orientation
 individualism versus collectivism

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