Lecture 4: Political-Legal Environment of Int'l Business Flashcards
What are the rules (of the game) (ie of the international environment)?
•normative codes that guide, control, or change the behaviour of agents with decision-making capacities
•Define what is permissible and what is not
• Could be formal or informal
• Social constructs: created by interactions and
discourse of members of society
What are different types/levels of rules?
• LAWS and regulations determined by political process
and enforced by state
• NORMS determined by society & inculcated by
socialization and enforced informally by social pressure
• STANDARDS set by private institutions and associations
and self-regulated – voluntary industry standards – ISO
9000, CSA Canadian Standards Association
– the terms are a bit loose. When we talk about health standards for food products, we might mean self-regulation, but we often mean health regulations set by and enforced by government agencies
describe laws and rules
• Laws are rules created by the political process
– Acts, executive orders, judicial decisions, statutes,
delegated authority government agency decisions
– Laws are public, promulgated by public authority
• Enforcement of laws
– The state exercises a monopoly on the legitimate use of physical force within a given territory (loosely paraphrased
from Max Weber 1918)
describe norms
• Norms are “customary rules that govern behavior in
groups and societies” (Stanford Philosophy, 2011), or norms may be conventions or collective (conforming) behaviours guided by shared values
– Shared criteria of fairness may be considered a norm as these are guided by shared values
– Shared patterns of teeth brushing may not be a norm since these are not guided by shared values
• Various theories exist on how norms emerge, evolve and
decline
– Norms are inculcated by socialization
• Enforcement of norms: informal
– Enforced by social pressure, including ostracizing those who do not conform
• Norms vary: what is gift vs what is bribe
describe industry standards
• Rules governing specific aspects of behaviour that
originate with private sector actors
– ISO 9000
– CSA standards
• Enforcement varies, can be informal or sanctioned
by state – corporate bodies (engineers, accountants)
describe a country’s political system
refers to the structural
dimensions and factors influencing the dynamics of
its government –institutions, organizations, interest
groups – and the norms that govern political
activities
what must companies do with regards to the political enivronment
Companies must determine where, when and how to
adjust their business practices to the political
environment while maintaining the basis for
success.
– Managers evaluate, monitor, forecast political
environments
– Within established norms, managers may seek to
influence political environments
What are the two main types of the political systems?
- democracy
- totalitarianism
describe democracy
Liberal democracy associated with protection of certain
rights including for minorities (equality before the law):
freedom of speech, beliefs, press, association.
describe totalitarianism
– “subordinate[s] all aspects of the individual’s life to the
authority of the government.” -Encyclopædia Britannica
– “All within the state, none outside the state, none against
the state.” - Mussolini
What are the political freedom measures?
– Degree to which fair & competitive elections occur
– Extent to which individual and group freedoms are
guaranteed
– Respect for minority rights
– Legitimacy ascribed to the general rule of law including
independent judiciary
– Freedom of expression and association
– Freedom to pursue economic activity
def. rule of law
laws apply to public officials as well as to ordinary citizens; the principle that every member of
society must follow the same laws (Magna Carta, 1215)
def. rule of man
legal rights derive from the ruler; the notion that the word and whim of the ruler are the
law. no matter how arbitrary
- ex. North Korea, Turkmenistan
describe common law
• Based on cumulative decisions by judges on individual cases through history
• Cases create legal precedents
– Evolutionary differences in case law across countries using common law; emphasis on patterns rather than principles
• Common law is foundation of legal systems in the United
Kingdom and its former colonies
describe civil law
• Based on codification of what is and is not permissible
– Relies on declarations of broad, general principles
• French civil law adopts Montesquieu’s theory of separation of powers whereby legislature legislates and courts apply the law (Tetley 1999).
– By contrast, common law allows judge-made precedents to be the core of that system.
• Civil law judge takes on some of roles of lawyers, determining
the scope of evidence collected and presented
What are the different legal systems?
- Common Law
- Civil Law
- Theocratic (or religious) law
- Customary law
- Mixed systems
- [Maritime law & admiralty courts
describe theocratic (religious) law
• Based on the officially established rules governing
faith and practice of a particular religion
• Theocracy: country that applies religious law to civil and criminal conduct
• Examples of theocratic legal systems:
– Saudi Arabia – Sharia law
– Iran
– Israel (in certain matters- family law, closing on
Sabbath)
What are some examples of mixed systems of law
• Scotland – mixture of uncodified Roman civil law and increasingly common law • Quebec – mainly civil law (France) with elements of common law • Louisiana – mixture of civil law (Spain & France) and common law • South Africa – mixture of civil (uncodified Roman- Dutch), common law and customary (African) law • Egypt’s legal system is a blend of French Napoleonic code, and Islamic (Sharia) Law as well as “personal law” of religious minorities in family matters (e.g. Coptic Christians) and some elements of common law
Which systems seem to provide a better business environment?
common law systems provide better business environment than civil law systems
-but civil law countries like France and the Netherlands were pioneers in the development of stock markets and the French code de commerce offers a more flexible contracting environment than US common law
What are some operational concerns related to the political and legal environment?
• Managers doing business abroad face a complex
political & legal environment that makes decisionmaking in the multinational firm challenging:
– Just starting a new business involves concerns related to
registering the new company’s name, choosing the
appropriate form for tax purposes, getting licenses and
permits, arranging credit and insurance
• Operational issues include the following:
– Making and enforcing contracts
– Hiring and firing local workers
– Closing down the businesses..
What are some strategic concerns related to the political and legal environment?
•managers must consider longer term strategic issues and how the political and legal environment might influence them
• Managers are vulnerable to abrupt changes that could
require adjustments to the manufacturing configuration,
supply chain coordination and marketing strategy
• Both strategic and operational decisions are challenging in contexts where the rule of law is weak or absent (i.e. rule of man):
– In such contexts, the government can arbitrarily decide what is permissible in all forms of business activities including sourcing, distribution, advertising, pricing, hiring.
What are strategic issues affected by political/legal factors?
• A product’s country of origin - where the product was grown,
produced or manufactured – is important for determining import tariffs.
• Product safety and liability is another strategic area of concern for managers
– Local standards may require companies to customize products
– These standards may reflect cultural values or social norms that require product adaptation to appeal to local consumers.
– Environmental and recycling standards also vary from one country to another
• Countries also have legal jurisdiction to stipulate criteria for litigation when contracting parties, whether legal residents of the same or different countries, are unable to resolve a dispute
– Typically, in a cross-national dispute, each firm petitions its home country to claim jurisdiction in hopes that this will ensure a more favourable
outcome.
• Finally, companies must consider intellectual property rights and level of protection in a given country
