Chapter 02 – The Political, Legal, and Technological Environment
Foreign Corrupt Practices Act (FCPA)―An act that makes it illegal to influence foreign officials
through personal payment or political contributions; became U.S. law in 1977 because of
concerns over bribes in the international business arena
Individualism―The political philosophy that people should be free to pursue economic and
political endeavors without constraint
Islamic law―Law that is derived from interpretation of the Qur’an and the teachings of the
Prophet Muhammad and is found in most Islamic countries
Nationality principle―A jurisdictional principle of international law which holds that every
country has jurisdiction over its citizens no matter where they are located
Principle of sovereignty―An international principle of law which holds that governments have
the right to rule themselves as they see fit
Protective principle―A jurisdictional principle of international law which holds that every
country has jurisdiction over behavior that adversely affects its national security, even if the
conduct occurred outside that country
Socialism―A moderate form of collectivism in which there is government ownership of
institutions, and profit is not the ultimate goal
Socialist law―Law that comes from the Marxist socialist system and continues to influence
regulations in countries formerly associated with the Soviet Union as well as China
Territoriality principle―A jurisdictional principle of international law which holds that every
nation has the right of jurisdiction within its legal territory
Totalitarianism―A political system in which there is only one representative party which
exhibits control over every facet of political and human life
Review and Discussion Questions
1. In what way do different ideologies and political systems influence the environment
in which MNCs operate? Would these challenges be less for those operating
in the
EU than for those in Russia or China? Why, or why not?
Answer: The international political climate on the whole is improving. Former
communist nations are seeing the benefits of free market systems. While this
presents obvious opportunities in new markets for MNCs, the risks of doing
2. How do the following legal principles impact on MNC operations: the principle of
sovereignty, the nationality principle, the territoriality principle, the protective
principle, and the principle of comity?
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Chapter 02 – The Political, Legal, and Technological Environment
Answer: The legal environment in the international marketplace can be quite
complex. This is due to law developing from individual countries, treaties, and
The principle of sovereignty holds that governments have the right to rule
themselves as they see fit. Therefore, MNCs must understand the laws of other
countries when operating there and abide by them. In the United States, for
example, we have many safety rules and regulations governing the workplace. A
Japanese-owned company opening a production operation in the U.S. must follow
U.S. law. Should violations occur, the territoriality principle allows the dispute to
be handled in the U.S. court system, regardless of where the MNC’s headquarters is
located.
However, the nationality principle holds that every country has jurisdiction over its
The doctrine of comity 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. This common-sense principle will foster better relations
between MNCs doing business in foreign countries.
3. How will advances in technology and telecommunications affect developing
countries? Give some specific examples.
Answer: Technological advancements are connecting the world at a lightning speed
while increasing quality of products, information gathering, and R&D. The world
4. Why are developing countries interested in privatizing their state-owned industries?
What opportunities does this privatization have for telecommunication MNCs?
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Chapter 02 – The Political, Legal, and Technological Environment
Answer: Many developing countries are recognizing the benefits of advanced
communication technology. For example, using cellular phones in many
Internet Exercise: Hitachi Goes Worldwide
Suggestions for Using the Exercise
1. This exercise provides an excellent opportunity to conduct an “in-depth” analysis of
the business activities of one international firm―Hitachi. As an exercise in using
the Internet, ask your students to find at least five additional sites that provide
information on Hitachi.
2. As suggested in the exercise, after doing their research, ask students to write a brief
assessment of Hitachi’s operations in Asia (specifically Hong Kong and Singapore),
North America, or Europe.
In the International Spotlight: Vietnam
Questions & Suggested Answers
1. In what way does the political environment in Vietnam pose both an opportunity
and a threat for American MNCs seeking to do business there?
Answer: The political environment poses an opportunity for American firms
because the government is now working hard to attract U.S. investment. American
2. Why are U.S. multinationals so interested in going into Vietnam? How much
potential does the country offer? How might Vietnam compare to China as a place
to do business?
Answer: Vietnam has a population of 90 million. This makes it an attractive market
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Chapter 02 – The Political, Legal, and Technological Environment
standard of living of its people as well as provide the basis for developing an export
economy that can help the country grow and pay for its international purchases.
these changes are creating a more stable and predictable environment for
companies.
