PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

1. PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

2. The Political, Legal, andTechnological Environment The specific objectives of this chapter are: EXAMINE some of the major changes that are currently taking place in the political environment of China, Europe, Russia, and Central and Eastern Europe. PRESENT an overview of the legal and regulatory environment in which MNCs operate worldwide. REVIEW key technological developments as well as their impact on MNCs now and in the future.

3. Political Environment • Change in government policies • MNCs must adjust their strategies and practices to accommodate the new perspectives and actual requirements • Less stable governments • Greater risk • Significant differences among political systems across countries and regions

4. Political Environment China • Emerging economic power • Government’s desire to balance • National, immediate needs • Challenge of a free market economy and globalization • Government attempting to open up the economy • Speed up conversion of state enterprises into corporations • Expand capital markets by authorizing new stock listings • Sell off most of the 305,000 state enterprises (or let go bankrupt) • Worker retraining, low-cost housing and other programs • Reduce tariffs to 10 percent

5. Political Environment Europe • Privatization and economic liberalization reinforce EU-wide political and economic integration • Political power is variable and complex • Strong opposition to U.S.-led intervention in Iraq sometimes spill over into business relationships and dealings • Europe is a large interwoven region economically, but contains vast cultural differences

6. Political Environment Russia • Neglect, corruption, and confusing changes in economic policy • Infrastructure is weak and a political quagmire • Legal • Financial • Trade sectors • Corruption interferes with attraction of more foreign investment

7. Key Elements of Russia’s WTO Accession Deal with the EU Tariffs Russia will not exceed an average’ tariff level of 7.6% for industrial goods, 11% for fishery products, and 13 % for agricultural goods. Tariff rate quotas for fresh and frozen meat and poultry will be around 600 million ($720 million) per year. Energy Russian gas prices to domestic industrial users will gradually be increased. Russia’s state gas corporation, Gazprom, will retain its export monopoly. Export duties on gas will be capped at 30%. Airlines Russia will revamp the charges currently applied to EU airlines flying over Siberia to make them cost-based and nondiscriminatory. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8. Key Elements of Russia’s WTO Accession Deal with the EU Banking Russia will maintain a ban on foreign banks opening branches. Under existing rules, foreign banks are allowed to open only wholly or partly owned subsidiaries. Services Russia has committed to cross-border provision and commercial establishment of certain services. Sectors include telecoms, transport, financial services, postal, construction, distribution, environmental, news agency, and tourism. Adapted from: Table 2-1: Key Elements of Russia’s WTO Accession Deal with the EU McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9. Political Environment Central and Eastern Europe • Many of these countries have joined the EU • Movement from centrally planned to market economy plagued with problems in many countries • High unemployment • Economic slowdown • Large trade deficits • Some countries more successful in economic reforms • Estonia • Latvia • Lithuania

10. Political Environment The Middle East • Doing business requires knowledge of • Regulations • Legal environment • Tax regimes • Accounting methods • Business structures • Import/export regulations • Manpower and labor regulations • Restrictions on foreign capital investment

11. Political Environment The Middle East • Doing business in Middle Eastern countries is risky and potentially dangerous • War on terrorism • Afghanistan and Iraq wars • Israel—Arab conflicts • Rising tensions • Business requires knowledge of Islam • Religion and way of life • Framework of life and society • Islamic fundamentalists have become aggressive toward U.S. and its allies.

12. Legal and Regulatory Environment • Confusion and challenge of international business environment is heightened by • Differing laws and regulations in MNCs’ global business operations • Impact of these laws and regulations on ability to capitalize on economies of scale and scope • MNCs must carefully evaluate legal framework in each market in which they want to do business, before doing so

13. Islamic Law Four Global Foundations of Law • Derived from interpretation of the Qur’an and teachings of Prophet Muhammad • Found in Islamic countries • Middle East • Central Asia

14. Islamic Law Socialist Law Four Global Foundations of Law • Comes from Marxist socialist system • Continues to influence regulations in former communist countries • Members of former Soviet Union • Peoples’ Republic of China • Vietnam • North Korea • Cuba • Requires most property to be owned by the state or state enterprises

15. Islamic Law Socialist Law Common Law Four Global Foundations of Law • Comes from English law • Foundation of legal system • United States • Canada • England • Australia • New Zealand

16. Islamic Law Socialist Law Common Law Civil or Code Law Four Global Foundations of Law • Derived from Roman law • Found in non-Islamic and nonsocialist countries • France • Some Latin American countries • Louisiana in the U.S.

