Political and Legal EnvironmentPolitical and Legal Environment

© Luis Pachón© Luis Pachón

International Business IIInternational 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.

© Luis Pachón

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.

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Government Agencies.

– Government owned Business.

• Non public Institutions:

– Interest Groups.

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.

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• 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:Political process functions:

– Interest articulation.

– Interest aggregation (bringing together different

points of view)

Policy making.

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– Policy making.

– Policy implementation and adjudication.

• Hong Kong � transition 1997.

BASIC POLITICAL IDEOLOGIES

•• Political Ideology:Political Ideology:

– A body composed by complex ideas, theories and aims.

• Liberalism

• Conservatism

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• 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.

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• 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 George

Bernard ShawBernard Shaw

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Bernard ShawBernard Shaw

• Greeks � all citizens should be equal

politically and legally, enjoy widespread

freedoms, participate in the political process.

• Representative democracy.

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.

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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.

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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.

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– The extent of personal social freedoms.

– Freedom from extreme governmental indifference

and corruption.

© Luis Pachón

© Luis Pachón

RELIABILITY OF DEMOCRACY

• Democracies from the 70’s are unstable. �

Indonesia. CIS.

• Corruption, internal division, oligarchies,

military movements, destabilization from

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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

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• 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

• The development of communications help in an informed election.

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

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• 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.

TOTALITARIANISM

• Decision making is restricted to a few

individuals.

• Theocratic Totalitarianism

– Religious leaders are the political leaders.

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– 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:Fascism: Hitler, Mussolini, Franco

– Control people (brainwash)

•• Authoritarianism:Authoritarianism: Pinochet, Apartheid in

South Africa

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South Africa

– to rule people.

•• Communism: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.

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• 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.

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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.Types and causes of political risk.

• Opinions of political leadership.

– Moody leaders � Hugo Chavez – Evo Morales.

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• Civil disorder.

– Corralito Financiero. Argentina 2002.

– Crise économique France 2008 – 2009 kidnapping of personnel.

• External relations

– Animosities � Colombia – Equator

MICRO AND MACRO POLITICAL RISKS

• Micro � aimed to a specific foreign investment.

– Israel bombing of Palestinian settlements

– Israel � US � McDonalds + Muslim Immigrants + Nice = destruction.

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– Israel � US � McDonalds + Muslim Immigrants + Nice = destruction.

• Macro � affecting all foreign investment.

• Evo Morales � Nationalization of the exploitation of national interest resources.

GOVERNMENT INTERVENTION IN THE

ECONOMY

•• Individualistic paradigm: Individualistic paradigm: Government is essentially separate from business.

•• Communitarian paradigm Communitarian paradigm : the Government defines needs and priorities and partners with

© Luis Pachón

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.

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)

© Luis Pachón

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:Common Law: Based on tradition, precedent,

custom & usage.

•• Civil Law:Civil Law: Based on a very detailed set of laws

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•• Civil Law:Civil Law: Based on a very detailed set of laws

organized into a code. Also called Codified

Legal System.

•• Theocratic Law: Theocratic Law: Based on religious precepts.

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

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special interests to legislators and

administrators.

• 1830

• Regulation of Lobbying Act of 1946

ORGANIZATIONS THAT USE LOBBYING

• Corporations

• Financial institutions

• Labor unions

• Professional associations

• Educational groups

• Medical interests

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• 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

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

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opinion through advertising campaigns or by

influencing 'opinion leaders' or pundits,

thereby creating a climate for the change his

or her employer desires.