Political and Legal Environments
Learning Objectives:
1. The political/legal risks of global
2. How to reduce the effect of political/legal vulnerability
Global Perspective
International law recognizes the sovereign right of a nation to grant or withhold
permission to do business within its political boundaries and to control where its
citizens conduct business.
Assessing Political Environment of the Host Country
1. What is the political structure?
2. What attitudes does the host government have toward foreign investment or
companies?
3. What actions are likely to flow from the host government?
4. Are my business activities in conflict with its national interest?
A Sampling of Government Types
Insert Exhibit 6.1
National Interests and Impacts on Businesses
1. Sovereignty and Self-preservation:
Limiting foreign ownership of media
2. National security:
Infrastructure and essential resources:
Defense and telecommunication
3. Prosperity
Import restriction
Role of local or regional government
4. Enhancing Prestige:
E.g. French’s suspense of sale of Thomson to the Lagardere Group
5. Cultural identity
E.g. Europe advocates curbs on foreign television
E.g. Forbidding Starbucks
6. Host Country Pressure Groups
E.g. McDonald’s raise wages in China
Host Government Actions
1. Jawboning
the informal intervention of governments in the business process, often
without a legal basis
2. “Buy-local” Restrictions
Local businesses are preferred over foreign companies
3. Nontariff Barriers
4. Subsidies: one way to support local industries
