|
|||||||||||
 |
Key Concepts (Pause-to-Reflect) and Chapter-end Review (Part B) Questions |
|
|||||||
|
Based on the publisher's lecture-notes |
|||||||||
|
Class Textbook International Business
by
|
|
||||||||
| Chapter 5: |
|
||||||||
| The political and legal environment | |||||||||
|
|||||||||
|
Figure 5.1 is shown here. You |
||||||||
|
may wish to compare any two countries, although it will be a good idea to take two contrasting examples. A stable Western-style democracy is a good choice for one, and most will have some acquaintance with this type of system. An authoritarian country such as Russia or China would represent the extreme opposite, as might Venezuela and Iran. Note that, in looking at all the criteria in Figure 5.1, some of the democracies are weak in some of the criteria. |
 |
|||||||
|
Think of the three broad types of
democracy discussed in the class, for instance. Also, as Figure 5.2 in
the book shows, some democracies are called weak and others strong. |
|||||||||
(page 166) Think of your own political views on the following issues in your own country: liberal market economy; social spending by government; and the role of religion in society. Looking at your views overall, to what extent do they form a coherent philosophy which can be categorized as right, left or center? |
It is helpful to begin by describing briefly each of these political positions, noting that generalizations have limitations when looking at individual countries. Students could be invited to write down their views briefly on each of these topics – 10 minutes would suffice. They could then take an overview and decide whether their views represent a coherent philosophy which would fit one of these labels. The role of religion is perhaps one that will elicit discussion. Political parties with strong religious beliefs tend to be of the right, and support close state and church ties in society, such as the imposition of religious teaching in schools. This might seem illiberal, but these parties in many countries also support a liberal economic agenda, advocating markets and limited welfare state provisions. |
||||||||
(page 172) Political risks are often under-estimated by companies seeking to invest in foreign locations, partly because a good deal of broad knowledge about historical and cultural dimensions is needed.
|
Begin by summarizing both internal and external risks. Students will be inclined to agree that companies should focus on the internal risks. Their reasons would be:
However, in today’s world, these come intermingled with external risks, and overlooking the latter will perhaps give a misleading overall picture. The reasons:
|
||||||||
(page 180) Consider the two opposing viewpoints:
|
This topic is also well suited for an in-class discussion. Both these perspectives represent genuine positions which will have advocates, both within government and in the business community. |
||||||||
|
Developing and emerging countries have tended to favor the first view, as economic growth is their top priority. However, the second view, which benefits from the sustainability perspective, would probably have more backers. It should be possible to debate these positions, dividing students into two groups: each group can be given a chance to state the case for or against. |
Note that regulation |
||||||||
|
A short general discussion at the end could decide whether one side won! |
|||||||||
(page 184) When new markets offer exciting opportunities, businesses tend to feel the potential gains outweigh the risks. When entering an emerging market with a weak legal system, what steps should a firm take to prevent possible legal setbacks. |
|
||||||||
(page 189) What trends in the political and legal environment discussed in this chapter are pointing towards more integration and interconnected-ness, and which trends suggest that nation-states still retain political and legal autonomy? Which of these trends do you feel is gaining the upper hand, if any?
|
Trends towards integration
Trends towards political and legal autonomy
|
||||||||
 |
Authoritarian countries are often seen as more stable than democratic ones, and may thus be viewed favorably as business environments, especially if, like China, they are pursuing market policies. What are the drawbacks of doing business in an authoritarian country?
Unpredictability of policies, as leaders are not constrained by constitutional checks and balances.
Potential instability caused by regime change, as new leaders emerge through infighting, often with the involvement of the military.
If those in power turn against a foreign business, there is often little a foreign firm can do through institutional means (such as the courts) to seek legal redress.
The lack of an independent judiciary is a common feature of the authoritarian state. In this weak institutional environment, foreign firms are at a disadvantage.
Restrictions on the media and internet are common. This is particularly difficult for firms in these sectors.
Firms whose products are essentially characterized by copyright or other intellectual property rights, are in a weak position where these rights are not enforced in law. The Disney Corporation in China is an example.
How do governments wield power directly in economic activities through state control? Are they a force for public good, or are they acting contrary to consumer welfare?
Governments may run an industry simply as a limb of government. They may also choose to create a state-owned entity separate from government, but this is not like an ordinary registered company – it probably has no share capital, and the employees are civil servants. Governments have commonly registered a state-owned enterprise as a public company (as a prelude to privatization). They then launch an IPO and sell a portion of the shares to the public. This may be only a small portion of the shares, not essentially altering the state’s control.
In some political thinking, there is a belief that the best way to assure that organizations are providing public goods is for them to be accountable directly to public authorities; otherwise, those who run them will think only of their own personal gain and not the public interest. The state-owned industry in a key sector reflects this belief: it is deemed to be too important to be left to private enterprise.
An opposing view is that state-owned companies, especially those with monopolies, tend become bloated and inefficient in the absence of any competitors. In these situations, consumers are not necessarily getting good services.
A weak national legal system is sometimes perceived as a positive factor by firms, as they can feel assured that their activities will face little scrutiny from national law enforcement agencies. This is particularly the case in developing countries. What are the risks of entering countries with this motive?
The political leaders could decide at any time, possibly as a result of international pressure, to tighten the law and its enforcement. This will adversely affect firms which do not comply. If they are unwilling to comply, they will probably move on to another country with weak standards. When it introduced new employment laws which gave workers greater rights, the Chinese government faced some criticism from foreign investors, who complained that the moves would adversely affect their competitiveness.
For a Western company which carries out operations in developing countries through FDI and outsourcing, reputational damage is a risk, as home consumers will perceive it to be operating double standards.
National political and legal systems still remain distinctive within the EU. Is political union a viable goal, or should member states retain more sovereign power?
It is helpful to begin with the competing concepts: one sees the EU as an overriding entity, in which national points of view are gradually replaced by EU citizenship and identity. The other sees the EU as an aggregate of different nation-states, each with its own identity, which are prepared to co-operate for common ends, but with the proviso that they serve national self-interest Political union now looks less realistic a possibility than was once thought by EU leaders who drafted the new constitutional treaty. A feature of the EU which students might raise is the gap between the EU as envisaged by its leaders and the views of individual citizens, who are skeptical about giving too much power to Brussels and also perceive that leaders should be more responsive to grassroots views. On the other hand, institutions and procedures designed when there was only a handful of states are clearly too cumbersome to operate when there are 25 or more. Streamlining is needed, but moves to do so inevitably tread on perceived national interests.
BusAd 170
Chapter Review:
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Updated on 05/05/2015
