The burden of proof is on the plaintiff. 6) The Sovereignty of NationsThe Sovereignty of Nations Ultimate power of the stateUltimate … The elaborate legislative codes embody the main rules of the law, spelling out every circumstance. Presently, UNCITRAL has six working groups for areas, such as procurement, international arbitration and conciliation, transport law, electronic commerce, insolvency law, and security interests. Laws concerning employment and labor affect managing of workforce in international markets. This system is commonly referred to as “a socialist market economy with Chinese characteristics.” The Chinese are eager to portray their version of combining an authoritarian form of government with a market-oriented economy as a better alternative model for fledging economies, such as those in Africa. Bureaucracy 5. Search. 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. To begin with, despite the globalization of business, firms must abide by the local rules and regulations of the countries in which they operate. It depends less on written statutes and codes. A legal system based on a detailed set of laws that constitute a code and on how the law is applied to the facts. Facing a shortage in 2007, growing domestic demand, and high prices from foreign companies that dominated production, China declared the development of domestic polysilicon supplies a priority. Members of the commission are elected for terms of six years, the term of half-members expiring every three years. Governments intervene in trade for a combination of political, economic, social, and cultural reasons. is the most common form of government around the world today. The system of politics and government in a country; it governs a complete set of rules, regulations, institutions, and attitudes. Another important issue for businesses that operate on an international level is the respect for the fundamental difference between legal systems. Although there is significant overlapping in practice under the two systems, laws are much more rigid in the countries with civil-law system compared to common-law systems. 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). In most countries, it is applied in conjunction with the common and the civil law. For example, if a company wants to borrow money from an Islamic bank, it would sell its assets or product to the bank for a fixed price. Understanding the balance between China’s government structure and its ideology is essential to doing business in this complex country. is also known as theocratic law and is based on religious guidelines. 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. Totalitarianism, a more extreme form of authoritarianism, occurs when an authoritarian leadership is motivated by a distinct ideology, such as communism. 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. 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. Figure 2: Political system of Indonesia. A form of government that derives its power from the people. Every nation has jurisdiction over conduct that adversely affects its national security even if such behaviour occurs outside the country. Why should businesses care about the different political and legal systems around the world? For instance, in the common-law countries, the non-performance of a contract due to an ‘act of god’ may include floods, earthquakes, lightening, or similar happenings whereas under the civil law, non-performance is not limited to ‘acts of god’, but also includes ‘unavoidable interference with performance, whether resulting from forces of nature or unforeseeable human acts’, including such factors as labour strikes and riots. Understand government-business trade relations and how political and legal factors impact international business. China is both an emerging market and a rising superpower. There is no consensus on how to measure democracy, definitions of democracy are contested and there is an ongoing lively debate on the subject. Compare and contrast the two forms of economic ideology discussed in this section. As you might expect, established democracies, such as those found in the United States, Canada, Western Europe, Japan, and Australia, offer a high level of political stability. International law is less coherent compared to domestic law since it embodies a multiplicity of treaties (bilateral, multilateral, or universal) and conventions (such as the Vienna Convention on Diplomatic Security, Geneva Convention on Human Rights, etc.) In some countries, the government controls more aspects of daily life than in others. For instance, an Indian citizen travelling abroad may be given a penalty by a court in India. China’s ability to focus on dominating key industries inspires both fear and awe throughout the world. This external element of business includes the effects of pressure groups. China’s Communist Party outlines its goals in five-year plans. 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. Differences in legal systems can affect the attractiveness of a country as market or investment site. Economist Intelligence Unit, “The Economist Intelligence Unit’s Index of Democracy 2008,” Economist, October 29, 2008, accessed December 21, 2010, http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf. (f) Compassion is required when a business is in trouble. In reality, neither extreme exists in its purest form. Germany had the highest level of judicial independence (Fig. Membership is structured so as to be representative of the world’s various geographic regions and their principal economic and legal systems. Half of the world’s population lives in a democracy of some sort, although only some 14 percent reside in full democracies. Table 2.1 The Major Global State-Owned Oil Companies. Within reason, in democracies, businesses understand that most rules survive changes in government. International Business. In general, Japanese corporate law supports inward facing investment. Tala Malik, “Gulf Islamic Bank Assets to Hit $300bn,”, Ian Bremmer, “The Long Shadow of the Visible Hand,”. A political ideology that contends that individuals should control political activities and public government is both unnecessary and unwanted. How did this happen so fast? (i) Common Law: It is based on traditions, past practices, and legal precedents set by the courts through interpretation of statutes, legal legislations, and past rulings. 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. They pose a big challenge to the companies and the companies need to overcome the factors to become successful in the international stage. Many are permitted to engage in sale-buyback or leaseback of an asset. Although Japan is the world’s third larges economy, historically they have steered clear of international business. 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. International Business Chapter 3: Governmental and Legal Systems. is one in which the government or state directs and controls the economy, including the means and decision making for production. China is one of the more visible examples, with its strong government and limited individual rights. The major difference between Sharia law and the Western law is the idea of reference to a precedent. 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. 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. In the past thirty years, governments have increasingly privatized a number of industries. Most countries actually have a combination of these systems, creating hybrid legal systems. International managers need to understand the basic principles that govern the conduct of international law. The legal aspects in international markets are as follows; 1. The two major categories of prosecution under the national government are drug importation and those related to infringement of social security laws. Content Filtrations 6. Effects of Politics onInternational business..... 