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Politics, Law,
and Business Ethics
 Chapter Objectives

• Describe each main type of political system

• Identify the origins of political risk and how managers
can reduce its effects
• Describe each main type of legal system and some
important global legal issues
• Explain ethics and social responsibility and key issues
facing international companies
• Explain how international relations affect international
business activities

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 Roles of History and Culture

A nation’s political and legal systems:

rooted in its history and culture.

History and culture: reflected in values

such as individual responsibility, law and
order, free enterprise, role of family,
population, age and race composition, per
capita income.

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Roles of History and Culture

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 Political System

Political system: structures, processes,

and activities by which a nation governs
itself.
 Political Ideologies

Totalitarianism Pluralism Anarchism

Both private and public

groups need to balance
each other’s power
Every aspect of Only individuals and
people’s lives must be private groups can
controlled to preserve order preserve personal liberties

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 Anachy

- Individual and private group control a

nation’s political activities;
- Public Gov’t: unnecessary, only abuses
individuals and their right;
- A nation between Gov’ts => in a state of
“anarchy”

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 Totalitarianism

- Every aspects of life be controlled for an

effective nation’s political system;
- Little or no concern for individual rights.

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 Totalitarianism: Common
Features
 Leaders govern without people’s support (North
Korea)
 Government controls much of people’s lives
 Leaders do not tolerate opposing viewpoints

Imposed Lack of Restricted

Authority constitutional Political
on people guarantees participation

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 Forms of Totalitarianism

Theocratic totalitarianism
(controlled by totalitarian religious leaders): Afghanistan
(Taliban) and Iran

Secular totalitarianism
(leaders rely on military and bureaucratic power for control)

Communist totalitarianism: Cuba and North Korea

Tribal totalitarianism: African nations

Right-wing totalitarianism: Singapore and

Indonesia (under Suharto)
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 Three Sub-types of Secular
Totalitarianism

Communist totalitarianism: Social and economic

equality only be obtained by an all-powerful
Communist party and granting gov’t ownership and
control all types of economic activities.

Tribal totalitarianism: One ethnic group imposing

its will on others within a nation.

Right-wing totalitarianism: Government endorses

private ownership of property and a market-based
economy, but grants few (if any) political freedoms.
 Business in Totalitarian Countries

Positive side: Inter.companies are less

concerned with local political opposition to their
activities.

Negative side: Companies might need to pay

bribes and kickbacks to Govern. officials.
 Business in Totalitarian Nations

Risk Factors
• Arbitrary nature of
business can mean that
laws are vague or do not
exist
• Bureaucrats may
interpret laws however
they wish

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 Pluralism
Chu nghia da nguyen

- Both private and public groups play an

important role in a nation’s political activities;
- Each side balances power of the other;
- Democracy - a pluralist form of gov’t.
che do quan chu

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 Democracy
Government leaders are elected directly by
the wide participation of the people or their
representatives

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Life and Business in Democracies
Representative Democracy: citizens elect
individuals from their groups to represent their
political views.

Business in democracy countries: stable

business environments through law that protect
individual property rights.

• Freedom of expression
• Periodic elections
• Full civil and property rights
• Minority rights
• Nonpolitical bureaucracies

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 Democracy

Freedom of expression – openly declare opinions w/o

fear of punishment;
Periodic election – leaders serve a fixed period of time;
Full civil and property rights – freedom of speed,
freedom to organize a political party, a fair court trial;
Minority rights – to preserve peaceful coexistence
among groups of people with diverse cutural, ethnic and
racial background;
Non-political bureaucracies – Bureaucrats implement
decisions according to political views of those of the
people’s representatives rather than their own views.
 Discussion Question

What are the three

main features of
totalitarianism and the
five freedoms that
democracies strive to
provide?

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Answer to Discussion Question
Totalitarian governments tend
to share imposed authority, a lack
of constitutional guarantees, and
restricted political participation.
Democracies strive to provide
freedom of expression, periodic
elections, full civil and property
rights, minority rights, and
nonpolitical bureaucracies.

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 Change up 1

If “pure” Anarchy is a “1” and “pure”

Totalitarianlism is a “10”, where would you
place the current Gov’t of Vietnam on this
continuum? Why? (give specific details to
explain. Is the political system moving in any
direction? Why or why not? (again, give
details)

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 Political Risks
Likelihood that a gov’t or society undergoes
political changes negatively affecting local
business activities:
- Threatening market of an exporter (lower

demand);
- Threatening production facilities of a

manufacturer;
- Threatening ability to repatriate profits.

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Types of Political Risk

Conflict and violence

Terrorism and kidnapping
Property seizure
Policy changes
Local content requirements

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 Conflict and Violence
Arises from within:
 People’s resentment
toward government
=> high unemployment
 Ethnic, racial, or
religious disputes:
Hindus and Muslims in India
.
Arises from ouside:
 Territorial disputes
between nations:
Thailand and Myanmar, India
and Pakistan (armed disputes)
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 Conflict and Violence

Reduces ability to:

 Obtain materials and equipment;

 Manufacture and distribute products;
 Protect employees’ lives and firm’s assets

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 Terrorism and Kidnapping

Terrorism creates fear and force change thr.

sudden, unpredictable destruction of life or
property;
Kidnapping and the taking of hostages used to
fund a terrorist group’s activities;
MNC leaders – prime targets

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 Manager’s Briefcase:
Your Global Security Checklist
 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
 Travel with others when possible and ask
directions guardedly
 Know local emergency procedures before trouble
strikes

