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Chapter 02 - The Political, Legal, and Technological Environment
Chapter 2: The Political, Legal, and Technological
Environment
Learning Objectives and Chapter Summary
1. INTRODUCE the basic political systems that characterize regions and countries
around the world and offer brief examples of each and their implications for
international management.
The global political environment can be understood via an appreciation of
ideologies and political systems. Ideologies, including individualism and
collectivism, reflect underlying tendencies in society. Political systems, including
2. PRESENT an overview of the legal and regulatory environment in which MNCs
operate worldwide, and highlight differences in approach to different legal and
regulatory issues in different jurisdictions.
The current legal and regulatory environment is both complex and confusing.
There are many different laws and regulations to which MNCs doing business
3. REVIEW key technological developments, including the growth of e-commerce,
and discuss their impact on MNCs now and in the future.
The technological environment is changing quickly and is having a major impact on
international business. This will continue in the future. For example, digitization,
higher-speed telecommunication, and advancements in biotechnology offer
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Chapter 02 - The Political, Legal, and Technological Environment
The World of International Management: Social Media and the Pace of
Change
1. Summary:
This vignette discusses the ability of social media to influence world events. The
Arab Spring led to real reforms at a pace never before seen in Northern Africa and
the Middle East. Unlike previous revolutions, which lacked any widespread,
immediate communication tools, the Arab spring protestors were equipped with
smartphones and social media. Twitter and Facebook morphed from informal,
friendly networking sites to powerful weapons. Groups used Facebook to announce
events, garner online support, and encourage people to participate. Attempts to
block social media backfired and increased the number of protestors. In addition,
protestors became journalists to the international community, with no lag time in
broadcasting the news. As a result, governments such as the United States were
pressured to take a stand and to lend assistance.
From a business standpoint, production and GDP were negatively affected almost
overnight. One silver lining from the rapid regime changes is the potential for
equally as fast transitions to more open trade and business dealings. Managing the
political and legal environment will continue to be an important challenge for
international managers, as will the rapid changes in the technological environment
of global business.
2. Suggested Class Discussion:
1. Students should be able to discuss how social media influences the political and
business environments in countries seeking to transition into
democracies―without the blessing of the government.
2. Students should be encouraged to consider strategies to use social media to the
advantage of international markets in unstable political environments.
3. Related Internet Sites:
Google Arab Spring, Tunisia, Egypt, Yemen, Libya:
{http://www.google.cn/}
Facebook―Arab Spring: {http://www.facebook.com}
Wikipedia: {http://en.wikipedia.org/wiki/Arab_Spring}
Business Week: {www.businessweek.com}
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Chapter 02 - The Political, Legal, and Technological Environment
Chapter Outline with Lecture Notes and Teaching Tips
Ideologies
Individualism
1) Individualism – adopters of individualism adhere to the philosophy that people should be free
Socialism
1) Socialism –a moderate form of collectivism in which there is government ownership of
institutions, and profit is not the ultimate goal.
Political Environment
1) The domestic and international political environment has a major impact on MNCs. As
government policies change, MNCs must adjust their strategies and practices to
accommodate the new perspectives and actual requirements. Moreover, in a growing number
of geographic regions and countries, governments appear to be less stable; therefore, these
areas carry more risk than they have in the past.
Teaching Tip: The U.S. State Department produces a series of annual "Country Reports" to
acquaint American businesses with other countries. Each report contains nine sections: (1)
Key Economic Indicators; (2) General Policy Framework; (3) Exchange Rate Policies; (4)
Structural Policies; (5) Debt Management Policies; (6) Significant Barriers to U.S. Exports
and Investments; (7) Export Subsidies Policies; (8) Protection of U.S. Intellectual Property;
and (9) Worker Rights. The site is available at
{http://www.state.gov/www/issues/economic/trade_reports/99_toc.html}. Another source of
information in other countries is the CIA’s “The World Factbook” available at
{https://www.cia.gov/library/publications/the-world-factbook/}.
Political Systems
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Chapter 02 - The Political, Legal, and Technological Environment
suppression and opposition.
Legal and Regulatory Environment
1) There are four foundations on which laws are based around the world.
a) Islamic Law - This law is derived from interpretation of the Qur'an and the teachings of
the Prophet Mohammed. It is found in most Islamic countries in the Middle East and
and nonsocialist countries such as France, some countries in Latin America, and even
Louisiana in the United States.
