International Business Chapter 3 - Politics and Law - Summary

Chapter 3 - Politics and Law - Summary

Political systems

A political system consists of the structures, processes, and activities by which a nation governs itself. In a democratic system, leaders are elected directly by the wide participation of the people or the people's representatives. Most democracies take the form of a representative democracy, in which citizens nominate individuals from their groups to represent them.

In a totalitarian system, individuals govern without the people support, maintain control over most aspects of people's lives, and do not tolerate opposing viewpoints. Under a theocratic totalitarianism, countries religious leaders enforce laws and regulations based on religious and totalitarian beliefs. Under secular totalitarianism, political leaders rely on military and bureaucratic power.

Secular totalitarianism takes three forms. Under Communist totalitarianism, the government aims for social equality by cleaning economic activity. Under tribal totalitarianism, one tribe imposes its will on others in the country. Right-wing totalitarianism is capitalist economics without political freedom.

Managers can reduce effects of political risk.

Political risk is the likelihood that a government or society will undergo political changes that negatively affect business activity.

Political risk arises from:

• corrupt or poor political leadership
• frequent changes in the form of government
• political involvement of religious or military leaders
• unstable political systems
• conflict among races, religions, or ethnic groups
• poor relations with other countries

Macro risk threatens all companies in a nation regardless of the industry. Micro risk threatens firms in a particular industry or smaller groups.

There are five main forms of political risk:

1. conflict and violence
2. terrorism and kidnapping
3. property seizure
4. policy changes
5. local content requirements

Property seizure -- the taking of company assets by a local government -- may take one of three forms

1. confiscation
2. expropriation
3. nationalism

The main strategies used to manage political risk are:

• adaptation -- incorporating risk into business strategy
• information gathering -- monitoring local political events
• political influence -- such as lobbying local political leaders

Legal systems

a legal system is a countries set of laws and regulations, including the processes by which its laws are enacted and enforced in the way in which its courts hold parties accountable for their actions. There are three categories of legal systems. Under common law, the justice system decides cases by interpreting the law on the bases of tradition, precedent, and usage. Civil law is based on a detailed set of written rules and statutes that constitute a legal code. All obligations, responsibilities, and privileges follow directly from the written code. Theocratic law is based on religious teachings.

National companies face legal and ethical issues

although there is no well-defined body of international law, some efforts are being made to achieve standardization -- uniformity in interpreting and applying laws and more than one country.

Chief legal issues facing international businesses are:

• protection of property rights
• protection of intellectual property
• product liability standards
• taxation policies
• antitrust regulations
• ethical dilemmas and social responsibility

International relations

Political relations between a company's home country and those with which it does business strongly affect its international activities. In general, favorable political relations lead to increased opportunity and stable business environments. The mission of the United Nations is to provide leadership and fostering peace and stability around the world. Although its global peacekeeping efforts have had mixed results, it's many agencies continue to aid poorer nations by providing food and medical supplies, educational supplies and training, and financial resources.