© Luis Pachón© Luis Pachón

Political and Legal Environment

International Business II

© Luis Pachón

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 – Nicaragua• UK – EU• China – Hong Kong• North Korea – South Korea

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POLITICAL ENVIRONMENTIt refers to:

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

• Non public Institutions:– Interest Groups.

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POLITICAL SYSTEM• A political system integrates the parts of a

society into a viable functioning unit.• Challenge integration of people of diff. 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, INTERGovernmental organizations, etc.

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POLITICAL SYSTEM• Political process functions:– Interest articulation.– Interest aggregation (bringing together different

points of view)– Policy making.– Policy implementation and adjudication.

• Hong Kong transition 1997.

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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.

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BASIC POLITICAL IDEOLOGIES

• Principle of Identity!!!

• Obama Liberal democracy.

• China Totalitarian Chinese Government.

• Myanmar fascist totalitarian government.

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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.

• Representative democracy.

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CHARACTERISTIC 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.

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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.

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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.

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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…

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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.

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DEMOCRACY

• The development of communications help in an informed election.

• Internet has helped to reduce the power of totalitarian regimes.

• Democracies are not perfect, but people believe that it is the best form of government.

• Trust - Politicians and Corruption.• Confidence on the government.• % of population voting.

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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

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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.

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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.

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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

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INGREDIENTS FOR POLITICAL RISK:

• Types and causes of political risk.

• Opinions of political leadership.– Moody leaders Kim Jong-un – Evo Morales.

• Civil disorder.– Arabian spring

• External relations– Animosities Ukraine – Russian Federation

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MICRO AND MACRO POLITICAL RISKS

• Micro aimed to a specific foreign investment.– Israel bombing of Palestinian settlements– Israel US McDonalds + Muslim Immigrants +

Nice (Fr) = destruction.

• Macro affecting all foreign investment.• Evo Morales Nationalization of the

exploitation of national interest resources.

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GOVERNMENT INTERVENTION IN THE ECONOMY

• Individualistic paradigm: Government is essentially separate from business.

• Communitarian paradigm : the Government defines needs and priorities and partners with business in a major way.

• Different agencies within the same government may differ on their attitudes toward foreign investment.

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ESTABLISHING A POLITICAL STRATEGY1. 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.

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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.

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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

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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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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.