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The Political, Legal, and Technological Environment of Global Business

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Title: The Political, Legal, and Technological Environment of Global Business


1
The Political, Legal, and Technological
Environmentof Global Business
  • Chapter 2

2
Chapter Outline
  • Political systems
  • Four global foundations of law
  • Principles of international law
  • Legal and regulatory issues
  • Technological environment and global shifts in
    production

3
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.

4
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
    a particular 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.

5
Source www.freedomhouse.org
Partly free countries have some characteristics
of a democracy and some characteristics of a
dictatorship
6
Four Global Foundations of Law
  • Islamic law
  • Socialist law
  • Common law
  • Civil law

7
Four Global Foundations of LawIslamic Law
  • Derived from interpretation of the Quran and
    teachings of Prophet Muhammad
  • Found in some Islamic countries
  • Middle East
  • Central Asia

8
Four Global Foundations of LawSocialist 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

9
Four Global Foundations of LawCommon 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

10
Four Global Foundations of LawCivil 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

11
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

12
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

13
Principles of International Law (3)
  • U. S. courts do not have to settle civil cases
    brought by foreign citizens or firms in U. S.
    courts.
  • Treatment of aliens
  • Countries have the legal right to refuse
    admission of foreign citizens and to impose
    restrictions on their conduct, right of travel,
    where they can stay, and what business they may
    conduct
  • Countries can also can deport citizens of foreign
    countries

14
Examples ofLegal 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

15
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

16
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.

17
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.

18
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.

19
WTO Rules on Tradeand 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

20
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
    less than the price charged in the home country
  • It is often hard to prove that a company has sold
    a product below cost.

21
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
    domestic producer has been harmed by subsidies.

22
How Companies Can Protect Themselvesin 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

23
Technological Environment andGlobal 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

24
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

25
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

26
Example Language TranslationSoftware 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
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