At one end of the political ideology extremes is anarchism, which contends that individuals should control political activities and public government is both unnecessary and unwanted. Prohibited Content 3. There are three main areas that a good marketing strategy program will cover when it comes to implications of doing business internationally. As political systems in different areas vary, the political impact differs. Many business analysts mention these issues in discussions of global business ethics and the role and responsibility of companies in different political environments. Is there a well-established legal environment both to enforce policies and rules as well as to challenge them? is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. The independence of a country’s judicial system from political influences of the members of governments, citizens, or firms is crucial for the fair treatment a firm receives in its overseas operations. Introduction The political environment of countries is a criticalconcern for the international marketer. This contrasts with more authoritarian governments, where democracy is either not in effect or simply a token process. It’s the most widespread legal system in the world. Germany had the highest level of judicial independence (Fig. The salient features of Islamic law concerned to business are that. The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. Start studying International Business Chapter 3: Governmental and Legal Systems. Legal Systems. Domestic Chinese manufacturers received quick loans with favorable terms as well as speedy approvals. Rolfe Winkler, “Internet Plus China Equals Screaming Baidu,”. Thankfully, for many agricultural products and agribusinesses like timber, fish, livestock and so on, the rules are fairly well defined. Although Japan is the world’s third larges economy, historically they have steered clear of international business. A substantial amount of oil-money is invested in Sharia-compliant funds. First, let’s briefly discuss some of the reasons behind these interventions. Let’s focus briefly on how the political and economic ideologies that define countries impact their legal systems. In a country with Islamic legal structure, it is not considered appropriate to put pressure in the event of bankruptcy of one’s business partner. Effects of politics on international business 1. Governments have long intervened in international trade through a variety of mechanisms. International managers need to be aware of such situations. It depends less on written statutes and codes. This combination is called pluralismA political ideology that asserts that both public and private groups are important in a well-functioning political system., which asserts that both public and private groups are important in a well-functioning political system. (f) Compassion is required when a business is in trouble. (e) Normally award of damages are in line with practicality but not as inflated as is often the case in the West. For the purpose of this discussion, the main relevant difference is in ideology. The Internet has started to change this, as sellers and buyers have easier access to each other. There are three main types of legal systems: (1) civil law, (2) common law, and (3) religious law. Democratic governments derive their power from the people of the country, either by direct referendum (called a direct democracy) or by means of elected representatives of the people (a representative democracy). An economic system in which the government or state directs and controls the economy, including the means and decision making for production. 8.4 indicates that Denmark (6.5) had the highest level of efficiency of legal framework followed by Germany (6.3) and Switzerland (6.1) whereas it was considerably efficient in Singapore (6.0), Australia (5.9), the UK (5.8), Japan (5.6), South Africa (5.4), the US (4.9), and India (4.8). China has successfully combined state intervention with private investment to develop a robust, market-driven economy—all within a communist form of government. China’s ability to focus on dominating key industries inspires both fear and awe throughout the world. DemocracyA form of government that derives its power from the people. It has prepared a wide range of conventions, model laws, and other instruments dealing with the substantive law that governs trade transactions or other aspects of business law influencing international trade. Figure 2: Political system of Indonesia. Historically, democratic governments have supported capitalism and authoritarian regimes have tended to utilize a state-controlled approach to managing the economy. This law is derived from the Marxist socialist system and continues to influence legal framework in former communist countries, such as the CIS, China, North Korea, Vietnam, and Cuba. Is power concentrated in the hands of a few, or is it clearly outlined in a constitution or similar national legal document? Bureaucracy 5. 4. International managers need to understand the basic principles that govern the conduct of international law. All business transactions must avoid riba, i.e., excessive profit, loosely defined as interest. What businesses must focus on is how a country’s political system impacts the economy as well as the particular firm and industry. 