The Political, Legal, and Technological Environment of Global Business Chapter 2

Chapter Outline Political systems Four global foundations of law Principles of international law Legal and regulatory issues Technological environment and global shifts in production

Political Systems Democracy: government by citizens or by elected officials Fair and free elections Freedom of the press, speech, assembly, and religion Economic freedom Non-political police and court system Civilian control of the military Democracies are often called “free countries”.

Political Systems (2) Totalitarianism: one political party or individual exerts control over every part of political and human life Communist totalitarianism Theocracy: government based on the principles of a particular religion. Right-wing totalitarianism allows some economic freedom but not political freedom. Often a military dictatorship Totalitarian states are also called “dictatorships”.

“Partly free” countries have some characteristics of a Source: www.freedomhouse.org “Partly free” countries have some characteristics of a democracy and some characteristics of a dictatorship

Four Global Foundations of Law Islamic law Socialist law Civil law Common law

Four Global Foundations of Law Islamic Law (Shari’ah) Derived from interpretation of the Qur’an and teachings of the Prophet Mohammed Specifies behavior in politics, economics, banking, contracts, marriage, and many other social and business issues. Found in some Islamic countries Middle East Central Asia

Implications of Islam for Business Businesses are often expected or required to make charitable contributions. Business should not exploit people. A company should treat employees, investors, and customers fairly. It is wrong to charge interest for lending money. Islamic banks do not charge interest but make their profits from fees. Some countries have both regular banks and Islamic banks There is a growing global market for products that conform to Islamic law.

Four Global Foundations of Law Socialist Law Originally, property in Communist countries was owned by the government 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 and inconsistent enforcement of regulations

Four Global Foundations of Law Civil Law Derived from Roman law Western and central Europe Some Latin American countries Louisiana state law Cases are decided on the basis of written law codes Laws are more detailed than in common law systems. Judges have less power to interpret the law than in common law systems. Judges often direct investigations.

Four Global Foundations of Law Common Law Comes from English law Based on custom and precedent (previous cases) Foundation of legal system in the United States, Canada, England, Australia, India, and New Zealand These countries also have written law codes Their legal systems are a combination of common law and civil law

Business Law Civil Law vs. Common Law

Business Implications of Civil Law Register patents, copyrights, trademarks, logos, or other intellectual property in countries where the firm may want to do business in the future Register contracts or have them notarized. A company has fewer choices about the terms of a contract. Unforeseeable human actions, such as labor strikes or riots, are valid reasons for not complying with a contract.

Principles of 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 harm its national security, even if those actions occurred outside its territory

Principles of 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

Principles of International Law (3) 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 citizens of foreign countries

Examples of Legal and Regulatory Issues Privatization has opened up new business opportunities. Nationalization Regulation of trade and investment WTO rules on trade and investment Antidumping regulations and countervailing duties How companies can protect themselves in trade disputes

Nationalization Nationalization is the conversion of a private enterprise to government ownership. Almost always initiated by the government. The government may or may not pay the company's stockholders or investors for the enterprise. When the companies are paid for the property, the price is usually set by the government and is usually far below the market value of the property. When no payment is made, the conversion is called expropriation or confiscation

WTO Rules on Trade and Investment These are examples of trade practices that are forbidden 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 “dumping” goods in foreign markets

Dumping Dumping occurs when a company sells a product in a foreign market for less than the cost of production and shipment or a company sells a product in a foreign market for less than the price charged in the home country It is often hard to prove that a company has sold a product below cost.

Countervailing Duties The World Trade Organization allows its members to punish dumping by charging an import tariff, called a countervailing duty. In most countries, these tariffs can be imposed if the government investigates and concludes that dumping has occurred AND domestic producers can show that they have been harmed by dumping Countervailing duties can also be imposed if a domestic producer has been harmed by subsidies.

How Companies Can Protect 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 lobby their own government to settle the dispute or to persuade the foreign government to remove their products from the list

Technological Environment and Global Shifts in Production E-business capabilities E-business issues Language translation software for India Biotechnology Genetically modified crops Biofuels, such as ethanol Outsourcing and offshoring Manufacturing Knowledge work Expert systems

E-Business Capabilities Business-to-business e-commerce: global purchasing, sales, collecting payment, financial services Business-to-consumer: Online purchasing and payments Online financial services Debit cards and electronic cash Wireless communication, cell phones, and phone cards improve communication in remote areas and poor countries

E-Business Issues Electronic technology and standardization GSM vs. CDMA technology for telecommunications Microsoft Windows vs. Linux Linux is open source software that can be modified by users. Ubuntu is a version of Linux that is more suitable for end users than earlier versions. Reliability of telecommunications Software for language translation Web sites in various languages

Example: Language Translation Software for India Hindi is the national language of India. About 420 million people speak Hindi as their first language. Most other people from India speak one of 22 regional languages as their first language. These languages have different scripts. Quillpad software allows users to use a standard keyboard to type words phonetically and have them translated into Hindi and 9 regional languages. English words can also be translated into those languages