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Chapter 6: Political and legal systems in National Environments. - Coggle…
Chapter 6: Political and legal systems in National Environments.
Country Risk;
Exposure to potential loss or unfavourable effects on the orgs ops and profit, due to developments in the countries political and/or environments.
includes economic challenges
Each country has its own Political and legal systems, that may hinder the orgs performance.
i.e. Coke pulled out of Germany due to the new recycling law(the 1liter cool drink in spazas ting).
Country Risk caused by political systems(5);
how political systems create challenges for firms engaged in international business.
Government takeover of corporate Assets(3);
The industry most often targeted by government seizure and natural resources(most fuels), utilities and manufacturing.
Aggressive takeover have decrease as developing countries have taken on institutional reforms that aim to attract FDIs from overseas and foster econ growth
Confiscation;
Seizure of corporate assets without compensation;
i.e. farms owned by white people in Zim taken by govt
Expropriation:
Asset seizure with compensation.
i.e. Venezuela-ExxonMobil and ConocoPhillips were forced to abandon multi-billion-dollar investments in local oil industries.
Nationalization;
Takeover of an entire industry, with or without compensation.
i.e. Bolivia Government nationalized much of the oil and gas industry
or Venezuela the former president nationalized the cement industry
Creeping Expropriation;
The government gradually modifies regulations and laws after foreign MNEs have made big local investments in property and plants.
Most common form today,
how they do it;
Abrupt termination of contracts
Creation of laws that favor local firms
The govt in Bolivia, Russia and Venezuela have modified tax regimes to extract revenues from coal, oil and gas companies
Embargoes and Sanctions;
govt respond to
Offensive activities of foreign countries by imposing embargoes and sanctions
Sanctions,
Bans on international trade against another country who is judged to have jeopardized peace and security.
Sanctions are done with econ or political restrictions(Trade restrictions, asset freezes or travel bans)
Embargoes,
types of econ sanction, basically a ban on importing, exporting or doing other commercial activities with specific countries.
Embargoes involve a complete prohibition on trade and other econ activity with a particular country
i.e. The U.S imposition of embargoes on Cuba, Iran and North Korea, labelled as state sponsors of terrorism.
Boycotts against Firms and Nations;
Voluntary refusal to engage in commercial dealings with a nation or a company
i.e. France, Citizens boycotted Disneyland Paris to voice opposition to globalization and takeover of French farmland
French formers boycotted McDonalds and crashed a tractor into a shop to vent their anger about agricultural policies and globalization.
Wars, Insurrection and Violence
War and insurrection,
indirect effects can be disastrous for company activities.
Terrorism
; The threat or actual use of force or violence to attain a political goal through fear and intimidation.
Some terrorism is sponsored by national Governments
Terrorism particularly affect certain industries(tourism, hospitality, aviation, finance, retailing)
Country Risk caused by LS(8);
Due to some peculiarities, where the Laws protects and promotes local firms, with the use of Private laws monitoring the interaction between orgs and people and companies use the commercial laws which is meant to protect transactions and private laws, for international business, this creating bigger problems.
international firms need to navigate host and home countries.
Host countries impositions;
Foreign investment laws,
Laws that affect the type of entry strat orgs choose as well as their operations and performances.
i.e. Indonesia restricts foreign investments in to tourism and alcohol beverages
Controls on operating forms and practices,
govt imposes laws and regulations on how firms can conduct production, marketing and distribution activities within their borders.
i.e. Host countries require permits for Exporting and importing goods
Marketing and distribution laws,
the laws determine which practices are allowed in ads, promoting and distribution.
i.e. Finland and France ban the ads of cigarettes
Laws on income repatriation,
MNEs earn profit in various countries and look for ways to take these funds back home. Host countries try to stop this by creating hard currencies, the yen and dollar
Environmental laws,
Govt enact laws to preserve natural resources, to combat pollution and the protect air land and water to ensure overall health and safety.
i.e. in Germany companies follow a strict recycling regulations
The Foreign Corrupt Practices Act(FCPA),
made it illegal for a firm to offer bribes to foreign parties for the purpose of securing or retaining business
Accounting and reporting laws
,
differ worldwide accounting standards pose challenges and opportunities for firms
Transparency in financial reporting
,
the timing and transparency of financial reporting vary worldwide
Political systems(PS);
A set of formal institutions that constitute a government. e.g. Legislative bodies, political parties, lobbying groups and trade unions. and how they interact.
Types of PS(3):
Authoritarianism
Socialism
Democracy
Functions of PS;
Provide protection from external threats
Ensure stability based on laws
Govern the allocation of valued resources among the member society.
How society member interact with each other
Source of Risk;
Government
Political parties
Legislative bodies
Lobbying groups.