3. Understand government-business trade relations and how political and legal factors impact international business. Log in Sign up. 36 terms. For instance, foreign governments have right to impose restrictions related to financial repatriation to other countries. As a result of rise in terrorism during the last decade, the US and many European countries have imposed restrictions on foreigners. Under international law, there are three basic types of jurisdictional principles. In contrast a planned economy is one in which the government or state directs and controls the economy. At one end of the extremes of political philosophies, or ideologies, is anarchismA political ideology that contends that individuals should control political activities and public government is both unnecessary and unwanted., which contends that individuals should control political activities and public government is both unnecessary and unwanted. It depends less on written statutes and codes. In practice, countries use a combination of one or more of these systems and often adapt them to suit the local values and culture. Emerging economies still promise opportunity but also political risk for international businesses. besides the laws of individual countries. While the common usage treats totalitarian and authoritarian as synonyms, there is a distinct difference. For instance, in the common-law countries, the non-performance of a contract due to an ‘act of god’ may include floods, earthquakes, lightening, or similar happenings whereas under the civil law, non­-performance is not limited to ‘acts of god’, but also includes ‘unavoidable interference with performance, whether resulting from forces of nature or unforeseeable human acts’, including such factors as labour strikes and riots. All S&P indices constituents are monitored on a daily basis to ensure that the indices maintain strict Sharia compliance. On the other hand, governments may influence trade to reward a country for political support on global matters. While the government still remains the dominant force by controlling more than a third of the economy, more private businesses have emerged. Some governments use trade as a retaliatory measure if another country is politically or economically unfair. Differences in the social, cultural, economic, legal and political conditions of the country affect international business procedures in different levels and degree depending on the countries infrastructure and relationship. Half of the world’s population lives in a democracy of some sort, although only some 14 percent reside in full democracies. Brazilian Legal System Doing Business in Brazil. Any changes are usually a reflection of a changing economic environment, like the world economic crisis of 2008, and not a change in the government players. Sullivan 3-1 fChapter 3 The Political and Legal Environments Facing Business Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 3-2 fLearning Objectives The Indonesians enjoy a level of political freedom. The interest-bearing accounts and loans, which fall under the strict ribamles, most futures and options, which are considered speculative and gharar, and insurance, because the outcome of the contract can no way be determined beforehand , are all haram. Totalitarianism, a more extreme form of authoritarianism, occurs when an authoritarian leadership is motivated by a distinct ideology, such as communism. The distinction between the common law and civil law is more in theory rather than in practice. On the other hand, Japan is considered to be a ‘non-contractual’ society where contracts signed represent general understanding and are subject to change depending upon the circumstance. A country may also refuse entry to foreign citizens or restrict their travel. form of government: totalitarianism/autocracy/democracy or other type of political system. is one in which the government or state directs and controls the economy, including the means and decision making for production. (AACSB: Reflective Thinking, Analytical Skills). One entrepreneur, Zhu Gongshan, received $1 billion in funding, including a sizeable investment from China’s sovereign wealth fund, in record time, enabling his firm GCL-Poly Energy Holding to become one of the world’s biggest in less than three years. There are more than thirteen major types of government, each of which consists of multiple variations. Business Law. Source: Indonesia 2009: An official handbook Islamic religious law that addresses all aspect of daily life; in terms of business and finance, the law prohibits charging interest on money and other common investment activities, including hedging and short selling. Therefore, a foreign firm involved in illegal business practices in India can be sued under Indian law. However, courts are bound to examine issues, such as the place from where evidence must be collected, location of the property under restitution, and the plaintiff. A political ideology that asserts that both public and private groups are important in a well-functioning political system. 