The Political and Economic Environment of Global Business Chapter 2

P olitical Environment in China Growing conflict between the government and the people Protests against local officials for corruption, endangering people, neglecting people's health needs, and poor management Central government is determined to remain in control Censorship of the Internet Wages are now higher than in Malaysia and Indonesia

P olitical Environment in China (2) The government is attempting to open up the economy 1. Speed up conversion of state enterprises into corporations 2. Expand capital markets by authorizing new stock listings 3. Sell off most of the 305,000 state enterprises (or let go bankrupt) 4. Worker retraining, low-cost housing and other programs 5. Reduce tariffs to 10 percent

P olitical Environment in China (3) Obstacles to foreign direct investment Regulations favor Chinese companies Regulations and government priorities change often Government decisions change frequently Hard to find trained employees Competition from government-owned firms Foreign telecommunication firms must be minority owners

P olitical Environment in China (4) Human rights issues Large number of political prisoners Prison labor, child labor, and other abuses One-child policy Persecutions of religious leaders Attempts by the EU and the U.S. to restrict textile imports under WTO regulation to control "surging imports"

Four Global Foundations of Law Islamic Law Derived from interpretation of the Qur’an and teachings of Prophet Muhammad Found in Islamic countries Middle East Central Asia Islamic Law

Four Global Foundations of Law Socialist Law Originally, business and other property were owned by the state Still true in Cuba and North Korea Mixture of state-owned and private enterprise in Russia, China, Vietnam Government still takes an active role in business Many regulations Arbitrary & inconsistent enforcement of regulations Islamic Law Socialist Law

Four Global Foundations of Law Common Law Comes from English law Based on custom and precedent (previous cases) Foundation of legal system in United States Canada England Australia New Zealand Judge is a neutral referee Islamic Law Socialist Law Common Law

Four Global Foundations of Law Civil Law Derived from Roman law Western & central Europe Some Latin American countries Louisiana state law Detailed laws and regulations Companies have less freedom in structuring contracts and business deals than in U. S. Judges guide criminal investigations Islamic Law Socialist Law Common Law Civil Law

International Law Sovereignty: governments have the right to rule as they see fit. International jurisdiction A country has jurisdiction within its legal territory A country has power over its citizens and businesses, wherever they are located A country has jurisdiction over actions that harms its national security, even if those actions occurred outside its territory

International Law (2) Doctrine of comity: Governments show mutual respect for the laws, institutions, and governments of other countries who are exercising jurisdiction over their own citizens (doctrine but not law) Act of state doctrine (U.S. law): All acts of other governments are considered to be valid in U. S. courts

International Law (3) U. S. courts do not have to settle civil cases brought by foreign citizens or firms Treatment of aliens Countries have the legal right to refuse admission of foreign citizens and to impose restrictions on their conduct, right of travel, where they can stay, and what business they may conduct Countries can also can deport aliens

WTO Rules on Trade & Investment Examples of practices that are considered unfair under WTO rules Government financial support for local firms (subsidies) Requiring MNCs to accept local partners Import tariffs that are higher than WTO agreements allow Other countries may retaliate by imposing Retaliatory tariffs Import quotas and other trade restrictions

How Companies Can Defend Themselves in Trade Disputes Companies should monitor trade disputes Retaliatory tariffs and quotas are often imposed on products that are not involved in the original dispute EU retaliated against U.S. steel tariffs by raising tariffs on U. S. citrus fruit and textiles Companies can either lobby their own government to settle the dispute or to persuade the foreign government to remove their products from the list

Emerging Technology and Economic Development In poor countries, economic growth is hampered by poor communication services Wireless is more affordable than installed phone lines The Internet can Help firms and farmers market goods overseas Help firms find suppliers Improve education in remote areas

Technology and Offshore outsourcing Technology has reduced and eliminated some work in middle management and white-collar jobs Global competition has forced some MNCs to outsource jobs to offshore companies The Internet makes work more portable Businesses and individuals have access to overseas experts