Authoritarianism;
Government controls all economic and political matters as well as the attitudes, values and belief of the citizens.(China and Russia)
Either theocratic(religion-based) or secular, the country votes based on these ideals.(Palestine)
A state party is led by a dictator. Membership is mandatory for wanting to advance(Kim Jong-Un, North Korea)
Power is sustained via secret police, propaganda regulation of free discussion and criticism.
i.e. Some countries in the Middle East and Africa, Cuba and North Korea
Ex-Authoritarian states tend to have much government intervention and bureaucracy(Russia and China are red tape democracies countries)
Authoritarianism, associated with command economies;
Command econ AKA Centrally planned econ, a command econ makes the
state a dominate forces in production and distri of goods and service
.
Socialism;
Collectivist Ideology, the peoples welfare is more important then the welfare of and individual.
Capital is vested in the state and used primarily as a means production not profit.
Group welfare outweighs individual welfare
Government's role is to control the basic means of production, distribution and commercial activity.
Socialism occurs in much of the world as social democracy(e.g. Western Europe, Brazil, India).
Government intervention in the private sector(Italy and Norway)
Corporate income tax rates are higher(Sweden)
Socialism is associated with Mixed econs;
which have features of both
market and command econs, combining state intervention and market mechanisms
(e.g. Sweden, Singapore)
Democracy,
Associated with openness, or lack of excessive regulation or barriers to the entry of firms.
Private Property rights;
indies can own and increase their assets via private wealth. i.e. tangibles(land and buildings), intangibles(Stocks, contracts, patent rights, and intellectual assets)
Important as people and firms can acquire property, use it, sell it or buy it, even bequeath it to whomever they want.
These rights, encourage indies, initiative, ambition and innovation as well as thrift and the desire to accumulate wealth.
Limited governments:
The government performs only essential functions that serve all citizens, such as national defence, maintaining law & order, foreign relations, and provide basic infrastructure
Democracy is associated with market econs and capitalism;
-
Market forces the interaction of supply and demand determine prices in a market econ.
National Governance and Economic Prosperity
Legal systems(LS);
A system for interpreting and enforcing laws, e.g. laws regulations and rules est norms for conduct; the institutions and procedures ensure that;
Source of Country Risk:
Ensure order
Resolve disputes in civil and commercial activities.
Tax Economic Output
Provide protections for private property, including IP and other org assets
Types of LS(4);
common law
civil law
Religious Law
Mixed systems
Rule of law;
existence of a legal system where rules are clear, publicly disclosed, fairly enforced and widely respected by indies, orgs and the government
Legal system is:
Applied to all citizens equally
Issued via recognized government authorities
Enforced fairly and systematically by police force and formally organized by judicial bodies
Econs fall apart and uncertainty increase if ROL are weak
Common Law;
originated in England and spread to Austrialia, Canada, US and other former commonwealths
Basis of law is tradition,
past practices and legal precedents
set by courts via interpretation of statutes
, legislation and past rulings
Judges have significant power to interpret laws based on the
circumstances of indie cases, thus being very flexy.
Civil Law;
Found in France, Germany, Italy, Japan and Türkiye.
An all-inclusive system of laws that have been codified, well written
Laws are more set in stone and not heavy affected by interpretation by courts
A key difference is that common law is mainly judicial in orgin and based on court decisions, where in contrast civil laws is mainly legislative and based on laws passed by national and state legislatures.
Religious law;
Heavily influenced by religious beliefs, ethical codes and moral values, viewed as mandated by a supreme being.
Religious legal systems are based on Hindu, Judaism and Islamic laws
(Spells out norms of behaviour regarding politics, econ, banking, contracts, marriage and many other social org issues.)
Mixed systems;
2+ legal systems operating together.
the contrast between civil and common law become blurred as the combine both systems
Authoritarianism is affiliated with religious law and socialist law
Democracy is associated with common law, civil law and mixed law
e.g. Legal systems
Managing Country Risks(4);
strats the managers can use to manage country risks
Proactive environmental scanning;
Develop a comprehensive understanding of political climate and legal environments in target countries.
Scanning-assess potential risks/threats to the firm
Good scanning intel sources:
Employees working in the host country
Embassy and trade association officials
Consulting firms such as versik maplecroft
Take steps to minimizse exposure to country risk that threaten its performance
Strict adherence to ethical standards;
Firms that engage in questionable practices or operate outside the law invite redress from govts of the host countries where they do business.
Alliances with qualified local partners;
A practical way to reduce country risk is to enter target markets, in collabs with knowledgeable and reliable local partners
Protection through legal contracts;
legal contracts spell out rights and obligations of each party, contract law varies widely, the firm must follow the law in each country.
3 approaches for resolving contract disputes;
Conciliation;
least conflicting method, a formal process of negotiation with the objective of resolving differences in a friendly manner, issue conciliators with the interest of resolving their differences
Arbitration,
the process of when a neutral 3rd party, hears the case and decides based on their objective assessment of the facts, Handled by supranational orgs such as the International Chamber of Commerce in Paris
Litigation;
the most conflicting approach, occurs when 1 party files a laws suite against another, to achieve their desired ends
US does this a lot