1. Chapter 3 Politics, Law, and Business Ethics

2. © Prentice Hall, 2008International Business 4e Chapter 3 - 2 Describe the three types of political systems Discuss each cause of political risk and how firms can manage them Identify how the three legal systems are unique Identify global legal issues facing companies Discuss the roles of ethical behavior and social responsibility in international business Chapter Preview

3. © Prentice Hall, 2008International Business 4e Chapter 3 - 3 Political Ideologies Both private and public groups need to balance each other’s power Every aspect of people’s lives must be controlled to preserve order Only individuals and private groups can preserve personal liberties TotalitarianismAnarchismPluralism

4. © Prentice Hall, 2008International Business 4e Chapter 3 - 4 Democracy Government leaders are elected by the wide participation of the people or their representatives  Freedom of expression  Periodic elections  Full civil and property rights  Minority rights  Nonpolitical bureaucracies

5. © Prentice Hall, 2008International Business 4e Chapter 3 - 5 ImposedauthorityImposedauthority Lack of constitutionalguarantees constitutionalguaranteesRestrictedparticipationRestrictedparticipation Totalitarianism  Leaders govern without people’s support  Government controls much of people’s lives  Leaders do not tolerate opposing viewpoints

6. © Prentice Hall, 2008International Business 4e Chapter 3 - 6 Forms of Totalitarianism Theocratic totalitarianism (totalitarian religious leadership) Secular totalitarianism (military and bureaucratic leadership) Tribal totalitarianism Communist totalitarianism Right-wing totalitarianism

7. © Prentice Hall, 2008International Business 4e Chapter 3 - 7 Causes of Political Risk Conflict and violence Policy changes Terrorism and kidnapping Local content requirements Property seizure

8. © Prentice Hall, 2008International Business 4e Chapter 3 - 8 Arises from:  People’s resentment toward government  Territorial disputes between nations  Ethnic, racial, or religious disputes Reduces ability to:  Obtain materials and equipment  Manufacture and distribute products  Protect employees’ lives and firm’s assets Conflict and Violence

9. © Prentice Hall, 2008International Business 4e Chapter 3 - 9 Fly nonstop when possible and avoid unsecured areas of airports During your stay, vary your routines and means of transportation Keep a low profile and refrain from loud, flashy behavior Give friendly but cautious answers to personal questions Know local emergency procedures before trouble strikes Security checklist for managers on business abroad: Terrorism and Kidnapping

10. © Prentice Hall, 2008International Business 4e Chapter 3 - 10 Property Seizure Confiscation Forced transfer of assets from a company to the government without compensation Expropriation Forced transfer of assets from a company to the government with compensation Nationalization Forced asset transfer to the government of an entire industry

11. © Prentice Hall, 2008International Business 4e Chapter 3 - 11 Policies and Laws  Foreign ownership  Investment levels  Business activities Policy changes restrict: Local content requirements: Specify the portion of a good or service to be supplied by local firms

12. © Prentice Hall, 2008International Business 4e Chapter 3 - 12 Managing Political Risk Adaptation Incorporate risk into business strategies Adaptation Incorporate risk into business strategies Localization Development assistance Local equity / debt Insurance Partnerships

13. © Prentice Hall, 2008International Business 4e Chapter 3 - 13 Managing Political Risk Agencies specializing in political-risk services Current employees with relevant information Information gathering Information gathering Gather data to better predict and manage risk Information gathering Information gathering Gather data to better predict and manage risk

14. © Prentice Hall, 2008International Business 4e Chapter 3 - 14 Managing Political Risk Corruption Foreign Corrupt Practices Act Lobbying Influencing local lawmakers Influence local politics Influence local politics Present firm’s views on political matters Influence local politics Influence local politics Present firm’s views on political matters

15. © Prentice Hall, 2008International Business 4e Chapter 3 - 15 World’s Legal Systems Common Law Tradition, precedent, and usage Civil Law Codified rules and statutes Theocratic Law Religious teachings form law

16. © Prentice Hall, 2008International Business 4e Chapter 3 - 16 Global Legal Issues I Intellectual property - Result of intellectual talent and abilities - Piracy/counterfeits a serious problem  Patent Excludes all but the inventor from making, using, or selling the invention (WTO = 20 years)  Trademark Words or symbols that distinguish a product and its manufacturer ("Coca-Cola")  Copyright Freedom of creator to publish or dispose of original works as they choose ("Happy Birthday to You")

17. © Prentice Hall, 2008International Business 4e Chapter 3 - 17 Global Legal Issues II  Standardization - Interpreting and applying laws uniformly  Product safety and liability - Responsibility for damage, injury, or death  Antitrust (antimonopoly) laws - Prevent market sharing, price fixing, and unfair advantage  Taxation - Income, sales, consumption and VAT

18. © Prentice Hall, 2008International Business 4e Chapter 3 - 18 Personal behavior in accordance with rules or standards for right conduct or morality Ethical Behavior Ethical relativism When in Rome, do as the Romans Ethical relativism When in Rome, do as the Romans Ethical absolutism Import ethics from home Ethical absolutism Import ethics from home Enron Tyco Worldcom Parmalat (Italy)

19. © Prentice Hall, 2008International Business 4e Chapter 3 - 19 Respect consumers’ rights Guard workers’ rights Protect the environment Preserve employment Encourage development Improve health Support education Social Responsibility Go beyond legal obligations to balance commitments to investors, customers, communities, and other companies

20. © Prentice Hall, 2008International Business 4e Chapter 3 - 20 International Relations  Stable business environments  Improved business communications  Efficient distribution systems  Prompt and equitable dispute resolution  Expanded opportunities  Diminished risk levels Favorable international political relations foster:

21. © Prentice Hall, 2008International Business 4e Chapter 3 - 21 Describe the three types of political systems Discuss each cause of political risk and how firms can manage them Identify how the three legal systems are unique Identify global legal issues facing companies Discuss the roles of ethical behavior and social responsibility in international business Chapter Review