Political and legal environment Flashcards
Free Trade
The absence of barriers to the free flow of goods and services between countries.
Sovereignty
-Ultimate authority in a given territory lies with the state, backed by its monopoly over the means of coercion or violence (police and military) -controls the ‘flow’ across borders
Bureaucracy
A system of government in which most of the important decisions are taken by state officials rather than by elected representatives. -Bureaucracy could foster economic growth
Corruption
- Abuse of public office for private gain -Perversion or destruction of integrity in the discharge of public duties by bribery or favour The level of corruption depends on: – Effectiveness of law enforcement – Social/cultural attitudes towards corruption – State bureaucracy
Subsidy
A subsidy is a government financial assistance to a domestic producer. Subsidies take many forms, including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. By lowering production costs, subsidies help domestic producers in two ways: (1)competing against foreign imports and (2) gaining export markets.
Problem of the control of political systems:
- Legitimacy of power and authority to control and restrict economic activities within own borders – Circumscribed by rule of law in many countries – Government take-over of foreign private enterprises (e.g., nationalisation) States on behalf of nations are the signatories of international trade and other bilateral and multilateral agreements • The United Nations • The European Union • The North American Free Trade Agreement • World Trade Organization
Problem of failed states:
- Group Grievances - Violation of human rights - Economic Decline - Security Forces within a state - Factionalised elites (only elites enjoyed the economical benefits) - Unstable government Some countries require external intervention such as Afghanistan
International Contract:
- When MNEs have contracts, there is a need for careful planning, negotiation and drafting of contract - Contract for international sale of goods should cover - Terms for quantity/ price/ payment - Performance/ non-performance - Dispute resolution/ choice of forum Choice of law
How do political systems differ and why do they matter to MNEs?
- Source of authority: rule of law provides MNEs with less uncertainty and more stability (e.g., China and WTO) 2. Political ideologies may be pro/anti- business 3. Democratic freedom: lack of political freedom can also restrict company actions; oppression can lead to instability (E.g., Google in China) 4. Interest aggregation: MNEs will be affected by dominant interests 5. Unitary vs. federal systems: how many governments does the MNE need to deal with? (e.g., U.S. governors attracting foreign investments) 6. Policymaking: MNEs need to know how policies are made and by whom 7. Government system: MNE needs to know where power lies (e.g. executive or legislature) 8. Political risk: assessments and active responses
How do legal systems differ?
Customary law
Based on shared rules/ customs
Common law
based on tradition, precedent and customs, flexibly interpreted by judges
Civil Law
based on a detailed set of written laws and codes.
Contract law
governs contract enforcement
Extraterritoriality
Application of country’s laws beyond own borders
e.g. Australia law/ US Foreign Corrupt Practices Act/ The UK Bribery act
What they have in common:
- Offence t provide anyone an undue benefit with intention to influence a Foreign Public Official to obtain or retain business or business advantage
- Laws are extra-territorial and can apply even if the act of bribery takes place abroad
Domestic and international macro political risks
