Class 3 (Political and Legal Environment)

Question 1

A country’s ___ ___ refers to the structural
dimensions and power dynamics of its government that
specify institutions, organizations, and interest groups,
and define the norms that govern political activities

Answer 1

political system

Question 2

individualism vs collectivism?

Answer 2

Individualism
• primacy of the rights and role of the individual
– Collectivism
• primacy of the rights and role of the community

Question 3

A ____ system subordinates the individual to the interests of the collective

Answer 3

totalitarian

Question 4

In a ____ all citizens are politically and legally equal, all are equally entitled
to freedom of thought, opinion, belief, speech, and association

Answer 4

democracy

Question 5

what are political freedom measures?

Answer 5

– the degree to which fair and competitive elections occur
– the extent to which individual and group freedoms are guaranteed
– the legitimacy ascribed to the general rule of law
– the freedom expression

Question 6

what is political risk?

Answer 6

Political risk refers to the risk that political decisions or events in a country
negatively affect the profitability or sustainability of an investment

Question 7

what are the 4 political risk categories?

Answer 7

1. systematic risks
2. procedural risks
3. distributive risk
4. catastrophic risk

Question 8

define systematic risks

Answer 8

Systemic Risks are risks that impact all firms that operate in the particular political
system

Question 9

define procedural risks

Answer 9

refers to the risk evolving from the daily movement of people,
products, and funds from point to point in the global market
• Each move creates a procedural transaction between the units involved, whether units of a
company or units of a country
• Political actions sometimes create frictions that interfere with these transactions.

Question 10

define distributive risk

Answer 10

Distributive Risk is a result of the profits generated by foreign companies in the local
economy
• If the host country questions the distributive justice of the rewards of operating in its market, it
may wonder whether, as the business grows more successful, it is receiving its “fair” share of
the growing profits

Question 11

define catastrophic risk

Answer 11

Catastrophic Risk includes random political developments that adversely
affect the operations of every company in a country
• Typically, it arises from specific flash points, such as ethnic discord, illegal regime change, civil
disorder, or insurrection. It disrupts the business environment in a way that affects every firm
in the country

Question 12

what are the 5 types of legal systems?

Answer 12

1. A common law system is based on tradition, precedent, custom,
   usage, and interpretation by the courts
2. A civil law system relies on a systematic collection of codes and
   statues that judges must follow
3. A theocratic system is based on religious precepts
4. A customary legal system follows the wisdom of daily experience
5. Finally, a mixed legal system combines elements of the other systems

Question 13

what is the basis of rule in a country?

Answer 13

– The rule of man
• legal rights derive from the individual who commands the power to impose them
– The rule of law
• systematic and objective laws applied by public officials who are held accountable
for their administration

Question 14

what are operational issues when a company expands internationally?

Answer 14

– Making and enforcing contracts
– Hiring and firing local workers
– Closing down the business…

Question 15

what are some strategic issues when expanding abroad?

Answer 15

• intellectual and property rights in given country
• product and safety liability in said country
• product’s country of origin (many countries require certain % of good is made locally)
• Countries also have legal jurisdiction to stipulate laws that set the criteria for litigation when agents—whether legal residents of the same or of different countries—are unable to resolve a dispute

Question 16

Attitudes towards intellectual property varies based on multiple factors:

Answer 16

– Historical legacies
• rule of man versus rule of law
– Economic circumstances
• levels of economic development
– Cultural orientation
• individualism versus collectivism

Question 17

Intellectual property refers to:

Answer 17

Intellectual property refers to creative ideas, expertise, or intangible insights that grant its owner a competitive advantage