INTERNATIONAL COMPARATIVE MGMT
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Chapter2.pptxChapter 2
The Political, Legal, and Technological Environment
Learning Objectives
Introduce the basic political systems that characterize regions and countries around the world and offer brief examples of each and their implications for international management
Present an overview of the legal and regulatory environment in which MNCs operate worldwide, and highlight differences in approach to legal and regulatory issues in different jurisdictions
Review key technological developments, including the growth of e-commerce, and discuss their impact on MNCs now and in the future
Social Media and Political Change
Role of social media as an organizing tool, a journalistic tool, and a support-building tool in the context of political change underscores:
Technological progress
Political conflict and change
Managing the political and legal environment will be a challenge for international managers
Need to keep track of the rapid changes in the technological environment of global business
Political Environment
Ideology underlies the actions of government
Reflects beliefs and values and behavior and culture of nations and their political systems
Dimensions in evaluating political systems
Rights of citizens based on a system of government, ranging from democratic to totalitarian
Focus of political system on individualism or collectivism
Democratic nations emphasize individualism
Totalitarian nations lean toward collectivism
Individualism
People should be free to pursue economic and political endeavors without constraint
Similar to capitalism and connected to free-market society
Private property is more successful, productive, and progressive than communal property
Encourages betterment of society, which is related to level of freedom individuals have to pursue economic goals
Research has shown that team performance is negatively influenced by individualists
Individualism
Competition stimulates motivation and encourages increased efforts to achieve goals
Principles were evolved by David Hume, Adam Smith, and Aristotle
International managers must remain alert as to how political changes may impact their business
Continuous struggle for a foothold in government power affects leaders in office
Collectivism
Views the needs or goals of society as a whole as more important than individual desires
Plato believed individual rights should be sacrificed and property should be commonly owned
Has no rigid form as societal goals differ greatly among cultures
Reflects some attributes of fascism
Nationalism and authoritarianism
Militarism and corporatism
Collectivism
Totalitarianism
Anticommunism
Opposition to economic and political liberalism
Socialism
Society in which there is government ownership of institutions but profit is not the ultimate goal
Has been practiced in China, North Korea, Cuba
Democratic socialism
More moderate form of socialism
Practiced by Great Britain’s Labour Party, Germany's Social Democrats, and in France, Spain, and Greece
Modern socialism draws on philosophies of Karl Marx, Friedrich Engels, and Vladimir Ilyich Lenin
Marx believed that governments should own businesses because in a capitalistic society only a few would benefit
Communism - Extreme form of socialism
Social Democracy
Socialist movement that achieved its goals through nonviolent revolution
Reasons for not being viable
Businesses that were nationalized were inefficient due to the guarantee of funding and the monopolistic structure
Citizens suffered a hike in both taxes and prices, which was contrary to the public interest and the good of the people
Reasons for nationalization of businesses
Ideologies of the country encourage the government to extract more money from the firm
Government believes the firm is hiding money
Government has a large investment in the company
Government wants to secure wages and employment status because jobs would otherwise be lost
Political Systems: Democracy
Government is controlled by citizens either directly or through elections
Democratic society cannot exist without at least a two-party system
Once elected, representative is held accountable to the electorate for his or her actions
Apart from getting reelected, the number of terms is limited
Winner can get voted out if he or she does not adhere to the goals of the majority ruling
Political System: Totalitarianism
Only one representative party, which exhibits control over every facet of political and human life
Power maintained by suppression of opposition
Dominant ideals - Media censorship, political repression, and denial of rights and civil liberties
Common form - Communist totalitarianism
Political Environment in China
Making trade liberalization a top priority since joining WTO in 2001
Supporting a more open and democratic society
Shifting toward greater tolerance of individual freedoms
Seeking to unleash a more dynamic market economy
Political Environment in the Middle East
In Iran and Saudi Arabia, laws and government are based on Islamic principles
Arab countries operate business that is in many ways similar to the West
Seeking modern technology and having the financial ability to pay for quality services
Worldwide fallout from war on terrorism has made business environment risky and potentially dangerous
Legal and Regulatory Environment
Many different laws and regulations in global business operations create confusion and pose challenges to MNCs
Adhering to disparate legal frameworks can prevent MNCs from capitalizing on manufacturing economies
MNCs must carefully evaluate legal framework in each market before doing business
Global Foundations of Law
Islamic law
Socialist law
Common law
Civil or code law
Islamic Law
Derived from interpretation of the Qur’an and teachings of Prophet Muhammad
Found in most Islamic countries in the Middle East and Central Asia
Socialist Law
Originates from Marxist socialist system
Continues to influence regulations in former and current communist countries
Soviet Union
China and Vietnam
North Korea and Cuba
Forces MNCs to shy away from countries that follow this law
Common Law
Derives from English law
Foundation of legal system in:
United States
Canada
England
Australia
New Zealand
Several other nations
Civil or Code Law
Derived from Roman law
Found in non-Islamic and nonsocialist countries
France
Some Latin American countries
Louisiana in U.S.
