politics, law, and business ethics copyright © 2010 pearson education, inc. publishing as prentice...

Chapter 3 - 1International Business 5eCopyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Politics, Law, andPolitics, Law, andBusiness EthicsBusiness Ethics

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall


International Business 5e Chapter 3 - 2

• Describe each main type of political system

• Identify the origins of political risk and how managers can reduce its effects

• Describe each main type of legal system and important global legal issues

• Explain ethics and social responsibility and key issues facing international companies

• Explain how international relations affect international business activities

Chapter PreviewChapter Preview



Political IdeologiesPolitical Ideologies

Both private and public Both private and public groups need to balancegroups need to balance

each other’s powereach other’s power

Every aspect ofpeople’s lives must be

controlled to preserve order

Only individuals andOnly individuals andprivate groups canprivate groups can

preserve personal libertiespreserve personal liberties

TotalitarianismTotalitarianism AnarchismAnarchismPluralismPluralism



ImposedImposedauthorityauthorityImposedImposedauthorityauthority

Lack of Lack of constitutionalconstitutional

guaranteesguarantees

Lack of Lack of constitutionalconstitutional

guaranteesguarantees

RestrictedRestrictedparticipationparticipationRestrictedRestricted

participationparticipation

TotalitarianismTotalitarianism

Leaders govern without people’s supportLeaders govern without people’s support Government controls much of people’s livesGovernment controls much of people’s lives Leaders do not tolerate opposing viewpointsLeaders do not tolerate opposing viewpoints



Forms of TotalitarianismForms of Totalitarianism

Theocratic totalitarianism (totalitarian religious leadership)

Secular totalitarianism (military and bureaucratic leadership)

Tribal totalitarianismTribal totalitarianism

Communist totalitarianismCommunist totalitarianism

Right-wing totalitarianismRight-wing totalitarianism



DemocracyDemocracy

Government leaders are elected by the wide participation of the people or their representatives

Freedom of expression

Periodic elections

Full civil and property rights

Minority rights

Nonpolitical bureaucracies



Types of Political RiskTypes of Political RiskTypes of Political RiskTypes of Political Risk

Conflict and violenceConflict and violenceConflict and violenceConflict and violence

Policy changesPolicy changesPolicy changesPolicy changes

Terrorism and kidnappingTerrorism and kidnappingTerrorism and kidnappingTerrorism and kidnapping

Local content requirementsLocal content requirementsLocal content requirementsLocal content requirements

Property seizureProperty seizureProperty seizureProperty seizure



Arises from:Arises from:

People’s resentment toward government

Territorial disputes between nations

Ethnic, racial, or religious disputes

Reduces ability to:Reduces ability to:

Obtain materials and equipment

Manufacture and distribute products

Protect employees’ lives and firm’s assets

Conflict and ViolenceConflict and Violence



Fly nonstop when possible and avoid unsecured areas of airports

During your stay, vary your routines and means of transportation

Keep a low profile and refrain from loud, flashy behavior

Give friendly but cautious answers to personal questions

Know local emergency procedures before trouble strikes

Security checklist for managers on business abroad:

Terrorism and KidnappingTerrorism and Kidnapping



Property SeizureProperty Seizure

ConfiscationForced transfer of assets from a company to the government

without compensation

ExpropriationForced transfer of assets from a company to the government

with compensationNationalization

Forced asset transfer to the government of an entire

industry



Policies and LawsPolicies and Laws

Foreign ownership

Investment levels

Business activities

Foreign ownership

Investment levels

Business activities

Policy changes restrict: Local content requirements:

Specify the portionof a good or service

to be supplied by local firms



Managing Political Risk IManaging Political Risk I

AdaptationAdaptationIncorporate risk intoIncorporate risk intobusiness strategiesbusiness strategies

AdaptationAdaptationIncorporate risk intoIncorporate risk intobusiness strategiesbusiness strategies

LocalizationLocalization

Development assistanceDevelopment assistance

PartnershipsPartnerships

InsuranceInsurance



Managing Political Risk IIManaging Political Risk II

Agencies specializingAgencies specializingin political-risk servicesin political-risk services

Current employeesCurrent employeeswith relevant informationwith relevant information

Information gatheringInformation gatheringGather data to betterGather data to better

predict and manage riskpredict and manage risk

Information gatheringInformation gatheringGather data to betterGather data to better

predict and manage riskpredict and manage risk



Managing Political Risk IIIManaging Political Risk III

CorruptionCorruptionForeign Corrupt Practices Act

LobbyingLobbyingInfluencing local lawmakers

Influence local politicsInfluence local politicsPresent firm’s viewsPresent firm’s viewson political matterson political matters

Influence local politicsInfluence local politicsPresent firm’s viewsPresent firm’s viewson political matterson political matters



World’s Legal SystemsWorld’s Legal Systems

Common LawTradition, precedent, and usage

Civil LawCodified rules and statutes

Theocratic LawReligious teachings form law



Global Legal Issues IGlobal Legal Issues I

Intellectual property- Result of intellectual talent and abilities

- Piracy/counterfeits a serious problem

Patent Excludes all but the inventor from making, using, or selling the invention (WTO = 20 years)

Trademark Words or symbols that distinguish a product and its manufacturer ("Coca-Cola")

Copyright Freedom of creator to publish or dispose of original works as they choose ("Happy Birthday to You")



Global Legal Issues IIGlobal Legal Issues II

Standardization- Interpreting and applying laws uniformly

Product safety and liability- Responsibility for damage, injury, or death

Taxation- Income, sales, consumption and VAT

Antitrust (antimonopoly) laws- Prevent market sharing, price fixing, and

unfair advantage



Friedman ViewFriedman ViewFriedman ViewFriedman View Cultural RelativismCultural RelativismCultural RelativismCultural Relativism

UtilitarianismUtilitarianismUtilitarianismUtilitarianismRighteous MoralismRighteous MoralismRighteous MoralismRighteous Moralism

Philosophies of EthicsPhilosophies of Ethicsand Social Responsibilityand Social Responsibility

ETHICSPersonal behavior in accordance with rules

orstandards for right conduct or morality



Fight to eliminate bribery and corruption

Improve labor conditions and guard human rights

Practice fair trade to help the disadvantaged

Protect the environment and conserve resources

Corporate Social Corporate Social ResponsibilityResponsibility

Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies



International RelationsInternational Relations

Stable business environments

Improved business communications

Efficient distribution systems

Prompt and equitable dispute resolution

Expanded opportunities

Diminished risk levels

Favorable international political relations foster:



• Describe each main type of political system

• Identify the origins of political risk and how managers can reduce its effects

• Describe each main type of legal system and important global legal issues

• Explain ethics and social responsibility and key issues facing international companies

• Explain how international relations affect international business activities

Chapter ReviewChapter Review

Politics, Law, and Politics, Law, and Business EthicsBusiness Ethics


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