17. Sovereignty and Sovereign Immunity Basic Principles of International Law Sovereignty and Sovereign Immunity An international principle of law which holds that governments have the right to rule themselves as they see fit

18. Sovereignty and Sovereign Immunity International Jurisdiction Basic Principles of International Law International Jurisdiction A jurisdictional principle of international law which holds that every country has jurisdiction over its citizens no matter where they are located • Nationality principle • Territoriality principle • Protective principle

19. Sovereignty and Sovereign Immunity International Jurisdiction Doctrine of Comity Basic Principles of International Law Doctrine of Comity A jurisdictional principle of international law which holds that there must be mutual respect for the laws, institutions, and government of other countries in the matter of jurisdiction over their own citizens

20. Sovereignty and Sovereign Immunity International Jurisdiction Act of State Doctrine Doctrine of Comity Basic Principles of International Law Act of State Doctrine A jurisdictional principle of international law which holds that all acts of other governments are considered to be valid by U.S. courts, even if such acts are illegal or inappropriate under U.S. law

21. Sovereignty and Sovereign Immunity Treatment and Rights of Aliens International Jurisdiction Act of State Doctrine Doctrine of Comity Basic Principles of International Law Treatment and Rights of Aliens Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conduct Nations also can deport aliens

22. Forum for Hearing and Settling Disputes Sovereignty and Sovereign Immunity Treatment and Rights of Aliens International Jurisdiction Act of State Doctrine Doctrine of Comity Basic Principles of International Law Forum for Hearing and Settling Disputes U.S. courts can dismiss cases brought before them by foreigners; however they are bound to examine issues such as • where the plaintiffs are located, • where the evidence must be gathered • where property to be used in restitution is located

23. Legal and Regulatory Issues • Foreign Corrupt Practices Act • Illegal to influence foreign officials through • Personal payment • Political contributions • When bribes removed, MNCs more willing to do business in that country • Restrictive bureaucratization • Government controls often inefficient and uncorrected • Local politics often prevail over national concerns • Privatization

24. Regulation of Tradeand Investment • Individual countries use legal and regulatory policies to affect the international management environment • Country is perceived to engage in unfair trade practices (WTO and similar agreements) • Government support (subsidies) • Require MNCs to accept local partners • Response may be • Retaliatory tariffs • Restrictive trade regulations

25. Technological Environment and Global Shifts in Production • Biotechnology • Nanotechnology • Satellites • Automatic translation telephones • Artificial intelligence and embedded learning technology • Advancements in computer chip technology • Supercomputers • E-business • Business-to-business (B2B) • Business to consumer (B2C) transactions • e-tailing • Financial services (e-cash)

26. Technological Environment and Global Shifts in Production • Telecommunications • Wireless or mobile telephone service • Economic growth hampered by poor communication services • Wireless is more affordable than installed phone lines • Some governments recognize the need to privatize this service • Technology, outsourcing and offshoring • Technology has reduced and eliminated some work in middle management and white-collar jobs • Global competition has forces some MNCs to outsource jobs to offshore productions (lower labor and other costs) • Emerging technology makes work more portable

27. 100 97 90 82 62 52 -80 -60 -40 -20 0 20 40 60 80 100 Expected Winnersin Selected Occupations Computer software engineers, applications Computer support specialists Computer software engineers, systems software Network and computer systems administrators Personal and home care aids Medical assistants Percentage change for 2000-2010 Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010

28. Losers -61 -35 -28 -26 -25 -20 -20 -80 -60 -40 -20 0 20 40 60 80 100 Expected Winnersin Selected Occupations Railroad brake, signal, and switch operators Telephone operators Loan interviewers and clerks Meter readers, utilities Farmers and ranchers Order clerks Insurance claims and policy processing clerks Percentage change for 2000-2010 Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010