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Chapter 3 ,
International Business 10e Daniels/Radebaugh/Sulli
van

• Political and Legal Environments Facing Business

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2004 Prentice Hall, Inc
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Homework assignment

• may be turned in either on Feb. 9 or Feb. 16

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The homework task

• Pick one company that operates internationally
• Many people will be able to do this easily
• If you need help, flip through issues of Fortune
  or Economist magazine
• List at least 3 countries where the firm operates
• Its OK to guess

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• Describe at least five political risks the firm
  faces in these countries
• Include
• 2 micro risks
• 2 macro risks
• Plan on writing at least one sentence about each
  risk to describe it
• Its OK if the risks all come from 1 country

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• You dont have to write a lot to get a good
  grade
• But you do have to describe 5 risks clearly and
  accurately
• Students who get less than C- will be required to
  re-write

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The Political Environment

• Every nation has a political system that
  integrates the parts of society into a viable,
  functioning unit
• It provides rules of the game that allow the
  people of the nation to
• govern themselves
• work together

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To do business, you must understand the rules

• They differ radically from one country to the
  next
• Sometimes there are no agreed rules to say
  whether what you want is OK

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Political systems create policies by
aggregating many points of view
Many people present their interests
Policy alternatives formulated
Adjudication (decision-making)
New Policies(rules)
Interest aggregation
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Manage your relationship with people in power

• Work with political decision-makers, if possible
• Lobbying is often inevitable
• directly
• through multi-firm organizations (e.g., the
  U.S.-China Business Council)
• Show decision-makers it is in their interests to
  work with you
• IMPORTANT Avoid appearance of improper influence

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Leaders want ideologies to hold their countries
together

• Political ideologies the body of complex
  ideas, theories, and aims that constitute a
  sociopolitical program
• Most societies are pluralistic different
  ideologies coexist
• Cultural dimensions (ethnic background, religion,
  etc.) strongly influence ideologies

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Democracy is a key element of ideology in much of
the world

• All rich countries and some poorer countries are
  democracies the rich, at least, have
• Freedom of opinion
• Elections that give winners real power
• Limited terms for elected officials
• An independent court system, which seeks to
  follow established rules
• Nonpolitical bureaucracy and military
• Accessible decision-making processes
• The worst form of government except for all
  those others that have been tried.
  - Sir Winston Churchill

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An ideological opposite of democracy is
totalitarianism

• Totalitarianism an individual or group
  monopolizes power, prohibits opposition, and
  seeks central control over daily life
• Secular totalitarianism Iraq under Saddam
  Soviet or Chinese communism
• Theocratic totalitarianism Saudi Arabia

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Many poor countries have democracies

• but often the rules cant be relied on.
• Corruption
• Unpredictable, undemocratic changes in government

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Paradigms on the role of government

• A paradigm basic pattern of thought
• Individualistic U.S.
• Minimize government intervention
• Give individuals maximum rights
• Most international trade rules are based on this
  view
• Communitarian Japan, China, Saudi Arabia
• Government officials have prestige, set general
  direction for economy

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Important point not in the textCorruption

• All ideologies require honest officials
• Officials often dont do what ideology calls for
  
• Big problem in poor countries
• Corruption makes international business difficult
• It makes improving lives for ordinary people even
  more difficult

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Political risk the danger that political changes
will hurt a firm

• Government takeovers of property
• Zimbabwe nationalizing farms
• New laws that prohibit business actions
• Europe banning genetically modified seed
• Political unrest that hurts company property or
  people
• Recent protests in Argentina, Pakistan
• Local behavior that prompts protests at home
• Firms working in Myanmar face pickets in U.S.

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Two kinds of political risk

• Macro risks Dangers that could affect many
  international firms
• New economic policies in Argentina
• Protest in Islamic world after U.S. invaded Iraq
• Micro risks Dangers that affect a specific
  company
• Protest against Monsanto genetically modified
  seeds
• Officials demand bribes from a mining firm

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How do risks under democracy and totalitarianism
differ?

• Totalitarian nations (and other dictatorships)
  may seem safer.
• The dictator seems able to squash others
• But many democracies have written constitutions
  that can be relied on
• These may make them more stable
• Special dangers young, fragile, poor democracies

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Before forming political strategies

• Know how decisions are made
• Know what the rules are for influencing political
  decisions

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Political Strategies for International Businesses

• Identify the exact issue
• Trade barrier?
• Environmental standards?
• Need for government services?
• Define/determine the political aspect of the
  issue
• What do we want government to do?
• Assess the potential political action of other
  firms and interest groups
• Who else cares about this?
• Can we work with some of them?
• What strategies will our opponents adopt?

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• Identify important institutions and individuals
• Who will make the decision?
• Who will they talk to before making it?
• Formulate possible strategies
• Key objectives
• Alternatives
• Evaluate probable effectiveness of each
  possibility
• Consider possible public relations effects
• Select the appropriate strategy and implement it

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Assignment Political risk