CHAPTER 3

Chapter 3: Political & Legal System In National Environments

1.       What is country risk?

Exposure to potential loss/adverse effect on the company operations and profitability caused by the development in a country’s political and/or legal environments.

2.       What is intellectual property?

Ideas or works created by people or firms, such as patents, trademarks, and copyrights.

3.       What is political system?

A set of formal institutions that constitute a government.

4.       What is legal system?

A system for interpreting and enforcing laws.

5.       What are the types of political system?

I)                    Totalitarianism

-          The state attempts to regulate most aspects of public and private behavior

-          Seek control not only all economic and political matters but attitudes, values and beliefs of its citizenry

-          Either use theocratic (religion-based) or secular (non-religion based)

-          Ex: Cuba, North Korea, Several countries in Africa

(such as Eritrea, Libya, Sudan, Equatorial Guinea, Zimbabwe)

II)                  Socialism

-          Fundamental tenet is that capital and wealth should be vested in the estate and used primarily as a means of production for use rather than a profit

-          It believed that labor paid not represent the full value of their work, gov. should control the basic means of production, distribution, and commercial activity.

III)                Democracy

-          Have two key features

i)                    Private Property Rights

The ability to own property and assets and to increase one’s asset base by accumulating private wealth

ii)                   Limited Government

The gov. performs only essential functions that serve citizens.

6.       What are types of economy in the world nowadays?

i)                    Command economy- estate responsible for all

ii)                   Market economy – economic decision based on ind. & firms

iii)                 Mixed economy – combine state intervention & market mechanism

7.       What is legal system?

It provide a framework of rules & norms of conduct that mandate, limit or permit specified relationships among people and org, and provide punishment for those who violate the rules and norms.

8.       What does it mean by Rule Of Law?

The existence of a legal system where rules are clear, publicly disclosed, fairly enforced, and widely respected by individuals, organization and the government.

9.       What are types of legal systems? (CC SRM)

i)                    Common Law- tradition, past practices & legal precedent set by the nation court

ii)                   Civil Law – based on all inclusive system of laws that have been codified

iii)                 Religious Law –legal system strongly influenced by religious belief such as Quran

iv)                 Socialist Law – Based on civil law, principles of socialist emphasize state of ownership

v)                  Mixed System – variation of two/more legal systems operating together

10.   Who are the actors in political and legal systems? (GR SIC)

I)                    Government

II)                  International Organizations

III)                Regional Economic Blogs

IV)               Special Interest Group

V)                 Competing Firm

11.   What are the types of country risk produced by political system? (GE BWaT)

i)                    Gov takeover of corporate assets – confiscation or expropriation

ii)                   Embargoes and sanctions

iii)                 Boycotts against firm/nations

iv)                 War, insurrection, and revolution

v)                  Terrorism

12.   What are the types of country risk that produced by the legal system?

Host Country (MELFICC)	Home Country (ATATE)
i)     Marketing & distributions laws ii)    Environmental laws iii)  Laws regarding income repatriation iv)  Foreign Investment Laws v)   Internet  e-commerce regulations vi)  Controls on operating forms and practices vii)Contract laws	i)      Anti boycotts regulations ii)    The Foreign Corrupt Practice (FCPA) iii)   Accounting and reporting laws iv)  Transparency in financial reporting v)    Ethical values & practices

13.   What are the ways to managing country risk? (PPASS)

i)                    Proactive environment scanning

ii)                   Strict adherence to ethical standards

iii)                 Allying with qualified local partners

iv)                 Protection through legal contracts

v)                  Safeguarding intellectual property rights