How transparent is the government’s political, legal, and economic decision-making process? It depends less on written statutes and codes. Central to China’s approach are policies that champion state-owned firms and other so-called national champions, seek aggressively to obtain advanced technology, and manage its exchange rate to benefit exporters. The thirteen largest oil companies (as measured by the reserves they control) in the world are all state-run and all are bigger than ExxonMobil, which is the world’s largest private oil company. The Internet has started to change this, as sellers and buyers have easier access to each other. It leverages state control of the financial system to channel low-cost capital to domestic industries—and to resource-rich foreign nations (such as those we read in the opening case) whose oil and minerals China needs to maintain rapid growth.Jason Dean, Andrew Browne, and Shai Oster, “China’s ‘State Capitalism’ Sparks Global Backlash,” Wall Street Journal, November 16, 2010, accessed December 22, 2010, http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html. At the same time, an agreement would be signed for the bank to sell back the assets to the company at a later date and at a higher price. The level of judicial independence and efficiency differs widely among countries. A substantial amount of oil-money is invested in Sharia-compliant funds. Theocratic law is the legal system based on religious doctrine, precepts, and beliefs. Political and legal risks are two very important aspects of running a business of which an entrepreneur should be aware. In this lesson, you'll learn about the political environment in international business, some of its key factors, and its impact. As a result, there are a variety of institutions, including the Economist, which analyze and rate countries based on their openness and adherence to democratic principles. How involved is the government in the private sector? At one end of the political ideology extremes is anarchism, which contends that individuals should control political activities and public government is both unnecessary and unwanted. In contrast, a planned economyAn economic system in which the government or state directs and controls the economy, including the means and decision making for production. The country’s view on capitalism is also a factor for business consideration. 3. A political ideology that contends that individuals should control political activities and public government is both unnecessary and unwanted. As shown in the opening case study, China is using its economic might to invest in Africa. In Arabic, ‘Sharia’ means the clear, well-trodden path to water. The judiciary tends to be less adversarial in civil-law countries where little significance is accorded to legal precedence and traditions compared to common-law countries. Effects of Politics onInternational business..... 2. Introduction The political environment of countries is a criticalconcern for the international marketer. In the broadest sense, capitalismAn economic system in which the means of production are owned and controlled privately. Major similarities between the Sharia and secular law are that in both: 2. An economic system in which the means of production are owned and controlled privately. A political system is basically the system of politics and government in a country. National security issues can impact both the import and exports of a country, as some governments may not want advanced technological information to be sold to unfriendly foreign interests. In fact, political stability is a key part of government efforts to attract foreign investment to their country. A closer look at the solar industry in China illustrates the government’s ability to create new industries and companies based on its objectives. The efficiency of enforcement of legal system is also lax in many low-income countries. Sharia is the canonical law derived from a combination of sources, such as the Koran, the holy book of Islam, the Sunna, teachings and practices of the prophet Mohammed, and the fat was, the rulings of the Islamic scholars. Many are permitted to engage in sale-buyback or leaseback of an asset. Several things stand out in the 2008 index. The legal system in a number of Islamic countries, including Saudi Arabia, and Iran is integrated with Sharia. Governments and politics play a large role in international business. Differences in the social, cultural, economic, legal and political conditions of the country affect international business procedures in different levels and degree depending on the countries infrastructure and relationship. Trade Embargos and Sanctions 4. Legal Systems 4. For the purpose of this discussion, the main relevant difference is in ideology. Political system and Legal systems: Indonesia today is Southeast Asia’s most vibrant democracy. China is one of the more visible examples, with its strong government and limited individual rights. Each political system’s philosophy impacts the policies that govern the local economy and business environment. State Capitalism: Governments Seeking to Control Key Industries. Nevertheless, global companies continue to seek the Chinese market, which offers much-needed growth and opportunity.Jason Dean, Andrew Browne, and Shai Oster, “China’s ‘State Capitalism’ Sparks Global Backlash,” Wall Street Journal, November 16, 2010, accessed December 22, 2010, http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html. While many countries in Asia and Latin America also are functioning democracies, their stage of development impacts the stability of their economic and trade policy, which can fluctuate with government changes. This was reported to be considerably lower in China (3.4), Brazil (3.1), Russian Federation (2.7) and the lowest in Venezuela (1.2). Democratic governments derive their power from the people of the country either by direct referendum, called a direct democracy, or by means of elected representatives of the people, known as a representative democracy. Democratic governments derive their power from the people of the country, either by direct referendum (called a direct democracy) or by means of elected representatives of the people (a representative democracy). Source: Indonesia 2009: An official handbook Many common law countries, including the US and India have adapted commercial codes to govern business. Legal systems are discussed in terms of the protections they offer for business: intellectual property, product safety, liability and contracts.The opening case describes the effect of widespread political and economic corruption in Brazil. This combination is called pluralismA political ideology that asserts that both public and private groups are important in a well-functioning political system., which asserts that both public and private groups are important in a well-functioning political system. The legal framework was the least efficient in Venezuela (1.5) and had relatively low level of efficiency in Russian Federation (2.8), Brazil (2.9), China (3.6), Tanzania (3.7), and Thailand (4.4). For instance, foreign governments have right to impose restrictions related to financial repatriation to other countries. Although the terms “freedom” and “democracy” are often used interchangeably, the two are not synonymous. 