The Indonesians enjoy a level of political freedom. Two additional religious law systems are the Jewish Halacha and the Christian Canon system, neither of which is practiced at the national level in a country. 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). 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. 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. 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. 8.5) with the aim to reduce obstacles in international trade. The complications in a meeting out of non-performance of a business contract also vary widely among the common- and civil-law countries. As a result, the government has placed a priority on energy related technologies, including solar energy. STUDY. The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. 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. United Nations Commission on International Trade Law (UNCITRAL). International managers need to understand the basic principles that govern the conduct of international law. 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. In some countries, the government controls more aspects of daily life than in others. 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. India is an exception as it has the most voluminous income-tax legislation (Exhibit 8.3) in the world despite its relatively much lower rank in terms of GDP. is the most common form of government around the world today. Trade Embargos and Sanctions 4. The extent of separation of judicial powers between the judiciary and the public authorities varies considerably across nations. For the purpose of this discussion, the main relevant difference is in ideology. In other words, the damages to property will be actual sums relating to repair and replacement of the property. The Political Environment. Chapter 7 Political and Legal Systems in National Environments1 For example, in Islamic law, business is directly impacted by the concept of interest. This could lead to rioting and looting and general disorder, which disrupts the operations of a business. It governs a complete set of rules, regulations, institutions, and attitudes. Understanding the balance between China’s government structure and its ideology is essential to doing business in this complex country. It’s the most widespread legal system in the world. The legal aspects in international markets are as follows; 1. As shown in the opening case study, China is using its economic might to invest in Africa. It governs its own territory, has the right to select and implement its own political, economic, and social systems and has the power to enter into bilateral or multilateral agreements with other nations. 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. Instead, most countries have a combination of both. For example, some countries’ governments have tried to limit the influence of American culture on local markets by limiting or denying the entry of American companies operating in the media, food, and music industries. What businesses must focus on is how a country’s political system impacts the economy as well as the particular firm and industry. 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. 2. Under the Sharia, a ruling issued by a judge is not binding on other judges or on him in later cases. State Capitalism: Governments Seeking to Control Key Industries. Although the terms “freedom” and “democracy” are often used interchangeably, the two are not synonymous. 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 legal framework to protect small and medium enterprises (SMEs), mainly to achieve social objectives, adversely influences the expansion of manufacturing capacities and achieving economies of scale in certain countries. For instance, an Indian citizen travelling abroad may be given a penalty by a court in India. Governments have several key policy areas that can be used to create rules and regulations to control and manage trade. The study of political systems is extensive and complex. There is no consensus on how to measure democracy, definitions of democracy are contested and there is an ongoing lively debate on the subject. In the past thirty years, governments have increasingly privatized a number of industries. What is a planned economy? Learn vocabulary, terms, and more with flashcards, games, and other study tools. 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. ...Many aspects affect the way international business is conducted. Source: Energy Intelligence Group, “Petroleum Intelligence Weekly Ranks World’s Top 50 Oil Companies (2009),” news release, December 1, 2008, accessed December 21, 2010, http://www.energyintel.com/documentdetail.asp?document_id=245527. In totalitarian systems, government’s power derives from a select group. 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. A fair judicial system also reduces political risks in overseas markets. The salient features of Islamic law concerned to business are that. Table 2.1 The Major Global State-Owned Oil Companies. 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. A political ideology that asserts that both public and private groups are important in a well-functioning political system. International law recognizes the sovereign right of anation to allow or deny foreign firms to conduct. China is one of the more visible examples, with its strong government and limited individual rights. 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. The system of politics and government in a country; it governs a complete set of rules, regulations, institutions, and attitudes. Only two Asian countries are represented: Japan and South Korea. Sullivan 3-1 fChapter 3 The Political and Legal Environments Facing Business Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 3-2 fLearning Objectives That was the reason for early writers of Economics preferred to caption their work as Political Economy. madison_mainman. 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. is an economic system in which the means of production are owned and controlled privately. Brazil: Currently Dilma Rousseff is the President of Brazil. Companies that operate globally have an enormous challenge in conducting business in countries with varying political and economic systems. 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. Political And Legal Systems: Impact On Business The Japanese political and legal system presents a complex picture. Chapter 4 "World Economies" provides more details about developed and developing countries and emerging markets. Half of the world’s population lives in a democracy of some sort, although only some 14 percent reside in full democracies. However, in the past two decades, China has pursued a new balance of how much the state plans and manages the national economy. Understand government-business trade relations and how political and legal factors impact international business. Judicial Independence and Efficiency 3. Differences in legal systems can affect the attractiveness of a country as market or investment site. Legal Systems. Figure 2: Political system of Indonesia. A cross-country comparison on a 7.0 point scale as shown in Fig. Chapters 6-7Chapters 6-7 INTERNATIONALINTERNATIONAL POLITICAL AND LEGALPOLITICAL AND LEGAL ENVIROMENTENVIROMENT 2. The Chinese model of an authoritarian government and a market-oriented economy has, at times, tilted favor toward companies, usually Chinese, who understand how to navigate the nuances of this new system. The Sharia regulates all human actions and places them in five categories, i.e., obligatory, recommended, permitted, disliked, or forbidden. 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. Create . A substantial amount of oil-money is invested in Sharia-compliant funds. Political Stability - Is there a risk of political overturn, war, etc., that could disrupt business operations. 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. Source: Indonesia 2009: An official handbook Although most countries are pluralistic politically, they may lean more to one extreme than the other. Under the Islamic law, western style finance is haram, or forbidden, to devout Muslims. As political systems in different areas vary, the political impact differs. Rolfe Winkler, “Internet Plus China Equals Screaming Baidu,”. There are more than thirteen major types of government, each of which consists of multiple variations. In essence, there are three main kinds of legal systems—common law, civil law, and religious or theocratic law. As the index provides for benchmarking with Sharia, some of these funds may be invested as per the Sharia Indices. A political ideology that contends that every aspect of an individual’s life should be controlled and dictated by a strong central government. This combination is called pluralism, which asserts that both public and private groups are important in a well-functioning political system.
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