3. In essence, there are three main kinds of legal systems—common law, civil law, and religious or theocratic law. China’s Communist Party outlines its goals in five-year plans. The complications in a meeting out of non-performance of a business contract also vary widely among the common- and civil-law countries. The Christian Canon system is observed in the Vatican City. This was reported to be considerably lower in China (3.4), Brazil (3.1), Russian Federation (2.7) and the lowest in Venezuela (1.2). Ch 6 7 international political and legal environment 1. Privacy Policy 8. The legal system may be difficult to navigate or unavailable to foreigners. Until recently, governments were able to directly enforce the rules and regulations based on their political and legal philosophies. Politics changes can affect dramatically the manner that international business deal with import, export, and trade with another countries. Although the terms “freedom” and “democracy” are often used interchangeably, the two are not synonymous. According to Islamic law, banks cannot charge or benefit from interest. A political systemThe system of politics and government in a country; it governs a complete set of rules, regulations, institutions, and attitudes. In countries, such as Japan, the reliance on courts for conflict resolution is much lower compared to the US which is considered to be one of the most litigious societies in the world. The national government enforces it own laws. 8.3) with a score of 6.5 on a 7 point scale whereas Netherlands and Australia had a score of 6.4, the UK (6.0), Singapore (5.6), Japan and South Africa (5.5), India (5.3), the US (5.1), and UAE (5.0). Differences in legal systems can affect the attractiveness of a country as market or investment site. In the case study in Chapter 1 "Introduction", you discovered how US-based Google had to deal with the Chinese government’s restrictions on the freedom of speech in order to do business in China. As you might expect, established democracies, such as those found in the United States, Canada, Western Europe, Japan, and Australia, offer a high level of political stability. They pose a big challenge to the companies and the companies need to overcome the factors to become successful in the international stage. It may seem evident that businesses would prefer to operate in open, democratic countries; however, it can be difficult to determine which countries fit the democratic criteria. The implications of Islamic law vary in terms of degree among the Islamic countries. Written contracts have a sanctity and legitimacy of their own. is the most common form of government around the world today. A main differentiator of political systems is each system’s philosophy on the rights of the individual and the group as well as the role of government. How involved is the government in the private sector? ...Many aspects affect the way international business is conducted. A person is innocent unless proved guilty. For instance, the Hebrew law and the Islamic law are derived from religious doctrines and their scholarly interpretations. Members of the commission are elected for terms of six years, the term of half-members expiring every three years. As shown in the opening case study, China is using its economic might to invest in Africa. Taxes or tariffs that are levied as a fixed charge, regardless of the value of the product or service. Particularly for businesses that operate internationally, a lack of political stability in any country has an effect on operations. Learn vocabulary, terms, and more with flashcards, games, and other study tools. President Rousseff started a program called Brasil Maior in order to promote industry in the nation. 6) The Sovereignty of NationsThe Sovereignty of Nations Ultimate power of the stateUltimate … It is derived from the Roman law and is followed in most of continental Europe, Japan, and Latin America. Democracy has a number of variations, both in theory and practice, some of which provide better representation and more freedoms for their citizens than others. • Government: Political and business orientation, legislation, regulation, ... Legal Aspects in International Markets. Firms operating internationally face major challenges in conforming to different laws, regulations, and legal systems in different countries. While doing business in Islamic countries, international managers need to appreciate the intertwining of religion and Islamic law and take care never to mention the Palestine-Israeli situation. The commission is composed of 60 member states elected by the General Assembly. Governments and politics play a large role in international business. Under the Islamic law, western style finance is haram, or forbidden, to devout Muslims. Classic Sharia manuals are divided in four parts: laws related to personal acts of worship, laws related to commercial dealings, laws related to marriage and divorce, and penal laws. The extent of separation of judicial powers between the judiciary and the public authorities varies considerably across nations. Neither extreme exists in its purest form in the real world. Business Law 3 of China’s Business Law Trends For Expatriates to Beware of: 1) The legal representative of a company gets to make decisions. Political and legal risks are two very important aspects of running a business of which