24 February, 2015 - 17:30 . Some banks will charge a large up-front fee. A country’s law regulate business practices, defines business policies, rights and obligations involved in business transactions. Thankfully, for many agricultural products and agribusinesses like timber, fish, livestock and so on, the rules are fairly well defined. For instance, after the disaster of Union Carbide’s pesticide plant located at Bhopal in India, the New York Court of Appeals sent back the case to India for resolution. Legal Systems. It is extremely important for certain agreements in civil law countries to get registered, in order to be enforceable, whereas in common law countries, as long as the proof of the agreement can be established, an agreement is binding. In Islam, Sharia is used to refer to the matters of religion that God has legislated for His Servants. Instead, most countries have a combination of both, the balance of which is often a reflection of the country’s history, culture, and religion. Instead, most countries have a combination of both. This provision has generated an entire set of financial products and strategies to simulate interest—or a gain—for an Islamic bank, while not technically being classified as interest. The distinction between the common law and civil law is more in theory rather than in practice. This remaining competence of the States was originated in the American Constitution and followed by all Brazilian Constitutions. The study of political systems is extensive and complex. Every country has jurisdiction over its citizens, irrespective of their locations. Legal Systems in International Business: The major types of legal systems are briefly mentioned here. Although Japan is the world’s third larges economy, historically they have steered clear of international business. (d) Business involving forbidden products or activity, such as alcohol, pork, or gambling is prohibited. Before publishing your articles on this site, please read the following pages: 1. It has prepared a wide range of conventions, model laws, and other instruments dealing with the substantive law that governs trade transactions or other aspects of business law influencing international trade. Terrorism, Crime, and Violence. The Political Environment. All S&P indices constituents are monitored on a daily basis to ensure that the indices maintain strict Sharia compliance. 6)THE POLITICAL ENVIRONMENT (CH. (c) Interest on money is prohibited but allows management fees and services. Whether the motive is economic (i.e., profit) or political (i.e., state control), “foreign firms and investors find that national and local rules and regulations are increasingly designed to favor domestic firms at their expense. This new combination has also posed more questions for businesses that are encountering new issues—such as privacy, individual rights, and intellectual rights protections—as they try to do business with China, now the second-largest economy in the world behind the United States. Foreign court systems have varying methods of enforcing ones rights. In essence, there are three main kinds of legal systems—common law, civil law, and religious or theocratic law. In order to enable Islamic investors to benchmark their investment on a regional basis and give product providers the opportunity to develop structured products tailored to the Islamic market, Standard & Poor’s (S&P), brings out Sharia Indices (Exhibit 8.4) that include only those stocks that comply with Sharia law. On the other hand, governments may influence trade to reward a country for political support on global matters. Table 2.1 The Major Global State-Owned Oil Companies. However, courts are bound to examine issues, such as the place from where evidence must be collected, location of the property under restitution, and the plaintiff. Copyright 10. Is there a well-established legal environment both to enforce policies and rules as well as to challenge them? 8.5) with the aim to reduce obstacles in international trade. International Political Systems and Ideologies 3. Businesses need to assess if a country believes in free markets, government control, or heavy intervention (often to the benefit of a few) in industry. Sharia has clear guidelines for aspects of life. Unlike in other countries, PRC law requires that only one person, to represent the company on its behalf. The most commonly known example of religious law is Islamic law, also known as ShariaIslamic religious law that addresses all aspect of daily life; in terms of business and finance, the law prohibits charging interest on money and other common investment activities, including hedging and short selling.. Islamic law governs a number of Islamic nations and communities around the world and is the most widely accepted religious law system. Nations have the right to impose restriction upon foreign citizens on their rights to travel and stay, their conduct, or area of business operations. The program promotes domestic production as well as exports and is funded by the state. Political risk in international business refers to political factors that have an impact on the company's value and can affect how the company operates and stays profitable. Why should businesses care about the different political and legal systems around the world? Civil lawA legal system based on a detailed set of laws that constitute a code and on how the law is applied to the facts. Understand government-business trade relations and how political and legal factors impact international business. This provides investors with a comparable investable portfolio while adopting explicit investment criteria defined by the Sharia. This could lead to rioting and looting and general disorder, which disrupts the operations of a business. What are three policy areas in which governments can create rules and regulations in order to control, manage, and intervene in trade. 