International Management

International Ninth Edition Luthans | Doh

Fred Luthans

Management Jonathan P. Doh

Ninth Edition

Chapter 2

The Political, Legal, and Technological

Environment
International Management Ninth Edition Luthans | Doh

The Political, Legal, and

Technological Environment
The specific objectives of this chapter are to
1. INTRODUCE the basic political systems that chara
cterize regions and countries around the world a
nd offer brief examples of each and their implicat
ions for international management.
2. PRESENT an overview of the legal and regulatory
environment in which MNCs operate worldwide;
highlight differences.
3. REVIEW key technological developments as well
as their impact on MNCs now and in the future.
International Management Ninth Edition Luthans | Doh

Ideologies
Individualism
Individualism
People should be free to pursue economic and politica
l endeavors without constraint.
David Hume, Adam Smith, Aristotle
In business context, similar to capitalism and con
nected to free market society
Private property more successful, productive, and pro
gressive than communal property
Betterment of society related to level of freedom indiv
iduals have in pursuing economic goals
International Management Ninth Edition Luthans | Doh

Ideologies
Collectivism
Collectivism
Views the needs or goals of society as a whole as
more important than individual desires
Plato
Does not value individual as such
No rigid form of collectivism as societal goals d
iffer greatly among cultures
Fascism: nationalism, authoritarianism, militarism,
corporatism, collectivism, totalitarianism
International Management Ninth Edition Luthans | Doh

Ideologies
Socialism
Socialism
A moderate form of collectivism in which there is gove
rnment ownership of institutions, and profit is not the
ultimate goal
Karl Marx, Friedrich Engels, Vladimir Ilyich Lenin
Has been practiced in China, North Korea, Cuba
Democratic socialism is the more moderate form
Practiced by Great Britains Labour Party, and in Franc
e, Spain, and Greece
Communism is an extreme form of socialism.
International Management Ninth Edition Luthans | Doh

Political Environment
Ideologies underlie the actions of governments
Ideas reflecting beliefs and values influencing the behavior
and culture of nations and political systems
Political systems can be evaluated along two dimension
s
1. Rights of citizens based on a system of government (range
from democratic to totalitarian)
2. Focus of political system on individualism vs. collectivism.
Democratic nations tend to emphasize individualism, a
nd totalitarian nations tend to emphasize collectivism
No pure form of government
International Management Ninth Edition Luthans | Doh

Political Systems
Democracy
Democracy
System in which government is controlled by citize
ns either directly or through elections.
European roots
Democratic society cannot exist without at lea
st a two-party system
Once elected, representative is held accountable t
o electorate for actions (which limits power of gov
ernment)
International Management Ninth Edition Luthans | Doh

Political System
Totalitarianism

Totalitarianism
Only one representative party which exhibits contr
ol over every facet of political and human life
Power maintained by suppression of oppositio
n
Dominant ideals include media censorship, politic
al repression, denial of rights and civil liberties
International Management Ninth Edition Luthans | Doh

Political Environment
Regional Example: China
Emerging economic power
Government attempting to open up economy
Speed up conversion of state enterprises into corporat
ions
Trade liberalization a top priority since joining WTO in
2001
Becoming a more open, democratic society
Shift toward greater tolerance of individual freedoms
Seeking to unleash a more dynamic market economy
International Management Ninth Edition Luthans | Doh

Political Environment:
Regional Example: Europe
Privatization and economic liberalization reinforc
e EU-wide political and economic integration
Political power is variable and complex
Strong opposition to U.S.-led intervention in Iraq som
etimes spill over into business relationships and dealin
gs
Europe is a large interwoven region economically,
but contains vast cultural differences
International Management Ninth Edition Luthans | Doh

Political Environment:
Example: The Middle East
In Iran and Saudi Arabia laws and government bas
ed on Islamic principles
Business conduct in Middle East similar to Wester
n in many ways
Seeking modern technology and have ability to pay for
quality services
Worldwide fallout from war on terrorism have made b
usiness environment risky and potentially dangerous
Arab Spring fallout: uncertain business environment
International Management Ninth Edition Luthans | Doh

Legal and Regulatory Environment

Confusion and challenge for the MNC due to
many different laws and regulations in global
business operations
Disparate legal frameworks can prevent MNCs
from capitalizing on manufacturing economies
MNCs must carefully evaluate legal framework
in each market before doing business
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

1. Islamic law
2. Socialist law
3. Common law
4. Civil or code law
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Islamic Law

Islamic law
Derived from interpretation of Quran and teachin
gs of Prophet Muhammad
Found in Islamic countries: Middle East and Centra
l Asia
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Socialist Law

Socialist law
Origins in Marxist socialist system
Continues to influence regulations in former com
munist countries
Members of former Soviet Union
Peoples Republic of China
Vietnam
North Korea
Cuba
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Common Law

Common law
Origins in English law
Foundation of legal system for
United States
Canada
England
Australia
New Zealand
Several other nations
International Management Ninth Edition Luthans | Doh