an entrepreneur should be aware. Table 2.1 The Major Global State-Owned Oil Companies. Although they in many ways they have kept to this reserved approach, globalisation has had its effect on Japan, like every other country. Political risk in international business refers to political factors that have an impact on the company's value and can affect how the company operates and stays profitable. TOS 7. This new combination has also posed more questions for businesses that are encountering new issues—such as privacy, individual rights, and intellectual rights protections—as they try to do business with China, now the second-largest economy in the world behind the United States. In the past thirty years, governments have increasingly privatized a number of industries. The country’s population democratically elects open government system. Facing a shortage in 2007, growing domestic demand, and high prices from foreign companies that dominated production, China declared the development of domestic polysilicon supplies a priority. Contrary to the approach of much of the world, which is moving more control to the private sector, China has steadfastly maintained its state control. It is based on traditions, past practices, and legal precedents set by the courts through interpretation of statutes, legal legislations, and past rulings. A cross­-country comparison on a 7.0 point scale as shown in Fig. In other words, the damages to property will be actual sums relating to repair and replacement of the property. Politically, a country’s government may seek to protect jobs or specific industries. Sharia is the canonical law derived from a combination of sources, such as the Koran, the holy book of Islam, the Sunna, teachings and practices of the prophet Mohammed, and the fat was, the rulings of the Islamic scholars. Baidu self-censors and, as a result, has seen its revenues soar after Google limited its operations in the country.Rolfe Winkler, “Internet Plus China Equals Screaming Baidu,” Wall Street Journal, November 9, 2010, accessed December 21, 2010, http://online.wsj.com/article/SB10001424052748703514904575602781130437538.html. Central to China’s approach are policies that champion state-owned firms and other so-called national champions, seek aggressively to obtain advanced technology, and manage its exchange rate to benefit exporters. Introduction to International Legal Environment 2. This combination is called pluralism, which asserts that both public and private groups are important in a well-functioning political system. What is capitalism? For example, if a company wants to borrow money from an Islamic bank, it would sell its assets or product to the bank for a fixed price. There is heavy reliance on settling disputes through third party negotiations rather than courts. Nor can the same work culture be replicated elsewhere. For instance, an Indian citizen travelling abroad may be given a penalty by a court in India. According to the Federal Constitution, the States have administrative competence or remaining competence to all subjects that are not privative of the Union and the Municipalities. is basically the system of politics and government in a country. Governments have several key policy areas in which they can create rules and regulations in order to control and manage trade, including tariffs, subsidies; import quotas and VER, currency controls, local content requirements, antidumping rules, export financing, free-trade zones, and administrative policies. The study of political systems is extensive and complex. An economic system in which the means of production are owned and controlled privately. At the same time, an agreement would be signed for the bank to sell back the assets to the company at a later date and at a higher price. The legal framework was the least efficient in Venezuela (1.5) and had relatively low level of efficiency in Russian Federation (2.8), Brazil (2.9), China (3.6), Tanzania (3.7), and Thailand (4.4). Content Filtrations 6. Why should businesses care about the different political and legal systems around the world? Chapter 7 Political and Legal Systems in National Environments1 With its huge population, China is in constant need of energy to meet the needs of its people and businesses. In Arabic, ‘Sharia’ means the clear, well-trodden path to water. Political system and Legal systems: Indonesia today is Southeast Asia’s most vibrant democracy. Economist Intelligence Unit, “The Economist Intelligence Unit’s Index of Democracy 2008,” Economist, October 29, 2008, accessed December 21, 2010, http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf. The judiciary tends to be less adversarial in civil-law countries where little significance is accorded to legal precedence and traditions compared to common-law countries. Understand government-business trade relations and how political and legal factors impact international business. How transparent is the government’s political, legal, and economic decision-making process? Companies that operate globally have an enormous challenge in conducting business in countries with varying political and economic systems. The legal/political system is a minefield, with few international standards or regulations to fall back