The Political Environment

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THE POLITICAL ENVIRONMENT

One of the most undeniable and crucial realities of international business is that both host and home governments are integral partners.

The Sovereignty of Nations
A sovereign state is independent and free from all external control; enjoys full legal equality with other states; governs its own territory; selects its own political, economic and social systems; and has the power to enter into agreements with other nations. Sovereignty refers to both the power exercises by a state in relation to other countries and the supreme powers exercised over its own members. Its sets requirements for citizenship, defines geographical boundaries, and controls trade and the movements of people and goods across its borders. A citizen is subject to the state’s laws even when beyond national borders.

EU, NAFTA and NATO are examples of nations voluntarily agreeing to give up some of their sovereign rights in order to participate with member nations for a common, mutually beneficial goal.

Pajama game – an MNC must also be concerned with the relationships between its home country (Wal mart – US), the host countries (Canada), and countries of product origin (Cuba).

International firm is subject to the laws of multiple countries and the political, legal and foreign policy issues revolving around host and home countries are of paramount important in assessing the environment in which the firm must operate.

Changes are brought about by any number of events:
A radical shift in the government when a political party with a philosophy different from the one it replaces ascends to power, government response to pressure form nationalist and self interest groups, weakened economic conditions that cause a government to recant trade commitments, or increasing bias against foreign investment.

Stability of Government Policies
At the top of the list of political conditions that concern foreign businesses is the stability or instability of prevailing government policies. The concern of the multinational corporation is the continuity of the set of rules or code of behavior – regardless of which government is in power. In Italy, there have been more than 50 different governments formed since the end of WWII and India 51 since 1945 but in Italy business goes on as usual and India much of the government was still hostile to foreign investments. Sierra Leone has three changes in government in five years, and the most recent (1997) coup d’etat ended the country’s brief experiment with democracy. 1997 Hong Kong given back to China and it was promised that nothing will change. Pepsi Cola in Russia was making profits by exchanging their products with Vodka.

Forms of Government
Circa 500 b.c. the ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by the few, and rule by the many. The common terms for these in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy. About the same time in history Cyrus the Great, monarch of Persia, declared that the purpose of government was to serve the people, not vice versa. Cyrus's notion is embedded in the constitutions of most modern nations. Following the collapse of communism circa 1990 the w orld seemed to have agreed that free-enterprise democracy was the best solution to all the criticisms of government since the time of Aristotle. Cyrus, and the others.

Thus of the more than 200 sovereign states on the planet almost all have at least nominally representative governments with universal suffrage for those 18 years and over. In about 10 percent of the states voting is required: in the rest it is voluntary. A few states have some unusual rules for suffrage: In Bolivia you can vote at 1 8 if you are married and at 21 if single: in Peru police and military personnel cannot vote: in Croatia you can vote at 16 if employed: in Lebanon only women with at least an elementary education can vote (although...
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