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 Property Seizure

Confiscation (Tịch thu)

Forced transfer of assets from
a company to the government
without compensation

Expropriation (Trưng thu)

Forced transfer of assets from
a company to the government
Nationalization (Quốc hữu
with compensation
hóa)
Forced asset transfer to the
government of an entire
industry
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 Gov’t Policies and Laws

Policy changes restrict: Local content

requirements:

 Foreign ownership Specify the portion

of a good or service
 Investment levels
to be supplied
 Business activities by local firms

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 Managing Political Risk I
- Forming informal or formal
Partnerships (JV, strategic alliances,
cross-holding of company stock) to
leverage expansion plans;
- Localizing (modifying) operations,
-product mix, some other elements to
Adaptation
suit local tastes and culture;
Incorporating risk into
business strategies - Offering development assistance
to improve local distribution
and communications network
and improve quality of life for locals;
- Obtaining insurance to protect
company against losses and
obtain project financing.
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 Managing Political Risk II

Current employees working

in the country and having
valuable contact and knowledge
with relevant information
Information gathering
Gathering data to better
predict and manage risk
Agencies specializing in
political-risk services including
banks, political consultants,
risk-assessment services

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 Managing Political Risk III
Lobbying
Influencing local lawmakers
by meeting local public
officials, influencing their
Influence local politics
positions on relevant issues.
Presenting firm’s views
on political matters Corruption
- Directs scarce financial
resources into wrong projects;
- Creates “uneven” playing field;
- Scarces away foreign investors.
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 Managing Political Risk IV

Avoidance
Restraining from investing in a country

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 Discussion Question

Incorporating political risk into

business strategies by
modifying operations, the
product mix, or some other
business element is called
____________.
a. Specialization
b. Globalization
c. Localization

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Answer to Discussion Question

Incorporating political risk into

business strategies by
modifying operations, the
product mix, or some other
business element is called
____________.
a. Specialization
b. Globalization
c. Localization

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 LEGAL SYSTEM

A country’s legal system is the set of

laws and regulations including:
- process by which a country’s laws are
created and enforced;
- ways in which its courts hold parties
responsible for their actions.
LEGAL SYSTEM AND INTERNATIONAL
BUSINESS

A country’s laws:
- defines manner in which business
transactions are to be carried out;
- describes what parties need to do if
there’s a conflict and how to work it out.
 Common Law

Tradition
Nation’s legal history

Precedent
Past cases before the courts

Usage
How laws are applied

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 COMMON LAW

Practised in countries used to be part of British

Empire: Australia, Britain, Canada, Ireland, New
Zealand, the US, parts of Asia and Africa;
Effects on business contracts:
- Positive side: flexible as taking into account
specific situations;
- Negatice side: more time-consuming to prepare,
more expensive as taking into possible
interpretations by judicial system.
Civil Law

Dates to Roman times in

the fifth century B.C.

Rules and statutes

constitute a legal code

Defines all obligations,

responsibilities, and
privileges
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 CIVIL LAW

Effect on business contracts:

- Positive side: shorter and take less time
and money to prepare;

- Negative side: not as flexible as not

taking into account unique circumstances
of particular cases.
 THEOCRATIC LAW

A legal tradition based on religious

teachings;
Initially a code governing moral and ethical
behavior and later extended to commercial
transactions.
 Theocratic Law
Firms operating in these countries must be sensitive to
local values and beliefs including hiring practices and investment
policies, to ensure compliance with the law, local values, and beliefs

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 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")

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 Business Software Piracy

Source: Based on the Eighth Annual BSA and IDC Global Software Piracy Study (Washington, D.C.; Business Software Alliance, May 2011), pp. 8–9, (www.bsa.org/globalstudy)

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 Global Legal Issues II

 Standardization
- Interpreting and applying laws uniformly
 Product safety and liability
- Responsibility for damage, injury, or death
 Taxation
- Income, sales, consumption, and VAT
 Antitrust (antimonopoly) laws
- Prevent market sharing, price fixing, and
unfair advantage

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 Discussion Question

What are intellectual

property rights and
what is their
significance to
business?

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Answer to Discussion Question
Intellectual property rights are
legal rights to resources that
result from intellectual abilities
and any income the resources
generate.
They can be traded, sold, and
licensed in return for fees and/or
royalty payments.
Intellectual property laws are
designed to compensate people
whose property rights are
violated.

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 Ethics and Social Responsibility

PHILOSOPHIES

Friedman View Cultural Relativism

Righteous Moralism Utilitarianism

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Corporate Social Responsibility Issues

Going beyond legal obligations to balance

commitments to investors, customers,
communities, and other companies

 Fight to eliminate bribery and corruption

 Improve labor conditions and guard human rights
 Practice fair trade to help the disadvantaged
 Protect the environment and conserve resources

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 International Relations

Favorable international
political relations foster:
 Stable business
environments
 Improved business
communications
 Efficient distribution
systems
 Expanded opportunities
 Diminished risk levels
 Prompt and equitable
dispute resolution

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 Discussion Question

The philosophy of business

ethics and social responsibility
conveyed by the expression,
“When in Rome, do as the
Romans do,” is called the
__________ view.
a. Righteous moralist
b. Cultural relativist
c. Utilitarian

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Answer to Discussion Question

The philosophy of business

ethics and social responsibility
conveyed by the expression,
“When in Rome, do as the
Romans do,” is called the
__________ view.
a. Righteous moralist
b. Cultural relativist
c. Utilitarian

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