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Business
Environments & Operations
Daniels ● Radebaugh ● Sullivan
Chapter 3
Political and Legal
Environments Facing
Business
Learning Objectives
Source: Based on Marsh Political Risk Map 2015; and AON Political Risk,
http://www.aon.com/2016politicalriskmap
The Political Environment
Managers evaluate, monitor, and forecast
political environments
A country’s political system refers to the
structural dimensions and power dynamics
of its government that specify institutions,
organizations, and interest groups, and
define the norms that govern political
activities
Individualism vs. Collectivism
Individualism
primacy of the rights and role of the
individual (laissez-faire)
Collectivism
primacy of the rights and role of the
community (governmental intervention)
Political Ideology
A political ideology stipulates how
society ought to function and outlines the
methods by which it will do so
Most modern societies are pluralistic
different groups champion competing political
ideologies
Democrats vs. Republicans in the United
States
Democratic Party vs. Liberal Party in Japan
Spectrum Analysis
A political spectrum outlines the various
forms of political ideology
Political freedom measures
the degree to which fair and competitive
elections occur
the extent to which individual and group
freedoms are guaranteed
the legitimacy ascribed to the general rule of
law
the freedom expression
Spectrum Analysis
The Political Spectrum
Democracy
In a democracy
all citizens are politically and legally equal
all are equally entitled to freedom of thought,
opinion, belief, speech, and association
all equally command sovereign power over
public officials
Prominent types of democracy include
Representative
Multiparty
Parliamentary
Social
Totalitarianism
A totalitarian system subordinates the
individual to the interests of the collective
dissent is eliminated through indoctrination,
persecution, surveillance, propaganda,
censorship, and violence
Prominent types of totalitarianism include
Authoritarianism
Fascism
Secular
Theocratic
The Legal Environment
Learning Objective3-2:
Discuss the contemporary state of political
freedom
The Standard of Freedom
Freedom House, and independent
watchdog organization, assesses political
and civil freedom around the world
Freedom House recognizes three types of
political systems
Free
Partly free
Not free
The State
Objective 3-2
of Political Freedom
Map 3.2 Map of Freedom
the Democratic
People's Republic Republic of Korea
of Korea
Political Risk
Learning Objective3-3:
Interpret political risk
Political Risk
Political risk refers to the risk that
political decisions or events in a country
negatively affect the profitability or
sustainability of an investment
Types:
Systemic
Procedural
Distributive
Catastrophic
Types of Political Risk
Objective 3-3 Figure 3.4 Classes and Characteristics of Political Risk
The Legal Environment
Learning Objective3-4:
Appraise the principles and practices of the
legal environment
The Legal Environment
The legal system is the mechanism for
creating, interpreting, and enforcing the
laws in a specified jurisdiction
Types:
Common law
Civil law
Theocratic law
Customary law
Mixed systems
Types of Legal Systems
Objective 3-4
Map 3.4 The Wide World of Legal Systems
Source: University of Ottawa, “World Legal Systems,” retrieved February 15, 2016, from
http://www.juriglobe.ca/eng/index.php. Used by permission.
Trends in Legal Systems
What is the basis of rule in a country?
The rule of man
legal rights derive from the individual who
Legal jurisdiction
(e.g., criteria for litigation)
Intellectual property
Intellectual Property:
Rights and Protection
Intellectual property refers to creative
ideas, expertise, or intangible insights that
grant its owner a competitive advantage
Intellectual property rights refer to the
right to control and derive the benefits
from writing, inventions, processes, and
identifiers
no “global” patent, trademark or copyright
exists
Intellectual Property:
Rights and Protection
Attitudes towards intellectual property
Historical legacies
rule of man versus rule of law
Economic circumstances
levels of economic development
Cultural orientation
individualism versus collectivism
Ranking of Doing Business in Various Countries
Source: Doing Business 2016. The World Bank. Retrieved May 15, 2016.
Source: Doing Business 2016. The World Bank. Retrieved May 15, 2016.