Mgt 485 Chapter 2: 1
Chapter
2
The Political, Legal, and
Technological Environment
The specific objectives of this chapter are:
1. EXAMINE some of the major changes that are
currently taking place in the political environment
of China, Europe, Russia, and Central and
Eastern Europe.
2. PRESENT an overview of the legal and
regulatory environment in which MNCs operate
worldwide.
3. REVIEW key technological developments as well
as their impact on MNCs now and in the future.
Mgt 485 Chapter 2: 3
Political Environment
 Change in government policies
 MNCs
must adjust their strategies and
practices to accommodate the new
perspectives and actual requirements
 Less stable governments
 Greater
risk
 Significant differences among political
systems across countries and regions
Mgt 485 Chapter 2: 4
Political Environment
China
 Emerging economic power
 Government’s desire to balance


National, immediate needs
Challenge of a free market economy and globalization
 Government attempting to open up the
economy
1.
2.
3.
4.
5.
Speed up conversion of state enterprises into corporations
Expand capital markets by authorizing new stock listings
Sell off most of the 305,000 state enterprises (or let go
bankrupt)
Worker retraining, low-cost housing and other programs
Reduce tariffs to 10 percent
Mgt 485 Chapter 2: 5
Political Environment
Europe
 Privatization and economic liberalization
reinforce EU-wide political and economic
integration
 Political power is variable and complex
 Strong opposition to U.S.-led intervention in
Iraq sometimes spill over into business
relationships and dealings
 Europe is a large interwoven region
economically, but contains vast cultural
differences
Mgt 485 Chapter 2: 6
Political Environment
Russia
 Neglect, corruption, and confusing
changes in economic policy
 Infrastructure is weak and a political
quagmire



Legal
Financial
Trade sectors
 Corruption interferes with attraction of
more foreign investment
Mgt 485 Chapter 2: 7
Key Elements of Russia’s WTO
Accession Deal with the EU
Tariffs
Russia will not exceed an average’ tariff level of 7.6% for industrial
goods, 11% for fishery products, and 13 % for agricultural goods.
Tariff rate quotas for fresh and frozen meat and poultry will be around
600 million ($720 million) per year.
Energy
Russian gas prices to domestic industrial users will gradually be
increased.
Russia’s state gas corporation, Gazprom, will retain its export
monopoly. Export duties on gas will be capped at 30%.
Airlines
Russia will revamp the charges currently applied to EU airlines flying
over Siberia to make them cost-based and nondiscriminatory.
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Mgt 485 Chapter 2: 8
Key Elements of Russia’s WTO
Accession Deal with the EU
Banking
Russia will maintain a ban on foreign banks opening branches.
Under existing rules, foreign banks are allowed to open only
wholly or partly owned subsidiaries.
Services
Russia has committed to cross-border provision and
commercial establishment of certain services.
Sectors include telecoms, transport, financial services, postal,
construction, distribution, environmental, news agency, and
tourism.
Adapted from: Table 2-1: Key Elements of Russia’s WTO Accession Deal with the EU
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Mgt 485 Chapter 2: 9
Political Environment
Central and Eastern Europe
 Many of these countries have joined the EU
 Movement from centrally planned to market
economy plagued with problems in many
countries



High unemployment
Economic slowdown
Large trade deficits
 Some countries more successful in
economic reforms



Estonia
Latvia
Lithuania
Mgt 485 Chapter 2: 10
Political Environment
The Middle East
 Doing business requires knowledge of








Regulations
Legal environment
Tax regimes
Accounting methods
Business structures
Import/export regulations
Manpower and labor regulations
Restrictions on foreign capital investment
Mgt 485 Chapter 2: 11
Political Environment
The Middle East
 Doing business in Middle Eastern
countries is risky and potentially
dangerous




War on terrorism
Afghanistan and Iraq wars
Israel—Arab conflicts
Rising tensions



Religion and way of life
Framework of life and society
Islamic fundamentalists have become aggressive
toward U.S. and its allies.
 Business requires knowledge of Islam
Mgt 485 Chapter 2: 12
Legal and Regulatory Environment
 Confusion and challenge of
international business environment is
heightened by
 Differing
laws and regulations in MNCs’ global
business operations
 Impact of these laws and regulations on ability to
capitalize on economies of scale and scope
 MNCs must carefully evaluate legal
framework in each market in which they
want to do business, before doing so
Mgt 485 Chapter 2: 13
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
Mgt 485 Chapter 2: 14
Four Global Foundations of Law
Islamic
Law
Socialist
Law
 Comes from Marxist socialist
system
 Continues to influence regulations
in former communist countries





Members of former Soviet Union
Peoples’ Republic of China
Vietnam
North Korea
Cuba
 Requires most property to be
owned by the state or state
enterprises
Mgt 485 Chapter 2: 15
Four Global Foundations of Law
Islamic
Law
Socialist
Law
Common
Law
 Comes from English law
 Foundation of legal system
 United
States
 Canada
 England
 Australia
 New Zealand
Mgt 485 Chapter 2: 16
Four Global Foundations of Law
Islamic
Law
Socialist
Law
Common
Law
Civil or
Code Law
 Derived from Roman law
 Found in non-Islamic and
nonsocialist countries
 France
 Some
Latin American countries
 Louisiana in the U.S.
Mgt 485 Chapter 2: 17
Basic Principles of International
Law
Sovereignty
and Sovereign
Immunity
Sovereignty and
Sovereign
Immunity
An international
principle of law
which holds that
governments have
the right to rule
themselves as they
see fit
Mgt 485 Chapter 2: 18
Basic Principles of International
Law
Sovereignty
and Sovereign
Immunity
International
Jurisdiction
International
Jurisdiction
A jurisdictional principle of
international law which
holds that every country has
jurisdiction over its citizens
no matter where they are
located



