The Political and Legal Environments Facing Business

To be successful, managers must learn to deal with public institutions (such as the government, government agencies, and government-owned businesses) a nd nonpublic institutions (such as environmental and other special interest grou ps) in addition to market forces. The political process involves inputs from various interest groups, art iculation of issues that affect policy formulation, aggregation of those issues into key alternatives, development of policies, and implementation and adjudicati on of the policies. Most complex societies are pluralistic; that is, they encompass a varie ty of ideologies. The ultimate test of any political system is its ability to hold a soci ety together despite pressures from different ideologies. In democracies, there is wide participation in the decision-making proc ess; in totalitarian regimes, only a relative few may participate, although some are be ginning to allow greater participation in the decision-making process. To talitarian regimes can be either secular or theocratic. Factors considered in measuring freedom include the degree to which fai r and competitive elections occur, the extent to which individual and group free doms are guaranteed, and the existence of freedom of the press. Managers of MNEs must learn to cope with varying degrees of governmenta l intervention in economic decisions, depending on the countries in which a comp any is doing business. As governments become more democratic, they influence their citizens an d institutions by protecting liberty, promoting the common welfare of citizens, p roviding for public goods, handling market defects, and dealing with spillover e ffects and externalities. The political impact on international business activities is relatively complex because the domestic political process is subject to various influences and managers must deal with different political processes in different countries . In formulating political strategies, managers must consider the possibl e political actions that could affect the company, the different constituencies that might influence those political actions, the political strategies that woul d be in the best interests of the company, and the costs of implementing those s trategies. Common law systems are based on tradition, precedent, and custom and us age. Civil law systems are based on a detailed set of laws organized into a code . Theocratic legal systems are based on religious precepts, as exemplified by Is lamic law. Many law firms have increased their size in order to better service cor porate clients in domestic and international mergers and acquisitions. There are national laws that govern local business activity of both dom estic and foreign firms, national laws that govern cross-border activities, and international laws that govern cross-border activities.

The legal environment can influence international companies in various ways, for example, by regulating trade and investment and protecting intellectua l property. Although there is legal justification for some ethical behavior, the la w is not an adequate guide for all such behavior. The legality of an action is o ne element that should be considered, but not the only one.