Political and Legal Environment

Political and Legal EnvironmentInternational Business IIINTRODUCTIONMultinational 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 VenezuelaGermany GreeceChina Hong KongNorth Korea South KoreaPOLITICAL ENVIRONMENTIt refers to:

Public Institutions:Government.Government Agencies.Government owned Business.

Non public Institutions:Interest Groups.

POLITICAL SYSTEMChallenge 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 SYSTEMPolitical process functions:

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

BASIC POLITICAL IDEOLOGIESPolitical Ideology:A body composed by complex ideas, theories and aims.LiberalismConservatismPluralismLanguageEthnic BackgroundTribal GroupsReligion

Political Instability investors away.BASIC POLITICAL IDEOLOGIESPrinciple of Identity

Obama Liberal democracy.China Totalitarian Chinese Government.Myanmar Fascist totalitarian government.DEMOCRACY VS. TOTALITARISMDemocracy

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 GOVERNMENTFreedom 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 LIBERTIESPolitical 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 LIBERTIESCivil 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 DEMOCRACYDemocracies 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 otherDEMOCRACYElection Systems

USA Direct elections.UK Parliament.Israel Both

Degree of centralized control

Power to provincesStatesRegionsDepartments

This leads to variations within a country challenge for managers to locate a business.DEMOCRACYDemocracies 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.TOTALITARIANISMDecision making is restricted to a few individuals.Theocratic TotalitarianismReligious leaders are the political leaders.Iran, AfghanistanSecular TotalitarianismControl is enforced through military power.Cambodia, Iraq, North KoreaSOME FORMS OF TOTALITARIANISMFascism: Hitler, Mussolini, FrancoControl people (brainwash)Authoritarianism: Pinochet, Apartheid in South Africato rule people.Communism: Russia and China.Equal distribution of wealth.

Not free countries share one or more of the following characteristics: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 USEngland, France Foie GrasINGREDIENTS 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 relationsAnimosities Colombia EquatorPOLITICAL RISK REDUCTION STRATEGIESLocal partners

Minimizing assets at risk

Political risk insurancePOLITICAL MOTIVATIONSelf-preservation

Security

Prosperity

Prestige

Ideology

Cultural identityHOST GOVERNMENT ACTIONS* OWNERSHIP RESTRICTIONS

* BOYCOTTS OF FIRMS

* TAKEOVERSEXPROPRIATION: legal or formal seizure. With or without compensation.

CONFISCATION: expropriation without any compensation.

DOMESTICATION: it could be represented in forced sales.ESTABLISHING A POLITICAL STRATEGYIdentify 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 ENVIRONMENTKinds 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 CHANGEALTER: 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 alliancesLOBBYINGLobbying is the practice and profession of influencing governmental decisions, carried out by agents who present the concerns of special interests to legislators and administrators.1830Regulation of Lobbying Act of 1946LOBBYISTActivist 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 LOBBYINGCorporationsFinancial institutionsLabor unionsProfessional associationsEducational groupsMedical interestsFarm alliancespublic interest and social issue groupsCommon CauseMothers Against Drunk Drivingthe National Abortion and Reproductive Rights Action Leaguethe National Rifle Associationthe National Coalition for the Homeless