Introduction to Global

Business
Chapter 6
The Legal and Political Environment of Global
Business

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 After studying this chapter, you should be able to:

1. Provide an overview of the different global

political systems and their potential impact on
international business.
2. Explain the differences between communism,
capitalism, and socialism and how these different
economic ideologies affect the conduct of
international business.
3. Discuss the key political and economic risks and
the role of corruption when conducting global
business.
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 After studying this chapter, you should be able to:

4. Analyze the different types of legal systems

and some key principles involving criminal,
contract, tax, product safety, and dispute
settlement law.
5. Discuss the importance of intellectual
property protections in today’s global
business environment and the major types of
intellectual property protections including
patents, trademarks, and copyrights.
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Political Systems
• Greek for “rule by the people”; form of
Democracy government in which all citizens have the right to
vote

• A pure form of democracy, in which all adult

Athenian citizens vote directly on matters affecting the
Democracy community

• Form of government in which citizens vote to

Representative elect given individuals to serve as their
Democracy representatives for a certain period of time

• System of government in which individuals govern

Totalitarian without the support or consent of the citizenry;
Government for example, a military dictatorship
National Economic Ideologies

Communism Socialism Capitalism

The government The government Businesses are
or state owns and plays a strong privately owned,
controls all major role in the strong individual
factors of economy and incentives exist,
production and is may own stakes and the
philosophically an in certain government plays
economically businesses very little role in
classless society the economy
Economic Risks
• Economic risks are the risks that economic problems or
mismanagement in a given country will have a meaningful
negative impact on the conduct of business in that
country.
• Economic risks include:
Restrictions on transfer or exchange of a country’s currency,
or devaluation of the currency
Questionable ability to repay loans
Human resource and labor relations problems
Inflation and corruption
• Companies can mitigate risks through careful planning.
• Economic risks are not independent of political risks.
Political Risks
• The risks that political forces or
problems in a given country will
Political Risks have a meaningful negative
impact upon the conduct of
business in that country

Macropolitical • A political risk that essentially

affects all businesses in a given
Risk country

Micropolitical • A political risk that only affects

a certain industry or set of
Risk firms in a given country
Political Risk and Global
Terrorism
• Terrorism Risk Insurance Act of 2002
A U.S. law that after a certain deductible provides
U.S. businesses government insurance coverage
for the risk of terrorism
• Overseas Private Investment Corporation (OPIC)
A U.S. government agency that sells political risk
insurance to U.S. businesses operating in countries
with which the United States has a bilateral
investment treaty
Corruption
• A situation where businesses are able to illegally alter relevant
Corruption private and/or public decision making by way of bribes,
kickbacks, blackmail, extortion, and related activities

Private • Business corruption involving other private businesses,

individuals, or groups
Corruption

• The practice of making illegal payments to government officials

Public or engaging in blackmail, extortion, or other related activities to
obtain government contracts or governmental approval for
Corruption business activities
The Legal Environment: Legal
Systems

Civil Law Common Law Theocratic Law

• Based on a • Legislative bodies • Based on a religious
comprehensive listing enact less specific legal document and
of legal rules in sets of rules giving religious teachings
written codes of law judges/courts
considerable authority
in interpreting these
rules based on
precedent and other
factors
Types of Laws
Criminal Law

Contract Law

Tax Law

Antitrust Laws

Product Safety Law

Dispute Settlement Law

Criminal Law
• Criminal law establishes which violations of a nation’s
laws are crimes punishable by possible incarceration.
• Actions that constitute crimes may differ widely in
countries throughout the world, and may also change
considerably over time in any specific country.
During Prohibition Era of the 1920s and 1930s, sales of
alcohol were unlawful, but no restrictions exist today.
Contract Law
• Contract law is the body of law governing
legally enforceable agreements between parties
to engage in economic exchange.
• Contracts are essentially meaningless unless
they can be successfully enforced.
• Companies and individuals engaging in global
business need to become familiar with the
contract law in the countries where they may
operate.
Tax Law
• Tax law is the body of law dealing with
governmental levying of taxes on individuals and
corporations.
• Tax rates and regulations vary widely throughout
the world and play a considerable role in location
decisions by global businesses.
• Some companies establish operations in tax
haven countries that have little or no tax
transparency as a way of avoiding taxes.
Tax haven countries include Mauritius, Belize, the
Cayman Islands, Antigua, Barbuda, and the Isle of
Man.
Antitrust Law
• Antitrust laws are designed to promote “fair
competition” among businesses.
• Antitrust laws typically prohibit companies from engaging
in collusion, the practice of companies acting in a manner
which secretly thwarts competition amongst themselves.
• Antitrust laws are also known as “antimonopoly laws.”
• Monopoly is a situation where there is only a single seller
of a product in an industry and there are very high
barriers to enter that industry.
• Other countries may be far less aggressive than the United
States in antitrust regulations.
Product Safety Law
• Product safety law establishes the standards
of product safety to which the manufacturers
and sellers of products are held.
• Caveat emptor (“buyer beware”)
Places the burden of determining product safety on
consumers
• Caveat venditor (“seller beware”)
Places on manufacturers or sellers the burden of
making sure their products are safe or at least
clearly and explicitly warning consumers about the
potential safety risks of their products
Dispute Settlement Law
• Dispute settlement law governs how disputes
that arise in the course of global business are
settled.
• The public option is to resolve a case through
litigation by bringing a dispute to a publicly or
governmentally run court of law.
• An alternative dispute resolution process
involves arbitration, where disputing parties
designate a neutral private person or group of
persons to hear and decide the case.
Intellectual Property
Protections
• Intellectual property is the product of
intellectual rather than physical activity.
• Intellectual property protections
The limited monopoly rights legally granted by a
nation to the creator of intellectual property
Intellectual property protections include
Patents
Trademarks
Copyrights
Protecting Intellectual Property
Patent Trademark Copyright
• The right granted • A distinctive • The exclusive legal
to the inventor of a phrase, name, right that authors,
product or process word, picture, playwrights,
that excludes symbol, or design, publishers, artists,
others from selling, or a combination of and composers
making, or using these, that have to publish and
the invention for a identifies a given disseminate their
certain period of business’s service work as they see fit
time or product and is
owned by said
business

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Loss of Intellectual Property
Protection
• Genericized trademark
A trademark that has become so well known or
colloquial that it now describes a general class of
product or service, as opposed to a specific
product or service as intended by the trademark’s
owner
• For a list of genericized trademarks, click on the
following link:
Generic and genericized trademarks
 Key Terms
democracy terrorism
Athenian democracy Terrorism Risk Insurance Act of
representative democracy 2002
totalitarian government Overseas Private Investment
Corporation (OPIC)
communism
corruption
socialism
private corruption
capitalism
public corruption
economic risks
Foreign Corrupt Practices Act
political risks (FCPA)
micropolitical risk civil law legal system
macropolitical risk common law legal system
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 Key Terms (continued)
theocratic law legal system dispute settlement law
criminal law litigation
contract law arbitration
tax law intellectual property
tax haven countries intellectual property
antitrust laws protections
collusion patent
monopoly trademark
product safety law genericized trademark
caveat emptor copyright
caveat venditor
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt
ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.