The Social and

Political Environments
Facing Business
 Learning Objectives
 To discuss global social and political
environment and its importance in
international business
 Social Environment
 Age
 Gender
 Literacy
 Religion
 Corruption
 Ethics
 Role of Family
 Introduction
 Culture refers to the learned norms based
on values, attitudes, and beliefs of a group
of people
 Culture is an integral part of a nation’s
operating environment
 every business function is subject to potential
cultural differences
 Introduction
Cultural Factors Affecting International Business Operations
 Introduction
 Companies need to decide when to make
cultural adjustments
 Fostering cultural diversity can allow a
company to gain a global competitive
advantage by bringing together people of
diverse backgrounds and experience
 Introduction
 But, cultural collision can occur when a
company implements practices that are
less effective or when employees
encounter distress because of difficulty in
accepting or adjusting to foreign behaviors
 Cultural Awareness
 Problem areas that can hinder managers’
cultural awareness…
 Subconscious reactions to circumstances
 The assumption that all societal subgroups are
similar
 Managers that educate themselves about
other cultures have a greater chance of
succeeding abroad
Culture and the Nation-State
 Country-by-country analysis can be
difficult because
 subcultures exist within nations
 similarities link groups from different countries
 Managers also need to focus on relevant
groups
 Language:
Cultural Diffuser and Stabilizer
 A common language within a country is a
unifying force
 A shared language between nations
facilitates international business
 Native English speaking countries account for a
third of the world’s production
 English is the international language of
business
 Language:
Cultural Diffuser and Stabilizer
Distribution Of The World’s Major Languages
 Language:
Cultural Diffuser and Stabilizer
Major Language Groups: Population and Output
 Religion: Cultural Stabilizer
 Religion impacts almost every business
function
 Centuries of profound religious influence
continue to play a major role in shaping
cultural values and behavior
 many strong values are the result of a
dominant religion
Religion: Cultural Stabilizer
Distribution Of The World’s Major Religions
 Social Stratification
 Social ranking is determined by
 an individual’s achievements and
qualifications
 an individual’s affiliation with, or
membership in, certain groups
 Social Stratification
 Group affiliations can be
 Ascribed group memberships
 based on gender, family, age, caste, and

ethnic, racial, or national origin

 Acquired group memberships
 based on religion, political affiliation,

professional association
 Two other factors that are important
 education and social connections
 Work Motivation
 The motivation to work differs across
cultures
 Studies show
 the desire for material wealth is a prime
motivation to work
 promotes economic development

 people are more eager to work when the

rewards for success are high
 masculinity-femininity index
 high masculinity score prefers “to live to
work” than “to work to live”
 Relationship Preferences
 Relationship preferences differ by culture
 Power distance
 high power distance implies little superior-
subordinate interaction
 autocratic or paternalistic management style

 low power distance implies consultative style

 Individualism versus collectivism
 high individualism – welcome challenges
 high collectivism – prefer safe work
environment
 Risk Taking Behavior
 Risk taking behavior differs across cultures
 Uncertainty avoidance
 handling uncertainty

 Trust
 degree of trust among people

 Future orientation
 delaying gratification

 Fatalism
 attitudes of self-determination
 Information and
Task Processing
 Cultures handle information in different
ways
 Perception of cues
 Obtaining information
 low context versus high context cultures

 Information processing
 Monochronic versus polychronic cultures
 Idealism versus pragmatism
 Communications
 Cross border communications do not
always translate as intended
 Spoken and written language
 Silent language
 Color
 Distance
 Time and punctuality
 Body language
 Prestige
 Communications
Body Language Is Not A Universal Language
 Dealing with
Cultural Differences
 Do managers have to alter their customary
practices to succeed in countries with
different cultures?
 Must consider
 Host society acceptance
 Degree of cultural differences
 cultural distance

