The Political and EconomicEnvironment of Global Business

Chapter 2

Political Environment in China

Growing conflict between the government and the people

Protests against local officials for corruption, endangering people, neglecting people's health needs, and poor management

Central government is determined to remain in control

Censorship of the Internet Wages are now higher than in

Malaysia and Indonesia

Political Environment in China (2)

The government is attempting to open up the economy

1. Speed up conversion of state enterprises into corporations

2. Expand capital markets by authorizing new stock listings

3. Sell off most of the 305,000 state enterprises (or let go bankrupt)

4. Worker retraining, low-cost housing and other programs

5. Reduce tariffs to 10 percent

Political Environment in China (3)

Obstacles to foreign direct investment Regulations favor Chinese companies Regulations and government priorities

change often Government decisions change frequently Hard to find trained employees Competition from government-owned firms Foreign telecommunication firms must be

minority owners

Political Environment in China (4)

Human rights issues Large number of political prisoners Prison labor, child labor, and other abuses One-child policy Persecutions of religious leaders

Attempts by the EU and the U.S. to restrict textile imports under WTO regulation to control "surging imports"

Four Global Foundations of Law

Islamic Law

Derived from interpretation of the Qur’an and teachings of Prophet Muhammad

Found in Islamic countries Middle East Central Asia

Islamic Law

Four Global Foundations of Law

Socialist Law Originally, business and other

property were owned by the state Still true in Cuba and North Korea

Mixture of state-owned and private enterprise in Russia, China, Vietnam Government still takes an active

role in business Many regulations Arbitrary & inconsistent

enforcement of regulations

Islamic Law

Socialist Law

Four Global Foundations of Law

Common Law

Comes from English law Based on custom and

precedent (previous cases) Foundation of legal system

in United States Canada England Australia New Zealand

Judge is a neutral referee

Islamic Law

Socialist Socialist LawLaw

Common Common LawLaw

Four Global Foundations of Law

Civil Law Derived from Roman law

Western & central Europe Some Latin American countries Louisiana state law

Detailed laws and regulations Companies have less

freedom in structuring contracts and business deals than in U. S.

Judges guide criminal investigations

Islamic Law

Socialist Law

Common Law

Civil Law

International Law

Sovereignty: governments have the right to rule as they see fit.

International jurisdiction A country has jurisdiction within its legal

territory A country has power over its citizens and

businesses, wherever they are located A country has jurisdiction over actions

that harms its national security, even if those actions occurred outside its territory

International Law (2)

Doctrine of comity: Governments show mutual respect for the laws, institutions, and governments of other countries who are exercising jurisdiction over their own citizens (doctrine but not law)

Act of state doctrine (U.S. law): All acts of other governments are considered to be valid in U. S. courts

International Law (3)

U. S. courts do not have to settle civil cases brought by foreign citizens or firms

Treatment of aliens Countries have the legal right to refuse

admission of foreign citizens and to impose restrictions on their conduct, right of travel, where they can stay, and what business they may conduct

Countries can also can deport aliens

WTO Rules on Trade & Investment

Examples of practices that are considered unfair under WTO rules Government financial support for local

firms (subsidies) Requiring MNCs to accept local partners Import tariffs that are higher than WTO

agreements allow Other countries may retaliate by imposing

Retaliatory tariffs Import quotas and other trade

restrictions

How Companies Can Defend Themselves

in Trade Disputes

Companies should monitor trade disputes Retaliatory tariffs and quotas are often

imposed on products that are not involved in the original dispute

EU retaliated against U.S. steel tariffs by raising tariffs on U. S. citrus fruit and textiles

Companies can either lobby their own government to settle the dispute or to persuade the foreign government to remove their products from the list

Emerging Technologyand Economic Development

In poor countries, economic growth is hampered by poor communication services Wireless is more affordable than installed

phone lines The Internet can

Help firms and farmers market goods overseas

Help firms find suppliers Improve education in remote areas

Technology and Offshore outsourcing

Technology has reduced and eliminated some work in middle management and white-collar jobs

Global competition has forced some MNCs to outsource jobs to offshore companies

The Internet makes work more portable

Businesses and individuals have access to overseas experts