2. As shown in the opening case study, China is using its economic might to invest in Africa. This combination is called pluralism, which asserts that both public and private groups are important in a well-functioning political system. After independence from erstwhile colonial rulers, most Islamic countries have grappled with the problem of replacing colonial legal systems with the Sharia. A closer look at the solar industry in China illustrates the government’s ability to create new industries and companies based on its objectives. Understand government-business trade relations and how political and legal factors impact international business. Democracy can be seen as a set of practices and principles that institutionalise and thus ultimately protect freedom. 3. Source: Indonesia 2009: An official handbook The United Nations Commission on International Trade Law (UNCITRAL) was established in 1966 by the UN General Assembly (Fig. A political systemThe system of politics and government in a country; it governs a complete set of rules, regulations, institutions, and attitudes. A recent report exposed Brazil’s slow economic growth and rising inflation. (b) Gharar, the transaction involving fundamental uncertainty or speculation is prohibited. A cross-country comparison on a 7.0 point scale as shown in Fig. This is the national government and it has six State Governments under it. Therefore, a foreign firm involved in illegal business practices in India can be sued under Indian law. Although they in many ways they have kept to this reserved approach, globalisation has had its effect on Japan, like every other country. Chapter 4 "World Economies" provides more details about developed and developing countries and emerging markets. form of government: totalitarianism/autocracy/democracy or other type of political system. (AACSB: Reflective Thinking, Analytical Skills). Sharia has clear guidelines for aspects of life. Politics changes can affect dramatically the manner that international business deal with import, export, and trade with another countries. Particularly for businesses that operate internationally, a lack of political stability in any country has an effect on operations. The independence of a country’s judicial system from political influences of the members of governments, citizens, or firms is crucial for the fair treatment a firm receives in its overseas operations. Learn vocabulary, terms, and more with flashcards, games, and other study tools. The legal representative is the person with the greatest individual authority in a company in China. 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. How political and legal systems affect International Business Introduction Political and legal systems play a major role in the International businesses for the companies that source, produce, market and export products in foreign countries. A main differentiator of political systems is each system’s philosophy on the rights of the individual and the group as well as the role of government. Some banks will charge a large up-front fee. If a new party comes into power, will the rules of business change dramatically? 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. is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. Ch 6 7 international political and legal environment 1. This remaining competence of the States was originated in the American Constitution and followed by all Brazilian Constitutions. 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. 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. Although the terms “freedom” and “democracy” are often used interchangeably, the two are not synonymous. Companies that operate globally have an enormous challenge in conducting business in countries with varying political and economic systems. madison_mainman. Read this article to learn about the Legal Environment for International Business. Principles of International Law 5. Only two Asian countries are represented: Japan and South Korea. Many common law countries, including the US and India have adapted commercial codes to govern business. These leaders are not democratically elected and are not politically, economically, or socially accountable to the people in the country. 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. 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. Unlike the countries dominated by Christianity, Hinduism, and Buddhism where either common or civil law is followed, a large number of Islamic countries integrate their legal system based on the Sharia. With its huge population, China is in constant need of energy to meet the needs of its people and businesses. Under international law, there are three basic types of jurisdictional principles. 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. Also known as theocratic law; this legal system is based on religious guidelines. Despite the movement toward privatizing industry and free trade, government interests in their most valuable commodity, oil, remains constant. THE POLITICAL ENVIRONMENT (CH. The company now has a 25 percent market share of polysilicon and almost 50 percent of the global market for solar-power equipment.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. Many business analysts mention these issues in discussions of global business ethics and the role and responsibility of companies in different political environments. That was the reason for early writers of Economics preferred to caption their work as Political Economy. 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. How transparent is the government’s political, legal, and economic decision-making process? The history of the oil industry shows how various governments have, on occasion, protected their national companies’ access to oil through political force. 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. 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. 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. Let’s focus on the overarching modern political philosophies. Political and legal risks are two very important aspects of running a business of which an entrepreneur should be aware. is an economic system in which the means of production are owned and controlled privately. (a) Contracts should be fair to all parties. An economic system in which the means of production are owned and controlled privately. Political, Economic, and Legal Systems. The program promotes domestic production as well as exports and is funded by the state. All business transactions must avoid riba, i.e., excessive profit, loosely defined as interest. In practice, countries use a combination of one or more of these systems and often adapt them to suit the local values and culture. 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. For instance, the Hebrew law and the Islamic law are derived from religious doctrines and their scholarly interpretations. Democracy has a number of variations, both in theory and practice, some of which provide better representation and more freedoms for their citizens than others. Some examples of these practices include forming joint-ventures, expanding your investment base, licensing your products/services, or political bargaining through lobbying. Nevertheless, countries still have the ability to regulate or strong-arm companies into abiding by their rules and regulations. 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. (e) Normally award of damages are in line with practicality but not as inflated as is often the case in the West. What businesses must focus on is how a country’s political system impacts the economy as well as the particular firm and industry. TOS 7. A hostile takeover could overthrow a government, for instance. Every country has jurisdiction over its citizens, irrespective of their locations. 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). Many observers note that it was the direct result of Chinese government intervention in what was deemed a key industry. • Government: Political and business orientation, legislation, regulation, ... Legal Aspects in International Markets. This contrasts with more authoritarian governments, where democracy is either not in effect or simply a token process. As a part of international customs and traditions, there must be mutual respect for the laws, institutions, and the government system of other countries in the matter of jurisdiction over their own citizens.
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