Global Foundations of Law

Civil or Code Law

Civil or code law

Derived from Roman law
Found in non-Islamic and non-socialist countries
France
Some Latin American countries
Louisiana in U.S.
International Management Ninth Edition Luthans | Doh

International Law
Sources
Laws of individual countries
Treaties
Universal
Multilateral
Bilateral
Conventions
Multilateral
Bilateral
Contains unwritten understandings
International Management Ninth Edition Luthans | Doh

Basic Principles
of International Law
Sovereignty and Sovereign Immunity
International Jurisdiction
Doctrine of Comity
Act of State Doctrine
Treatment and Rights of Aliens
Forum for Hearing and Settling Disputes
International Management Ninth Edition Luthans | Doh

Principles of International Law

Sovereignty and Sovereign Immunity

Principle of sovereignty
An international principle of law which holds that
governments have the right to rule themselves as
they see fit.
One countrys court system cannot be used to rect
ify injustices or impose penalties in another count
ry unless that country agrees.
International Management Ninth Edition Luthans | Doh

Principles of International Law

International Jurisdiction
Nationality principle
Every country has jurisdiction over its citizens no matt
er where they are located.
Territoriality principle
Every nation has the right of jurisdiction within its lega
l territory.
Protective principle
Every country has jurisdiction over the behavior that a
dversely affects its national security, even if that cond
uct occurred outside the country.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Doctrine of Comity

Doctrine of comity
A jurisdictional principle of international law that
holds that there must be mutual respect for the la
ws, institutions, and governments of other countri
es in the matter of jurisdiction over their own citiz
ens.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Act of State Doctrine

Act of state doctrine

A jurisdictional principle of international law that
holds that all acts of other governments are consi
dered to be valid by U.S. courts, even if such acts a
re inappropriate under U.S. law.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Treatment and Rights of Aliens

Treatment and rights of aliens

Countries have the legal right to refuse admission
of foreign citizens and to impose special restrictio
ns on their conduct, their right of travel, where th
ey can stay, and what business they may conduct.
Nations can also deport aliens; this may result in
worker shortages.
International Management Ninth Edition Luthans | Doh

Principles of International Law

Forum for Hearing and Settling Disputes

Forum for hearing and settling disputes

U.S. courts can dismiss cases brought before them
by foreigners; however, they are bound to examin
e issues such as
where the plaintiffs are located
where the evidence must be gathered
where property to be used in restitution is located
International Management Ninth Edition Luthans | Doh

Legal and Regulatory Issues

Financial and services regulation
Foreign Corrupt Practices Act (FCPA)
Bribes are the focus of investigations by
U.S. Internal Revenue Service (IRS)
Securities and Exchange Commission (SEC)
Justice Department
Illegal to influence foreign officials through
Personal payment
Political contribution Bureaucratization
Bureaucratization
Privatization
International Management Ninth Edition Luthans | Doh

Regulation of Trade and Investment

Individual countries use legal and regulatory polic
ies to affect the international management enviro
nment.
Country is perceived to engage in unfair trade pra
ctices (WTO and similar agreements)
Government support (subsidies)
Require MNCs to accept local partners
Require MNCs produce a specific amount of produce i
n their country
Sell local products at below cost or home market price
International Management Ninth Edition Luthans | Doh

Technological Environment and Global

Shifts in Production
Biotechnology
Nanotechnology
Satellites
Automatic translation telephones
Artificial intelligence and embedded learning t
echnology
Advancements in computer chip technology
Supercomputers
International Management Ninth Edition Luthans | Doh

Technological Environment and Global

Shifts in Production
Biotechnology
Agricultural and medical products through industrial u
se and manipulation of living organisms
Pharmaceutical competition
Alternative fuels (biofuels)
E-business
Business to business (B2B)
Business to consumer (B2C)
E-retailing
Financial services (e-cash)
International Management Ninth Edition Luthans | Doh

Technological Environment and Global

Shifts in Production
Telecommunications
Wireless
Merging of telephone and computer
Technology, outsourcing and offshoring
Technology has reduced and eliminated middle manag
ement and white collar jobs
Global competition has forced some MNCs to outsour
ce jobs to offshore productions
Emerging technology makes work more portable
Job loss from technology can be especially devastating
in developing countries.
International Management Ninth Edition Luthans | Doh

Winners and Losers in Selected Occupations

Percentage Change Forecasts for 20102020

continues
International Management Ninth Edition Luthans | Doh

Winners and Losers in Selected Occupations

Percentage Change Forecasts for 20102020
International Management Ninth Edition Luthans | Doh

Review and Discuss

1. In what ways do different ideologies and politica
l systems influence the environment in which M
NCs operate? Would these challenges be less fo
r those operating in the EU than for those in Rus
sia or China? Why or why not?
2. How do the following legal principles impact MN
C operations: the principle of sovereignty, the na
tionality principle, the territoriality principle, the
protective principle, and principle of comity?
International Management Ninth Edition Luthans | Doh

Review and Discuss

3. How will advances in technology and telecom
munications affect developing countries? Giv
e some specific examples.
4. Why are developing countries interested in p
rivatizing their state-owned industries?
What opportunities does privatization have f
or MNCs?