Welcome to the Module Chapter 6. Political and
Legal Systems in National Environments
The main purpose of this chapter 6 is to review the impact of legal and
political systems on international business.
In this chapter 6, we will study the drivers of country risk, the three major
political systems (totalitarianism, socialism, and democracy), the four
major. legal systems: Common Law, Civil Law, Religious Law, and Mixed
Systems, the actors in the importance of corporate citizenship, and
managing country risk.
To take advantage of the opportunities and minimize the risks, managers
must develop an understanding of all facets of the host community– the
government, political, legal and especially social forces that shape the
business landscape of the countries that businesses are conducted in.
Chapter 6 Goals and Student Learning
Outcomes
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Every country is characterized by unique political and legal systems that
pose significant challenges for company strategy and performance, as
managers must adhere to local business norms, laws, and regulations.
While the immediate cause of country risk is a political or legal factor,
underlying factors may be economic, social, or technological
developments.
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Course Goals (Objectives)
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The students will learn basic concepts of political and legal systems,
the types of country risk produced by political and legal systems,. The
specific objectives of this chapter are:
1 Describe political and legal environments in international business.
2 Understand political systems.
3 Understand legal systems.
4 Describe the participants in political and legal systems.
5 Identify types of country risk produced by political systems.
6 Identify types of country risk produced by legal systems.
7 Know about managing country risk.
Student Learning Outcomes
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When asked to explain the concept and risk of political and legal
systems, students will be able to:
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• Elaborate on the main explanations about the concepts of system,
and legal, political, and economic systems.
• Speak about the main types of political systems and legal systems.
• Evaluate the impact of different political and legal risks that a
company may encounter when doing business in different countries.
• Elaborate on firm’s strategies to faces political and legal risks in
international business.
Political and legal environments in
international business
• Every country is characterized by unique political and legal systems
that pose significant challenges for company strategy and
performance, as managers must adhere to local business norms, laws,
and regulations.
• While the immediate cause of country risk is a political or legal factor,
underlying factors may be economic, social, or technological
developments.
• Country risk is one of four major risks in international business
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• Country or political risk: Exposure to potential loss or adverse effects
on company.
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o Political, legal, and economic environment may have a negative
effect on the firm’s operations and profitability
o The dimensions of country risk prevalent in international
business such as government intervention, protectionism,
preferential subsidies, and barriers to trade and investment
impact business costs and influence strategic decision making.
Generic concept of system
• A system is a grouping of interrelated elements, institutions,
organizations, equipment, and / or people, performing specific
activities according to explicit rules to achieve a defined purpose.
• The components that define of a system are:
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o Members: elements, institutions, organizations, equipment, and
/ or people performing specific activities
o Interrelationship
o Rules that govern the relationships
o Purpose
Political systems.
• A political system is:
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▪ Formal institutions that constitute a government and
▪ how these groups interact with each other.
▪ Includes legislative bodies, political parties, lobbying
groups, and trade unions.
• Functions of Political Systems
• Provide protection from external threats.
• Ensure stability based on laws.
• Govern the allocation of valued resources among the members
of a society.
• Define how society’s members interact with each other.
Legal system.
• A legal system is:
•
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▪ An arrangement for interpreting and enforcing laws.
▪ The laws, regulations, and rules establish norms for
conduct.
▪ Institutions and procedures for:
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▪ ensuring order and resolving disputes, and
▪ protecting intellectual property and taxing economic
output.
• The Rule of Law
• Existence of a legal system where rules are clear, publicly
disclosed, fairly enforced, and widely respected by individuals,