8.3) with a score of 6.5 on a 7 point scale whereas Netherlands and Australia had a score of 6.4, the UK (6.0), Singapore (5.6), Japan and South Africa (5.5), India (5.3), the US (5.1), and UAE (5.0). Businesses in industries, such as commodities and oil, have found more authoritarian governments to be predictable partners for long-term access and investment for these commodities. (f) Compassion is required when a business is in trouble. The loss of opportunity for cost of money is not compensated under the Sharia. Governments intervene in trade to protect their nation’s economy and industry, as well as promote and preserve their social, cultural, political, and economic structures and philosophies. In a country with Islamic legal structure, it is not considered appropriate to put pressure in the event of bankruptcy of one’s business partner. For example, in Islamic law, business is directly impacted by the concept of interest. Any changes are usually a reflection of a changing economic environment, like the world economic crisis of 2008, and not a change in the government players. At one end of the extremes of political philosophies, or ideologies, is anarchismA political ideology that contends that individuals should control political activities and public government is both unnecessary and unwanted., which contends that individuals should control political activities and public government is both unnecessary and unwanted. Rolfe Winkler, “Internet Plus China Equals Screaming Baidu,”. Content Filtrations 6. Islamic religious law that addresses all aspect of daily life; in terms of business and finance, the law prohibits charging interest on money and other common investment activities, including hedging and short selling. (AACSB: Reflective Thinking, Analytical Skills). A form of government that derives its power from the people. Examples include changes in interest rates, civil unrest, government actions and issues with importing or exporting goods. is one in which the government or state directs and controls the economy, including the means and decision making for production. With its huge population, China is in constant need of energy to meet the needs of its people and businesses. • Government: Political and business orientation, legislation, regulation, ... Legal Aspects in International Markets. In contrast a planned economy is one in which the government or state directs and controls the economy. The salient features of Islamic law concerned to business are that. For example China worked a serious restructuration on their politics and regulations with the international companies, which include better conditions of work for the local employees. It may seem evident that businesses would prefer to operate in open, democratic countries; however, it can be difficult to determine which countries fit the democratic criteria. There are three main areas that a good marketing strategy program will cover when it comes to implications of doing business internationally. If a new party comes into power, will the rules of business change dramatically? In this system, judges interpret the law and judicial rulings can set precedent. The history of the oil industry shows how various governments have, on occasion, protected their national companies’ access to oil through political force. Read this article to learn about the Legal Environment for International Business. Many observers note that it was the direct result of Chinese government intervention in what was deemed a key industry. Free trade advocates perceive this government-directed intervention as an unfair tilt against the global private sector. is basically the system of politics and government in a country. In common law systems, judges interpret the law and judicial rulings can set precedent. International Business: Strategy, Management, and the New Realities 11 Political and Legal Systems are Dynamic • Political and legal systems are dynamic, constantly changing and interdependent. There are more than thirteen major types of government and each type consists of multiple variations. STUDY. Common law originated from England and it is followed in most of the former British colonies, such as India, UK, the US, Canada, Australia, and New Zealand. There is heavy reliance on settling disputes through third party negotiations rather than courts. Germany had the highest level of judicial independence (Fig. The political and legal ystem in Australia: The Government of the Commonwealth of Australia is a federal one. Introduction to International Legal Environment: United Nations Commission on International Trade Law (UNCITRAL). Tariffs that are calculated as a percentage of the value of the product or service. It governs a complete set of rules, regulations, institutions, and attitudes. Its leaders see the economy as a tool to preserving the state’s power, which in turn is essential to maintaining stability and growth and ensuring the long-term viability of the Communist Party.Jason Dean, Andrew Browne, and Shai Oster, “China’s ‘State Capitalism’ Sparks Global Backlash,” Wall Street Journal, November 16, 2010, accessed December 22, 2010, http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html. The legal aspects in international markets are as follows; 1. The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. In some countries, the government controls more aspects of daily life than in others. In current times, the Chinese government has been using a combination of government loans and investment in Africa to obtain access for Chinese companies to utilize local resources and commodities. Democracy presupposes equality before the law, due process and political pluralism.