Chapter 4 - Political and Legal systems in National Environments Flashcards
What is country risk?
- potential loss or adverse affects on a company operations/profitability
- political/legal systems that pose challenges for company performance
What is a political system?
- formal institutions that constitute a government
-Totalitarianism, Socialism, Democracy
Totalitarianism
- gov. controls all matters
- either religion based or secular
- led by a dictator; power through secret police, propaganda, regulating freedom
Socialism
- group welfare > individual welfare
- gov. role = control production, distribution and commercial activity
Democracy
- limited gov: performs essential
functions (maintaining law &
order, foreign relations, and providing basic
infrastructure) - individuals accumulating private wealth including land, buildings, stocks, contracts & patents
Democracy = openness which is associated with …
- successful market entry
- increased market demand
- competition on quality which also leads to efficiency and lower prices
Functions of political systems
- provide protection
- ensure stability with laws
- govern the allocation of resources
- define how society should interact
What are the four major types of legal systems?
1) Common Law
2) Civil Law
3) Religious law
4) Mixed systems
Common Law
- tradition, past practices, and legal
precedents set by courts - judges can interpret the law based on circumstances (flexible law)
Civil Law
- system of laws that have been “codified” (clearly written by leg. bodies)
- not strongly subject to interpretation by courts
Religious law
- influenced by religious beliefs, ethical codes, and moral values
- based on Hindu, Jewish, and Islamic law.
Mixed Systems
- two or more legal systems operating together
- civil and common often work together (democracy)
Actors/figures within political and legal systems
1) government - operates national & local levels
2) International orgs. - WTO, UN, World Bank
3) Regional economic blocs - EU, NAFTA
4) Special interest groups - labor unions and environmental advocates
5) competing firms - oppose foreign firms
Gov. takeover of corporate assets
Confiscation - seizure of corporate assets without compensation Expropriation - Asset seizure with compensation
Nationalization - A takeover of an entire industry, with or without compensation
What are sanctions?
- bans on international trade
- usually initiated by countries that feel their peace has been jeopardized
What are Embargoes?
- bans on exports or imports that forbid trade within specific countries
Boycotts against Firms and Nations
- Voluntary refusal to engage in commercial dealings with a nation or a company
War and insurrection
Indirect effects can be disastrous for company activities
Terrorism
threat or actual use of force or
violence to attain a political goal through fear and intimidation
Country risks arising from the host country’s legal environment
1) Foreign investment laws
2) Controls on operating forms and practices - laws and regulations on how firms can conduct
production, marketing, and distribution
3) Marketing and distribution laws -regulate practices in advertising, promotion, and distribution
4) Laws regarding income repatriation - limit the amount of
net income or dividends that firms bring back into country
5) Environmental laws - aim to preserve natural
resources, combat pollution, and ensure safety
6) Inadequate or underdeveloped legal systems - poor enforcement of existing laws
7) Internet and e-commerce regulations
What is Extraterritoriality?
application of home-country
laws to other countries
Foreign Corrupt Practices Act
- made it illegal to offer bribes to foreign parties
- foreign competitors are
usually not so constrained, therefore harms US
Antiboycott regulations
prevent companies from
participating in restrictive trade practices
Transparency in financial reporting
degree to which firms regularly reveal substantial financial and accounting information (varies worldwide)
Proactive environmental scanning
Management should develop a comprehensive understanding of
the political and legal environment in target countries
Strict adherence to ethical standards
Firms that engage in questionable practices or operate outside
the law can get reprimanded by the gov. of host countries
Alliances with qualified local partners
firms often enter China and Russia by partnering with local firms who assist in navigating the complex legal and political landscape.
What are the three approaches for resolving contract disputes?
1) Conciliation -the formal process of negotiation whose objective is to resolve differences in a friendly manner
2) arbitration - neutral third party hears both sides of a
case and decides in favor of one party or the other (based on facts)
3) Litigation - occurs when one party files a lawsuit against another (common in US)
