OVERVIEW OF INTERNATIONAL

BUSINESS ENVIRONMENT
Political and Legal Environment
Political and legal factors are part of external environment that
influences managerial decisions.
Political environment of a country integrates different groups into a
functioning, self-sustaining, and self-governing society.
Political policies and legal practices include:
 Political ideologies
 Political risk
 The legal environment
 Operational and strategic legal issues
Political Ideology
• Collection of ideas that expresses the goals, theories and aims that
constitute a sociopolitical program.
• A political ideology is a certain set of ethical ideals, principles,
doctrines, myths or symbols of a social movement, institution, class or
large group that explains how society should work, and offers
some political and cultural blueprint for a certain social order.
• Different kind of political ideologies are:
Democracy: wide participation by citizens in the decision-making
process. The fundamental element of democracy is freedom
Totalitarianism: a single agent , whether an individual, group, or
party, monopolizes all political power.
Cont..
• Aims to subordinate all the aspects of the day-to-day life of people-
occupation, income and religion-to power of the state.
• Political systems exhibiting totalitarian behavior include
Authoritarianism: aims to rule completely all affairs of all citizens
Fascism: a unit which includes all values, interprets, develops, and
lends additional power to the whole life of people
Secular totalitarianism: control is enforced through military power.
Theocratic totalitarianism: religious leaders are the political leaders
Trends in political systems
• The trend toward democracy is increasing. Key drivers include:
Breakdown of totalitarian regime
Improved communication technology
Higher standards of living
• Progress toward freer civic institutions, an active media, a
strengthened judiciary, and stronger property rights are the reasons for
movement in these trends
Political risk
• The risk that political decisions or events in a country negatively affect
the profitability or sustainability of an investment
• Different kinds of political risk are:
Systematic political risk: changes in the philosophy of different
leaders
Procedural political risk: political actions like Govt. corruption,
labor disputes can raise the costs of getting things done
Distributive political risk: by revising tax codes, regulatory
structure, and monetary policies some political officials intervene to
claim share in profits of foreign investors who achieve great success.
Cont..
• Catastrophic political risk: arise from flash points like ethnic
discord, civil disorder, or war.
Legal environment
• Mechanism for creating, interpreting, and enforcing the laws in a
specified jurisdiction
• Every country has broad range of laws to regulate crucial activities
like investment of capital, custom duty on imports, transfer of
hazardous waste, and many more.
• Means and methods that a country uses to regulate business practices,
define how companies conduct business transactions, specify rights
and obligation of those who are involved in a transaction etc
Different kinds of legal systems
• A common law system
• A civil law system: political officials specify laws
• A theocratic law system: religious and spiritual principles
• A customary law system: daily experience or spiritual
• A mixed legal system
Operational and strategic legal issues
• How do legal regulation impacts day-to-day operations, such as laws
that govern starting a business, hiring and firing workers, enforcing
contracts, and choosing a business
• How do legal regulations or the lack thereof affect companies’ long-
term competitiveness
Operational issues
• Starting a business: countries like Australia, Canada, Ireland, have less
procedures to start a business over there.
• Entering and enforcing a contract
• Hiring and firing local workers
• Closing down the business
Strategic concerns
• Product safety and liability: customize product with local standards.
• Marketplace behavior: laws related to pricing, distribution ,
advertising and promotion
• Product origin
• Legal jurisdiction
• Arbitration
• Airbnb fined euro 60000 for rental properties falling outside local
housing and tourism regulations in Barcelona
• Coca cola central approach
• 14 weeks maternity leave in European countries
• Swedish furniture giant Ikea, known in Europe for its low-cost
value, struggled initially in China due to local competitor costs of
labor and production being much cheaper.