“Liberty and Justice for Some,” Economist, August 22, 2007, accessed December 21, 2010, http://www.economist.com/node/8908438. A fair judicial system also reduces political risks in overseas markets. form of government: totalitarianism/autocracy/democracy or other type of political system. Authoritarian leaders tend not to have a guiding philosophy and use more fear and corruption to maintain control. Even if a consensus on precise definitions has proved elusive, most observers today would agree that, at a minimum, the fundamental features of a democracy include government based on majority rule and the consent of the governed, the existence of free and fair elections, the protection of minorities and respect for basic human rights. Politically, a country’s government may seek to protect jobs or specific industries. In most countries, it is applied in conjunction with the common and the civil law. The complications in a meeting out of non-performance of a business contract also vary widely among the common- and civil-law countries. Brazil: Currently Dilma Rousseff is the President of Brazil. For instance, an Italian firm that sells India’s defense secrets can be booked under the Indian law. Nor can the same work culture be replicated elsewhere. A cross-country comparison on a 7.0 point scale as shown in Fig. Another important issue for businesses that operate on an international level is the respect for the fundamental difference between legal systems. Governments intervene in trade for a combination of political, economic, social, and cultural reasons. International law recognizes the sovereign right of anation to allow or deny foreign firms to conduct. In countries, such as Japan, the reliance on courts for conflict resolution is much lower compared to the US which is considered to be one of the most litigious societies in the world. International Business Chapter 3: Governmental and Legal Systems. Companies that operate globally have an enormous challenge in conducting business in countries with varying political and economic systems. Baidu self-censors and, as a result, has seen its revenues soar after Google limited its operations in the country.Rolfe Winkler, “Internet Plus China Equals Screaming Baidu,” Wall Street Journal, November 9, 2010, accessed December 21, 2010, http://online.wsj.com/article/SB10001424052748703514904575602781130437538.html. Different laws in foreign countries regulate financing or operations by foreigners. China is both an emerging market and a rising superpower. Under the Islamic law, western style finance is haram, or forbidden, to devout Muslims. Is power concentrated in the hands of a few, or is it clearly outlined in a constitution or similar national legal document? Written contracts have a sanctity and legitimacy of their own. (e) Normally award of damages are in line with practicality but not as inflated as is often the case in the West. Jason Dean, Andrew Browne, and Shai Oster, “China’s ‘State Capitalism’ Sparks Global Backlash,”, http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf, http://online.wsj.com/article/SB10001424052748703514904575602781130437538.html, http://www.arabianbusiness.com/511804-gulf-islamic-banks-assets-to-hit-300bn, http://online.wsj.com/article/SB10001424052748704852004575258541875590852.html, http://www.energyintel.com/documentdetail.asp?document_id=245527, http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html. The extent of separation of judicial powers between the judiciary and the public authorities varies considerably across nations. Chinese government control on the Internet, for example, has helped propel homegrown, Baidu, a Chinese search engine, which earns more than 73 percent of the Chinese search-engine revenues. is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. 4. Let’s focus on the overarching modern political philosophies. How do political and legal realities impact international trade, and what do businesses need to think about as they develop their global strategy? In reality, neither extreme exists in its purest form. Plagiarism Prevention 4. The major difference between Sharia law and the Western law is the idea of reference to a precedent. Common lawA legal system based on traditions and precedence. The Sharia regulates all human actions and places them in five categories, i.e., obligatory, recommended, permitted, disliked, or forbidden. It is based on traditions, past practices, and legal precedents set by the courts through interpretation of statutes, legal legislations, and past rulings. However, change can occur very quickly. The other extreme is totalitarianism, which contends that every aspect of an individual’s life should be controlled and dictated by a strong central government. There are three main types of legal systems: (1) civil law, (2) common law, and (3) religious law. In the Persian Gulf region alone, there are twenty-two Sharia-compliant, Islamic banks, which in 2008 had approximately $300 billion in assets.Tala Malik, “Gulf Islamic Bank Assets to Hit $300bn,” Arabian Business, February 20, 2008, accessed December 21, 2010, http://www.arabianbusiness.com/511804-gulf-islamic-banks-assets-to-hit-300bn. ...Many aspects affect the way international business is conducted. After reading this article you will learn about: 1. Until recently, governments were able to directly enforce the rules and regulations based on their political and legal philosophies. madison_mainman. Business Law. International managers need to develop basic understanding of the types of legal systems followed in the countries of their operations before entering into legal contracts. They may want to protect young industries or to preserve access to local consumer markets for domestic firms. Governments have long intervened in international trade through a variety of mechanisms. It depends less on written statutes and codes. At the other extreme is totalitarianismA political ideology that contends that every aspect of an individual’s life should be controlled and dictated by a strong central government., which contends that every aspect of an individual’s life should be controlled and dictated by a strong central government. A recent report exposed Brazil’s slow economic growth and rising inflation. This external element of business includes the effects of pressure groups. While doing business in Islamic countries, international managers need to appreciate the intertwining of religion and Islamic law and take care never to mention the Palestine-Israeli situation. The national government enforces it own laws. Brazilian Legal System Doing Business in Brazil. The legal representative is the person with the greatest individual authority in a company in China.
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