International Law
Sources
Laws of individual countries
Treaties - Universal, multilateral, and bilateral
Conventions - Geneva Convention on Human Rights or the Vienna Convention of Diplomatic Security
Contains unwritten understandings that arise from repeated interactions among nations
Principle of Sovereignty
Holds that governments have the right to rule themselves as they see fit
One country’s court system cannot be used to rectify injustices or impose penalties in another country unless that country agrees
Jurisdictional Principles of International Law
Nationality principle: Every country has jurisdiction over its citizens no matter where they are located
Territoriality principle: Every nation has the right of jurisdiction within its legal territory
Protective principle: Every country has jurisdiction over the behavior that adversely affects its national security, even if that conduct occurred outside the country.
Jurisdictional Principles of International Law
Doctrine of comity
Mutual respect for laws, institutions, and governments of other countries in the matter of jurisdiction over their own citizens
Part of international custom and tradition and not part of international law
Act of state doctrine
All acts of other governments are considered to be valid by U.S. courts
Even if such acts are inappropriate under U.S. law
Treatment and Rights of Aliens
Countries have the legal right to:
Refuse admission of foreign citizens
Impose special restrictions on a foreign citizen’s conduct, their right of travel, where they can stay, and what business they may conduct
Nations can deport aliens, which may result in worker shortages
Financial Services Regulation
Global financial crisis of 2008–2010 underscored:
Integrated nature of financial markets around the world
Reality that regulatory failure in one jurisdiction had severe and immediate impacts on others
Crisis and its broad economic effects have prompted regulators to tighten the financial services regulation
Foreign Corrupt Practices Act (FCPA)
Makes it illegal to influence foreign officials through personal payment or political contributions
Objectives of the FCPA
Stop U.S. MNCs from initiating or perpetuating corruption in foreign governments
Upgrade the image of both the United States and its businesses abroad
Implementation allowed the U.S. Justice Department to uncover several developments
MNCs found that they could live within the guidelines set down by the FCPA
Many foreign governments applauded the investigations under the FCPA
Helped them crack down on corruption in their own country
Bureaucratization
Restrictive foreign bureaucracies are one of the biggest problems facing MNCs
Particularly true when bureaucratic government controls are inefficient and left uncorrected
In many developing and emerging markets, bureaucratic red tape impedes business growth and innovation
Regulation of Trade and Investment
Individual countries use legal and regulatory policies to affect the international management environment
Trade practices that distort trade
Countries engage in government support
MNCs are required to accept local partners
MNCs are mandated to employ a certain percentage of local workers or produce a specific amount in their country
Trade agreements require that countries extend most-favored-nation status
Questioned by regional trade agreements
Trends in Technology, Communication, and Innovation
Computers, telephones, televisions, and wireless forms of communication have merged to create multimedia products
Allow users anywhere in the world to communicate with one another
Internet allows people to obtain information from several sources
Open-source model allows for free and legal sharing of software and code
Can be utilized by underdeveloped countries in an attempt to gain competitive advantage while minimizing costs
For-profit and non-profit firms have created low-cost computers
Provided them to several children in the developing world
Great potential exists for disruptions as the world relies more and more on digital communication and imaging
Areas of International Management Affected by Technology
Biotechnology and nanotechnology
Satellites
Automatic translation telephones
Artificial intelligence and embedded learning technology
Silicon chips
Advancements in computer chip technology
Supercomputers
Biotechnology
Creation of agricultural or medical products through industrial use and manipulation of living organisms
Advancement has led to pharmaceutical competition and cloning of animals
Types of E-Business
Business to business (B2B)
Business to consumer (B2C)
E-retailing
Financial services (e-cash)
Telecommunications
Technological leapfrogging is allowing the entire world to have global access to affordable cell phone services
Merging of telephone and the Internet has replaced access via computers
Wireless technology has been beneficial to less developed countries
Reason for the rapid increase in telecommunications services
Many countries believe that without an efficient communications system, their economic growth may stall
Governments cede control to private industry to attract foreign investments
Developing countries are eager to attract telecommunication firms and offer liberal terms
Technological Advancements, Outsourcing, and Offshoring
Technology has reduced and eliminated middle management and white-collar jobs
Global competition has forced MNCs to outsource or offshore production
Emerging technology has made work more portable
Advantage - Reduction in cost of doing business
Disadvantage - Loss of jobs or reduction in salaries
