Politics and Law
Describe each main type of political system.
Identify the origins of political risk and how managers can reduce its effects.
List the main types of legal systems and explain how they differ.
Describe the major legal issues facing international companies.
Explain how international relations affect international business activities.
This chapter is designed to introduce the student to the various types of political and legal systems in existence around the world today and their impact on business. The potential benefits, costs, and risks of doing business in a country are partly a function of its political and legal systems. A political system includes the structures, processes, and activities by which a nation governs itself. It is important for managers to understand whether a political system is characterized by wide or narrow participation because it forms the context for the creation of laws, and the selection of political leaders. Several main political ideologies form the context in which international firms operate globally. Political risk is the likelihood that a government or society will undergo political changes that negatively affect local business activity. International companies manage political risk through avoidance, adaptation, information gathering, and influencing local politics. A legal system is the set of laws and regulations, including the process by which a country’s laws are enacted and enforced. Three legal systems include common law, civil law, and theocratic law. Global legal issues include standardization across different legal systems, intellectual property, product safety and liability, taxation, and antitrust regulations. The positive or negative atmosphere of international relations is important to international companies. Favorable political relations lead to increased business opportunities and lower risk.
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Understanding the nature of politics and laws in other nations lessens the risks of conducting international business. This chapter considers the basic differences between differing political and legal systems around the world. Disputes grounded in political and legal matters affect business activities, but companies can manage the associated risks.
A political system includes the structures, processes, and activities by which a nation governs itself. The Japanese system features a prime minister chosen by the Japanese Diet (Parliament) with Cabinet ministers. The Diet consists of two houses of elected representatives. These laws affect not only personal lives in Japan but also the activities of companies doing business there. A.
Politics and Culture
A country’s political system derives from the history and culture of its people. Factors such as population, age and race composition, and per capita income influence a country’s political system (e.g., Because Switzerland covers a relatively small geographic area, citizens vote directly on many issues whereas most democracies have representatives vote).
Educational Materials to Use
Participation occurs when people voice opinions, vote, and show general approval or disapproval of the political system. 2.
Wide participation occurs when people capable of influencing the political system do so (e.g., In the United States, most adults have the right to participate in the political process). 3.
Narrow participation occurs when few people participate (e.g., In Kuwait, participation is restricted to citizens who can prove Kuwaiti ancestry at a specific time in the past).
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