Nationality principle
Territoriality principle
Protective principle
Mgt 485 Chapter 2: 19
Basic Principles of International
Law
Doctrine of Comity
Sovereignty
and Sovereign
Immunity
International
Jurisdiction
Doctrine of
Comity
A jurisdictional principle
of international law which
holds that there must be
mutual respect for the
laws, institutions, and
government of other
countries in the matter of
jurisdiction over their own
citizens
Mgt 485 Chapter 2: 20
Basic Principles of International
Law
Sovereignty
and Sovereign
Immunity
International
Jurisdiction
Act of State
Doctrine
Doctrine of
Comity
Act of State
Doctrine
A jurisdictional principle
of international law
which holds that all acts
of other governments
are considered to be
valid by U.S. courts,
even if such acts are
illegal or inappropriate
under U.S. law
Mgt 485 Chapter 2: 21
Basic Principles of International
Law
Sovereignty
and Sovereign
Immunity
Treatment
and Rights
of Aliens
Act of State
Doctrine
International
Jurisdiction
Doctrine of
Comity
Treatment and
Rights of Aliens
Countries have the legal
right to refuse
admission of foreign
citizens and to impose
special restrictions on
their conduct, right of
travel, where they can
stay, and what business
they may conduct
Nations also can deport
aliens
Mgt 485 Chapter 2: 22
Basic Principles of International
Law
Forum for
Sovereignty
Hearing and
and Sovereign
Settling
Immunity
Disputes
Treatment
and Rights
of Aliens
International
Jurisdiction
Forum for Hearing
and Settling
Disputes
U.S. courts can dismiss
cases brought before them
by foreigners; however they
are bound to examine issues
such as

Act of State
Doctrine
Doctrine of
Comity


where the plaintiffs are
located,
where the evidence must be
gathered
where property to be used in
restitution is located
Mgt 485 Chapter 2: 23
Legal and Regulatory Issues
 Foreign Corrupt Practices Act
 Illegal
to influence foreign officials through
 Personal payment
 Political contributions
 When bribes removed, MNCs more willing to do
business in that country
 Restrictive bureaucratization
 Government
controls often inefficient and
uncorrected
 Local politics often prevail over national concerns
 Privatization
Mgt 485 Chapter 2: 24
Regulation of Trade
and Investment
 Individual countries use legal and regulatory
policies to affect the international
management environment
 Country is perceived to engage in unfair
trade practices (WTO and similar
agreements)
 Government
support (subsidies)
 Require MNCs to accept local partners
 Response may be
 Retaliatory tariffs
 Restrictive trade regulations
Mgt 485 Chapter 2: 25
Technological Environment and Global
Shifts in Production
 Biotechnology
 Nanotechnology
 Satellites
 Automatic translation telephones
 Artificial intelligence and embedded learning
technology
 Advancements in computer chip technology
 Supercomputers
 E-business




Business-to-business (B2B)
Business to consumer (B2C) transactions
e-tailing & financial services
Financial services (e-cash)
Mgt 485 Chapter 2: 26
Technological Environment
 Internet Access allows people to obtain
information from millions of sources
 Satellites will make it possible for
everyone to send and receive voice,
data, and digitized images through handheld telephones
 Automatic translation telephones will
allow people to communicate in their own
language to anyone in the world who
has access to a telephone
Mgt 485 Chapter 2: 27
Technological Environment and Global
Shifts in Production
 Telecommunications
 Wireless



or mobile telephone service
Economic growth hampered by poor communication
services
Wireless is more affordable than installed phone lines
Some governments recognize the need to privatize this
service
 Technology, outsourcing and offshoring



Technology has reduced and eliminated some work in
middle management and white-collar jobs
Global competition has forces some MNCs to outsource jobs
to offshore productions (lower labor and other costs)
Emerging technology makes work more portable
Mgt 485 Chapter 2: 28
Technological Environment (cont.)
 Telecommunications



Most obvious dimension of the technological
environment facing international management
 Economic growth perceived to hinge on efficient
communications
Technologic leapfrogging
 Moving from the absence of telephones to the
availability of wireless communications
Privatization of telecommunications occurring in some
countries to acquire capital and technical know-how
 MNCs unwilling to invest in telecommunications
without the prospect of good financial return
 Case of China
Mgt 485 Chapter 2: 29
The Employment Fallout from
Technology
 Technology will affect the nature
and number of employees



technology has the potential to largely displace
employees in all industries
Emerging information technology also makes
work more portable
Changing economic dynamics
 Increasing productivity / decreasing costs
 Lost jobs, lowering wages
Mgt 485 Chapter 2: 30
Expected Winners
in Selected Occupations
Computer software engineers,
applications
100
Computer support
specialists
97
Computer software engineers,
systems software
90
Network and computer
systems administrators
82
Personal and home care aids
62
Medical assistants
-80
-60
-40
-20
52
0
20
40
60
80
100
Percentage change for 2000-2010
Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010
Mgt 485 Chapter 2: 31
Losers
Expected Winners
in Selected Occupations
Railroad brake, signal,
and switch operators
Telephone operators
-61
-35
Loan interviewers and clerks
-28
-80
-60
-26
Meter readers,
utilities
-25
Farmers and ranchers
-40
-20
Order clerks
-20
Insurance claims and policy
processing clerks
-20
0
20
40
60
80
100
Percentage change for 2000-2010
Adapted from: Figure 2-1: Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010