3. Will there be any opportunities in Vietnam for high-tech American firms? Why or
why not?
Answer: There certainly would be opportunities in Vietnam for high-tech American
firms. Telecommunications is a good example. Firms that can offer cellular
telephone technology will find Vietnam to be an excellent, still largely untapped
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Chapter 02 – The Political, Legal, and Technological Environment
A Closer Look: Comparing European Union (EU) and U.S. Financial
Reform
Summary
1. The G20 wants to end the belief that banks are “too big to fail” by requiring
resolution mechanisms and “living wills” for speedy windups that don’t destabilize
markets.
U.S. Senate set up an “orderly liquidation” process.
EU published a policy outline on resolution funds so that banks pay for future
bailouts.
Winners/Losers: Banks face an extra levy on top of higher capital and liquidity
requirements. Taxpayers should be better shielded.
2. Derivatives should be standardized.
U.S. Senate: Dodd-Frank Act requires banks to spin off their swaps desk.
EU: mandatory clearing of contracts.
Winners/Losers: Global banks will shift some trading. Corporations face higher
costs.
3. Bonuses.
U.S. and EU are applying the G20 principles to curb pay and bonuses.
Winners/Losers: Harder to justify big bonuses in the future.
4. Credit Ratings Agencies.
U.S. and EU: Stricter requirements to register, report to supervisors, and show
how they manage internal conflicts of interest; increased liability.
Winners/Losers: Ratings agencies must justify what they do. There will be more
competition in the EU for the “Big Three.”
5. Hedge Funds/Private Equity.
U.S. and EU are introducing a G20 pledge to require hedge fund managers to
register and report a range of data on their positions.
Winners/Losers: It will be harder for U.S. hedge fund managers to do business
in the EU. EU: less choice, better data.
6. Banks Trading.
U.S. Senate: Volcker rule” bans risky trading rule” which would ban risky
trading unrelated.
EU: Key states disagree with the rule; as they want to preserve their universal
banking model.
Winners/Losers: Some trading could switch to the EU from the United States
inside global banks.
7. Systemic Risk.
U.S. Senate set up a council of regulators; the House wants a bigger role for the
Fed.
EU: approving a reform that will make the European Central Bank the hub of a
pan-EU systemic risk board.
Winners/Losers: ECB has an enhanced role. More oversight on banks.
8. Bank Capital Requirements.
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Chapter 02 – The Political, Legal, and Technological Environment
U.S. bill directs regulators to increase capital requirements on large financial
firms as they grow in size or engage in riskier activities.
EU is approving new rules on requirements to discourage risky behavior.
Winners/Losers: Squeeze on return on equity for banks, more tools for
regulators, higher costs for investors, timing issues.
9. Fixing Securitization.
U.S. Senate: Baseline 5 percent of credit risk on securitized assets.
EU already approved a similar bill.
Winners/Losers: Banks believe 5% is not enough and key problem is investor
confidence.
10. Source: “Factbox: Comparing EU and U.S. Financial Reform,” Reuters, May 19,
2010. Additional research by authors.
International Management in Action: The United States Goes to the
Mat
Summary
1. The trade relationship between the United States and China is unbalanced, with the
U.S. deficit with China reaching $319 billion in 2012. Many blame China with its
undervalued yuan and government subsidies and regulations that favor Chinese
MNCs. One U.S. strategy to level the playing field is to threaten to impose tariffs
and then to focus on specific industries.
In 2006, the United States and China announced a “strategic economic dialogue” to
provide an overarching framework for bilateral economic dialogue and future
economic relations. Issues include exchange rates, intellectual property rights, and
market access. The future of U.S. claims and disagreements between the countries
is uncertain. The EU and the United States would like to break down trade walls
and be a part of the lucrative Chinese market, but they may need the added support
of the WTO for effective negotiations.
2. Articles on this issue are multiple. See, for example:
{http://www.forbes.com}, {http://www.usa.chinalaily.com},
{http://www.cnbc.com}, as well as {http://www.china-embassy.org} and
{http://www.census.gov/foreign-trade/balance/c5700.html}.
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