Basic Principles of International Law
1) Sovereignty and Sovereign Immunity - The principle of sovereignty holds that
governments have the right to rule themselves as they see fit.
2) International Jurisdiction - International law provides for three types of jurisdictional
principles:
i) Nationality Principle
they can stay, and what business they may conduct.
6) Forum for Hearing and Settling Disputes - This is a principle of U.S. justice as it
applies to international law.
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Chapter 02 - The Political, Legal, and Technological Environment
Examples of Legal and Regulatory Issues
1) Financial Services Regulation – The global financial crisis of 2008–2010 prompted
regulators around the world to establish new regulations designed to reduce the risk of
Teaching Tip: The U.S. Department of Justice maintains an updated website on the
Foreign Corrupt Practices Act, including a “lay person’s” simplified interpretation of the
Act. The website is {http://www.usdoj.gov/criminal/fraud/fcpa/}.
3) Bureaucratization - Very restrictive foreign bureaucracies are one of the biggest
problems facing MNCs. Table 2-1 in the text ranks the overall ease of doing business in
Regulation of Trade and Investment
1) The regulation of international trade and investment is another area in which individual
countries use their legal and regulatory policies to affect the international management
environment. The rapid increase in trade and investment has raised concerns among
countries that others are not engaging in fair trade, based on the fundamental principles of
international trade as specified in the WTO and other trade and investment agreements.
Technological Environment and Global Shifts in Production
1) Technological advancements not only connect the world at lightning speed but also aid in the
increased quality of products, information gathering, and R&D.
Trends in Technology, Communication, and Innovation
1) The innovation of the microprocessor is the foundation for most technological and
computing advances in the world today.
underwater cables that powers the network.
Biotechnology
1) Biotechnology is the integration of science and technology to create agricultural or
medical products through industrial use and manipulation of living organisms.
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Chapter 02 - The Political, Legal, and Technological Environment
E-Business
1) As the Internet becomes increasingly common, it is having a dramatic effect on
international commerce. Internet penetration rates for major world regions are shown in
Table 2-2 in the text.
Teaching Tip: An interesting website to show your students is the Internet Traffic Report
{http://www.internettrafficreport.com/}. This site monitors the flow of Internet traffic
around the world. It then displays a value between zero and 100 for different regions of
the world. Higher values indicate faster and more reliable connections.
Telecommunications
in attracting telecommunications firms.
Technological Advancements, Outsourcing, and Offshoring
1) As MNCs use advanced technology to help them communicate, produce, and deliver their
goods and services internationally, they face a new challenge: how technology will affect
the nature and number of their employees.
2) In the future technology has the potential to displace employees in all industries, from
low-skill jobs to knowledge work.
3) The new technological environment has both positive and negatives for MNSs and
societies as a whole.
The World of International Management - Revisited
Questions & Suggested Answers
1. How will changes in the political and legal environment in the Middle East and
North Africa affect U.S. MNCs conducting business there?
Answer: Political uncertainty and instability is a challenge. MNCs need to assess
the political risk and strategies to cope with the situations. The Arab Spring has
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2. How might evolving political interests and legal systems affect future investment in
the region?
Answer: With changing political and legal systems, the environment for investment
3. How does technology result in greater integration and dependencies among
economies, political systems, and financial markets, but also greater fragility?
Answer: These changes have been manifested in terms of increased e-commerce
and telecommunications, as well as their implications in terms of outsourcing,
technology. Jobs and investments have been dislocated in many developed
countries. Political and economic crises in one region now have further reach and
stronger ramifications on the rest of the world.
Key Terms
Act of state doctrine―A jurisdictional principle of international law which holds that all acts of
other governments are considered to be valid by U.S. courts, even if such acts are illegal or
inappropriate under U.S. law
Biotechnology―The integration of science and technology to create agricultural or medical
products through industrial use and manipulation of living organisms
Civil or code law―Law that is derived from Roman law and is found in the non-Islamic and
nonsocialist countries
Collectivism―The political philosophy that views the needs or goals of society as a whole as
more important than individual desires
Common law―Law that derives from English law and is the foundation of legislation in the
United States, Canada, and England, among other nations
Democracy―A political system in which the government is controlled by the citizens either
directly or through elections
Doctrine of comity―A jurisdictional principle of international law which holds that there must
be mutual respect for the laws, institutions, and governments of other countries in the matter of
jurisdiction over their own citizens
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