4 pages Case Study Due in 8 hours

Luthans_10e_PPT_Ch02.pdf

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Chapter 2

The Political, Legal, and Technological Environment

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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

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Learning Objectives (continued)

• 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

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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

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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

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Political Environment (continued)

• Democratic nations emphasize individualism

• Totalitarian nations lean toward collectivism

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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

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Individualism (continued 1)

• Research has shown that team performance is negatively influenced by individualists

• Competition stimulates motivation and encourages increased efforts to achieve goals

• Principles were evolved by David Hume, Adam Smith, and Aristotle

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Individualism (continued 2)

• 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

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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

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Collectivism (continued)

• 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

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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

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Socialism (continued)

• 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

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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

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Social Democracy (continued)

• 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

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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

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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

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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

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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

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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

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Global Foundations of Law

Islamic law Socialist law

Common law Civil or code law

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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

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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

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Common Law

• Derives from English law

• Foundation of legal system in:

– United States

– Canada

– England

– Australia

– New Zealand

– Several other nations

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Civil or Code Law

• Derived from Roman law

• Found in non-Islamic and nonsocialist countries

– France

– Some Latin American countries

– Louisiana in U.S.

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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

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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

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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

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Jurisdictional Principles of International Law (continued 1)

• 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

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Jurisdictional Principles of International Law (continued 2)

• 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

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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

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Forum for Hearing and Settling Disputes

• U.S. courts:

– Can dismiss cases brought before them by foreigners

– Are bound to examine issues such as:

• Where the plaintiffs are located

• Where the evidence must be gathered

• Where the property to be used in restitution is located

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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

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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

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Foreign Corrupt Practices Act (FCPA) (continued)

• 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

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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

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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

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Regulation of Trade and Investment (continued)

• Trade agreements require that countries extend most-favored-nation status

– Questioned by regional trade agreements

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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

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Trends in Technology, Communication, and Innovation (continued 1)

• 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

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Trends in Technology, Communication,

and Innovation (continued 2) • For-profit and nonprofit 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

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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

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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

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Types of E-Business

Business to business (B2B)

Business to consumer (B2C)

E-retailing Financial services

(e-cash)

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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

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Telecommunications (continued)

• 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

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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

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Be the International Management Consultant

• If you are a consultant for a business looking to expand in Europe, is Greece even an option?

• Do the facts that its population is comprised largely of government workers, that the citizens were largely in favor of defaulting on its national debt, and that the country nearly left the European Union constitute a deal breaker?

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Be the International Management Consultant (continued)

• If the government does, in fact, implement the agreed-upon austerity measures, would that be a sign that the country is on the right track?

• What other concerns would you have about entering the Greek market?

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Review and Discuss

1. In what ways do different ideologies and political systems influence the environment in which MNC’s operate?

– Would these challenges be less for those operating in the EU than for those in Russia or China?

• Why or why not?

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Review and Discuss (continued 1)

2. How do the following legal principles impact MNC operations: the principle of sovereignty, the nationality principle, the territoriality principle, the protective principle, and principle of comity?

3. How will advances in technology and telecommunications affect developing countries? Give some specific examples

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Review and Discuss (continued 2)

4. Why are developing countries interested in privatizing their state-owned industries?

– What opportunities does privatization have for MNCs?