Chapter 3 ,

1. Chapter 3 , The Political and Legal Environments Facing Business

2. The Political Environment Political systems integrate societies into functioning units Political processes in each nation develop �rules of the game� Ideologies differ radically Business faces political risk: the danger that political changes will hurt a firm

3. Today� Newmont Mining case - what happens when political systems don�t work Political strategy The legal environment (laws and lawyers) Video: �American game � Japanese rules�

4. Political risk: the danger that political changes will hurt a firm Government takeovers of property Zimbabwe nationalizing farms New laws that prohibit business actions Europe banning genetically modified seed Political unrest that hurts company property or people Recent protests in Argentina, Pakistan Local behavior that prompts protests at home Firms working in Myanmar face pickets in U.S. Unfavorable changes can happen because of - changes in local leaders� opinions - unrest among ordinary people - anger at home country (or rich foreigners generally) Unfavorable changes can happen because of - changes in local leaders� opinions - unrest among ordinary people - anger at home country (or rich foreigners generally)

5. Democracy is a key element of ideology in much of the world All rich countries and some poorer countries are democracies; the rich, at least, have: Freedom of opinion Elections that give winners real power Limited terms for elected officials An independent court system, which seeks to follow established rules Nonpolitical bureaucracy and military Accessible decision-making processes �The worst form of government except for all those others that have been tried. � - Sir Winston Churchill All the rich countries have more-or-less these characteristics of democracy. Frequently in developing countries (e.g., Mexico) you�ll find democracies that lack a truly independent court system limited terms for government officials a bureaucracy independent of the people in power To the extent countries have these things, they are �free� in the terms of the text. We�ll see in a minute that the freedom of a country affects the political risks you face. All the rich countries have more-or-less these characteristics of democracy. Frequently in developing countries (e.g., Mexico) you�ll find democracies that lack a truly independent court system limited terms for government officials a bureaucracy independent of the people in power To the extent countries have these things, they are �free� in the terms of the text. We�ll see in a minute that the freedom of a country affects the political risks you face.

7. Basic principles of legal environments Common law systems (tradition/precedent) United States United Kingdom Civil law (rules of business are part of the countries� written code) Germany France Japan Theocratic law (based on religious precepts) Sudan Much law in Pakistan

8. Lawyers in international business Most law firms are small They understand only one nation�s laws A few are becoming multinational More commonly: �correspondent relationships� 2 firms in different countries agree to help each other�s clients

9. Legal Issues for International Businesses Worker relations Health and safety standards Workweek Employment practices Antitrust prohibitions Contractual relationships Environmental practices Patents, trademarks, and intellectual property protection Taxes and reporting requirements Cultural differences � not a legal issue. Cultural differences � not a legal issue.

10. Chapter Review Discuss the different functions political systems perform Compare types of political regimes and how they influence managerial decisions Describe how management formulates and implements strategies to deal with differing political environments Study different types of legal systems and relationships

12. Political strategies All firms have to think about how they will deal with political leaders In U.S. as well as abroad But challenges may be greater abroad

13. Before forming political strategies Know how decisions are made Know what the rules are for influencing political decisions

14. Paradigms on the role of government A paradigm = basic pattern of thought Individualistic � U.S. Minimize government intervention Give individuals maximum rights Most international trade rules are based on this view Communitarian � Japan, China, Saudi Arabia Government officials have prestige, set general direction for economy

15. Political Strategies for International Businesses Identify the exact issue Trade barrier? Environmental standards? Need for government services? Define/determine the political aspect of the issue What do we want government to do? Assess the potential political action of other firms and interest groups Who else cares about this? Can we work with some of them? What strategies will our opponents adopt?

16. Identify important institutions and individuals Who will make the decision? Who will they talk to before making it? Formulate possible strategies Key objectives Alternatives Evaluate probable effectiveness of each possibility Consider possible public relations effects Select the appropriate strategy and implement it