Legal and Political Environment

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2011-10-03

Definition of a Political System
• The complete set of institutions, political
organizations, and interest groups,
• The relationships among institutions, and
the political norms and rules that govern
their functions

International Business
Part Two
Comparative Environmental
Frameworks
Chapter Three
The Political and Legal
Environments Facing Business

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Individualism vs. Collectivism

Political Ideology

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

• The system of ideas that expresses the
goals, theories, and aims of a sociopolitical
program
• Political ideology might be either
singularistic (a term not used) or pluralistic.
• Most modern societies are pluralistic—
different groups champion competing
political ideologies

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Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Political Ideology

Political Ideology

• Pluralism can arise when two or more
groups in a country differ in




• Two extreme forms of political ideology
are:
 Democracy; and
 Totalitarianism

Language (Belgium)
Ethnic background (South Africa)
Tribal groups (Afghanistan and Pakistan)
Religion (India)

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2011-10-03

Democracy

Totalitarianism

• Wide participation by citizens in the
decision-making process
• Five types:






• Restricts decision making to a few
individuals
• Types:





Parliamentary (Bangladesh, India, Britain)
Liberal (Japan and Nezealand)
Multiparty (Bangladesh, Nepal)
Representative (United States)
Social (Norway and Sweden)

Authoritarianism (North Korea)
Fascism (Mussolini’s Italy)
Secular totalitarianism (China)
Theocratic totalitarianism (Taliban of
Afghanistan, Ancient Greek)

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Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Political Risk: Types

Political Risk: Sources









Expropriation or Nationalization
International war or civil strife
Unilateral breach of contract
Destructive government actions
Harmful actions against people
Restrictions on repatriation of profit
Differing point of view
Discriminatory taxation policies

• Systemic Political Risk
• Shifts in public policy such as nationalization of
f irms.

• Procedural Political Risk
• Corruption in public service or partisan judicial
system such as …resulting into bribe for smooth
international trade.

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Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Political Risk: Types

Definition of a Legal System

• Distributive Political Risk
• For ensuring proper share of the country a group
may ask for collecting more from the foreign
business. Such as withdrawal of tax holiday or
something like that.

• The mechanism for creating, interpreting,
and enforcing the laws in a specified
jurisdiction
• Types:






• Catastrophic Political Risk
• Ethnic discord, civil disorder, war.

Common law
Civil law
Theocratic law
Customary law
Mixed systems

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2011-10-03

Trends in Legal Systems

Bases of Rules

• The preference for stability
• The influence of national legacies

• Rule of Man
• Rule of Law

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