on. The major types of legal systems are briefly mentioned here. After independence from erstwhile colonial rulers, most Islamic countries have grappled with the problem of replacing colonial legal systems with the Sharia. The company now has a 25 percent market share of polysilicon and almost 50 percent of the global market for solar-power equipment.Jason Dean, Andrew Browne, and Shai Oster, “China’s ‘State Capitalism’ Sparks Global Backlash,” Wall Street Journal, November 16, 2010, accessed December 22, 2010, http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html. The legal system of a country is significantly important to international businesses. This provision has generated an entire set of financial products and strategies to simulate interest—or a gain—for an Islamic bank, while not technically being classified as interest. Many are permitted to engage in sale-buyback or leaseback of an asset. PLAY. Its general mandate is to harmonize and unify the laws of international trade. Even if a consensus on precise definitions has proved elusive, most observers today would agree that, at a minimum, the fundamental features of a democracy include government based on majority rule and the consent of the governed, the existence of free and fair elections, the protection of minorities and respect for basic human rights. While many countries in Asia and Latin America also are functioning democracies, their stage of development impacts the stability of their economic and trade policy, which can fluctuate with government changes. Disclaimer 9. Every country has jurisdiction over its citizens, irrespective of their locations. The Political Environment. It governs a complete set of rules, regulations, institutions, and attitudes. The efficiency of legal framework for private businesses to settle dispute and challenge the legality of government actions or regulations also varies widely. 2. Legal Systems in International Business: The major types of legal systems are briefly mentioned here. This could lead to rioting and looting and general disorder, which disrupts the operations of a business. THE POLITICAL ENVIRONMENT (CH. As a result, the government has placed a priority on energy related technologies, including solar energy. That was the reason for early writers of Economics preferred to caption their work as Political Economy. Common law originated from England and it is followed in most of the former British colonies, such as India, UK, the US, Canada, Australia, and New Zealand. This also implies that courts of a sovereign country cannot be used to rectify its injustices on other countries. Despite the advances in democracy in recent decades, more than one third the world’s population still lives under authoritarian rule. Legal systems are discussed in terms of the protections they offer for business: intellectual property, product safety, liability and contracts.The opening case describes the effect of widespread political and economic corruption in Brazil. Chapters 6-7Chapters 6-7 INTERNATIONALINTERNATIONAL POLITICAL AND LEGALPOLITICAL AND LEGAL ENVIROMENTENVIROMENT 2. Governments are also motivated by economic factors to intervene in trade. Tala Malik, “Gulf Islamic Bank Assets to Hit $300bn,”, Ian Bremmer, “The Long Shadow of the Visible Hand,”. For instance, after the disaster of Union Carbide’s pesticide plant located at Bhopal in India, the New York Court of Appeals sent back the case to India for resolution. The thirteen largest oil companies (as measured by the reserves they control) in the world are all state-run and all are bigger than ExxonMobil, which is the world’s largest private oil company. After reading this article you will learn about: 1. Clearly, many global businesses and investment banks are finding creative ways to do business with these Islamic banks so that they can comply with Islamic law while earning a profit. Governments intervene in trade for a combination of political, economic, social, and cultural reasons. Partnership is preferred over hierarchical claims. Terrorism, Crime, and Violence. International Business Chapter 3: Governmental and Legal Systems. The most commonly known example of religious law is Islamic law, also known as ShariaIslamic religious law that addresses all aspect of daily life; in terms of business and finance, the law prohibits charging interest on money and other common investment activities, including hedging and short selling.. Islamic law governs a number of Islamic nations and communities around the world and is the most widely accepted religious law system. In contrast, a planned economyAn economic system in which the government or state directs and controls the economy, including the means and decision making for production. A closer look at the solar industry in China illustrates the government’s ability to create new industries and companies based on its objectives. The most significant difference in the common law and the civil law countries is in the protection of intellectual property. The legal representative is the person with the greatest individual authority in a company in China. Instead, most countries have a combination of both, the balance of which is often a reflection of the country’s history, culture, and religion.