Hodgetts02_S09

7/31/2019 Hodgetts02_S09

1/26

The Political, Legal,

and Technological Environment

of Global Business

Chapter 2

7/31/2019 Hodgetts02_S09

2/26

Chapter Outline

Political systems

Four global foundations of law

Principles of international law

Legal and regulatory issues

Technological environment and global shifts in

production

7/31/2019 Hodgetts02_S09

3/26

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.

7/31/2019 Hodgetts02_S09

4/26

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 aparticular 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.

7/31/2019 Hodgetts02_S09

5/26

Source: www.freedomhouse.org

Partly free countries have some characteristics of a

democracy and some characteristics of a dictatorship

7/31/2019 Hodgetts02_S09

6/26

Four Global Foundations of Law

Islamic law

Socialist law

Common law

Civil law

7/31/2019 Hodgetts02_S09

7/26


Islamic Law

Derived from interpretation of the Quran and

teachings of Prophet Muhammad

Found in some Islamic countries

Middle East

Central Asia

7/31/2019 Hodgetts02_S09

8/26


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

7/31/2019 Hodgetts02_S09

9/26


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

7/31/2019 Hodgetts02_S09

10/26


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

7/31/2019 Hodgetts02_S09

11/26

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

7/31/2019 Hodgetts02_S09

12/26

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

7/31/2019 Hodgetts02_S09

13/26

7/31/2019 Hodgetts02_S09

14/26

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

7/31/2019 Hodgetts02_S09

15/26

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

7/31/2019 Hodgetts02_S09

16/26

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.

7/31/2019 Hodgetts02_S09

17/26

Nationalization in South America

Most government enterprises in South America were

privatized in the 1980's.

In the 1990s, 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.

7/31/2019 Hodgetts02_S09

18/26

Nationalization in South America (2)

Venezuela ordered 6 foreign oil companies to sell a

controlling interest in their businesses to Venezuelas

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.

7/31/2019 Hodgetts02_S09

19/26

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

7/31/2019 Hodgetts02_S09

20/26

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 lessthan the price charged in the home country

It is often hard to prove that a company has sold

a product below cost.

7/31/2019 Hodgetts02_S09

21/26

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 domesticproducer has been harmed by subsidies.

7/31/2019 Hodgetts02_S09

22/26

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

7/31/2019 Hodgetts02_S09

23/26

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

7/31/2019 Hodgetts02_S09

24/26

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

7/31/2019 Hodgetts02_S09

25/26

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

7/31/2019 Hodgetts02_S09

26/26

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

Documents

Hodgetts02_S09