 Ability to adjust
 culture shock and reverse culture shock

 Company and management orientation

 Dealing with
Cultural Differences
 Three company and management
orientations
 Polycentrism
 business units abroad should act like local

companies
 Ethnocentism
 home culture is superior to local culture

 overlook national differences

 Geocentrism
 integrate home and host practices
 Introduction
 Every country has its own political and
legal environment
 Companies must determine where, when,
and how to adjust their business practices
without undermining the basis for success
 Introduction
Political and Legal Factors Influencing International Business Operations
 The Political Environment
 Managers evaluate, monitor, and forecast
political environments
 A country’s political system refers to the
structural dimensions and power dynamics
of its government that specify institutions,
organizations, and interest groups, and
define the norms that govern political
activities
 Individualism vs. Collectivism
 Individualism
 primacy of the rights and role of the
individual
 Collectivism
 primacy of the rights and role of the
community
 Democracy
 In a democracy
 all citizens are politically and legally equal
 all are equally entitled to freedom of thought,
opinion, belief, speech, and association
 all equally command sovereign power over
public officials
 Prominent types of democracy include
 Representative
 Multiparty
 Parliamentary
 Social
 Totalitarianism
 A totalitarian system subordinates the
individual to the interests of the collective
 dissent is eliminated through indoctrination,
persecution, surveillance, propaganda,
censorship, and violence
 Prominent types of totalitarianism include
 Authoritarianism
 Fascism
 Secular
 Theocratic
The Standard of Freedom
Map of Political Freedom, 2013
Third Wave of Democratization
 Third Wave of Democratization
 number of democracies doubled in two
decades
 Engines of Democracy
1. The failure of totalitarian regimes to deliver economic
progress
2. Improved communications technology
3. Economic dividends of increasing political freedom
 Democracy:
Recession and Retreat
 Democracy’s retreat
 just 26 of the world’s democracies are full
democracies
 Engines of Authoritarianism
 Political economy of growth
 Rhetoric vs. Reality - Inconsistencies
 Economic problems
 Who defines Democracy?
 Democracy:
Recession and Retreat
Freedom in the World: Gains and Declines
Political Ideology and the MNE
 What will the political map look like in the
future?
 The Washington Consensus
 The Beijing Consensus
 The Clash of Civilizations
 Political Risk
 Political risk refers to the risk that
political decisions or events in a country
negatively affect the profitability or
sustainability of an investment
 Types:
 Systemic
 Procedural
 Distributive
 Catastrophic
Classifying Political Risk
Characteristics of Political Risk
 The Legal Environment
 The legal system is the mechanism for
creating, interpreting, and enforcing the
laws in a specified jurisdiction
 Types:
 Common law
 Civil law
 Theocratic law
 Customary law
 Mixed systems
The Legal Environment
The Wide World of Legal Systems
 Trends in Legal Systems
 What is the basis of rule in a country?
 The rule of man
 legal rights derive from the individual who

commands the power to impose them

 associated with a totalitarian system

 The rule of law

 systematic and objective laws applied by

public officials who are held accountable for

their administration
 associated with a democratic system
 Operational Concerns
 Operational issues
 Starting a business
 Making and enforcing contracts
 Hiring and firing local workers
 Closing down the business
 In general
 rich countries regulate less
 poor countries regulate more
 Strategic Concerns
 Country Characteristics

 Product safety and liability

 Legal jurisdiction

 Intellectual property
 Intellectual Property:
Rights and Protection
 Intellectual property refers to creative
ideas, expertise, or intangible insights that
grant its owner a competitive advantage
 Intellectual property rights refer to the
right to control and derive the benefits
from writing, inventions, processes, and
identifiers
 no “global” patent, trademark or copyright
exists
 Intellectual Property:
Rights and Protection
 Attitudes towards intellectual property
 Historical legacies
 rule of man versus rule of law

 Economic circumstances
 levels of economic development

 Cultural orientation
 individualism versus collectivism