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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, NGO’s,
     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.   Freedom of opinion, expression, press and freedom to organize.
2.   Elections in which voters decide who is to represent them.
3.   Limited terms for elected officials.
4.   An independent and fair court system, with high regard for
     individual rights and property.
5.   A nonpolitical bureaucracy and defense infrastructure.
6.   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 70’s 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.    Muslim majority – fundamentalist Islam.
2.    Multiethnic societies.
3.    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 économique 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.   Identify the issue. (e.g. environmental standards)
2.   Define the political aspect of the issue. (is it within the
     political domain?)
3.   Assess the potential political action of other companies
     and special-interest groups. (Greenpeace)
4.   Identify important institutions and key individuals. (lobby
     / bribery)
5.   Formulate strategies. (key objectives, the major alternatives)
6.   Determine the impact of implementation. (fallout at home
     and at the host country)
7.   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 government’s 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

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Political and legal environment

  • 1. Political and Legal Environment International Business II
  • 2. 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
  • 3. POLITICAL ENVIRONMENT It refers to:  Public Institutions: Government. Government Agencies. Government owned Business.  Non public Institutions: Interest Groups.
  • 4. 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, NGO’s, Governmental organizations, etc.
  • 5. POLITICAL SYSTEM Political process functions: – Interest articulation. – Interest aggregation (bringing together different points of view) – Policy making. – Policy implementation and adjudication.
  • 6. 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.
  • 7. BASIC POLITICAL IDEOLOGIES Principle of Identity  Obama  Liberal democracy.  China  Totalitarian Chinese Government.  Myanmar  Fascist totalitarian government.
  • 8. 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.
  • 10. CHARACTERISTICS OF A DEMOCRATIC GOVERNMENT 1. Freedom of opinion, expression, press and freedom to organize. 2. Elections in which voters decide who is to represent them. 3. Limited terms for elected officials. 4. An independent and fair court system, with high regard for individual rights and property. 5. A nonpolitical bureaucracy and defense infrastructure. 6. An accessibility to the decision-making process.
  • 11. 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.
  • 12. 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.
  • 13. RELIABILITY OF DEMOCRACY  Democracies from the 70’s are unstable.  Indonesia. CIS.  Corruption, internal division, oligarchies, military movements, destabilization from abroad.  Two countries with a McDonalds have never fought each other…
  • 14. 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.
  • 15. 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.
  • 16. 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
  • 17. 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.
  • 18. Not free countries share one or more of the following characteristics: 1. Muslim majority – fundamentalist Islam. 2. Multiethnic societies. 3. Neocommunist or post communist society. • Transition to democracy  instability. • Totalitarianism as an element of cohesion amidst the differences.
  • 19. 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
  • 20. INGREDIENTS FOR POLITICAL RISK: • Types and causes of political risk. • Opinions of political leadership. – Moody leaders  Hugo Chavez – Evo Morales. • Civil disorder. – Crise économique France 2008 – 2009 kidnapping of personnel. • External relations – Animosities  Colombia – Equator
  • 21. POLITICAL RISK REDUCTION STRATEGIES Local partners Minimizing assets at risk Political risk insurance
  • 23. 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.
  • 24. ESTABLISHING A POLITICAL STRATEGY 1. Identify the issue. (e.g. environmental standards) 2. Define the political aspect of the issue. (is it within the political domain?) 3. Assess the potential political action of other companies and special-interest groups. (Greenpeace) 4. Identify important institutions and key individuals. (lobby / bribery) 5. Formulate strategies. (key objectives, the major alternatives) 6. Determine the impact of implementation. (fallout at home and at the host country) 7. Select the most appropriate strategy and implement it.
  • 25. 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.
  • 26. 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 government’s 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
  • 27. 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
  • 28. 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.
  • 29. 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