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. Most theocracies today are based
on Islam
– Right-wing totalitarianism allows some economic
freedom but not political freedom. Often a military
dictatorship
• Totalitarian states are also called “dictatorships”.
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
Common law
Civil law
Four Global Foundations of Law
Islamic Law
• Derived from interpretation of the Qur’an and
teachings of Prophet Muhammad
• Found in some Islamic countries
– Middle East
– Central Asia
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 and inconsistent enforcement of regulations
Four Global Foundations of Law
Common Law
• Comes from English law
• Based on custom and precedent (previous
cases)
• There are also written law codes.
• Foundation of legal system in United States,
Canada, England, Australia, India, and
New Zealand
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
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)
• U. S. courts do not have to settle civil cases
brought by foreign citizens or firms in U. S.
courts.
• 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
Nationalization in Russia
• Russia has large oil reserves and the world's largest
reserve of natural gas.
• Russia privatized its energy industry in the 1990's and
re-nationalized most of it in 2006.
• In late 2006, Russia forced Shell and several other
western companies to sell a controlling interest in a
major oil drilling venture to the government energy
company (Gazprom), which is now a monopoly.
• BP had a joint oil venture with several Russian
investors. Russia forced BP to give majority control to
the Russian investors.
Nationalization in South America
• Most government enterprises in South America were
privatized in the 1980's.
• In the 1990’s, nearly all South American countries had
democratically elected governments and market
economies.
– In several South American countries, poor and
indigenous people did not believe that they had
benefited from this system.
• Socialist presidents have been elected in Bolivia,
Ecuador, Venezuela, Nicaragua, and Argentina.
Nationalization in South America (2)
• Venezuela ordered 6 foreign oil companies to sell a
controlling interest in their businesses to Venezuela’s
national oil company or shut down their businesses in
Venezuela. Four companies complied, and two left.
• Venezuela has also nationalized a number of local
companies.
• Bolivia has nationalized hundreds of companies and
may also nationalize its oil industry.
• Ecuador has also nationalized some companies.
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