The Political Environment of International Business

Anne-Charlotte Bazoud

Gabrielle Colombier

Franziska Guehlcke

Marcus Bormann

Arnaud Katz

Contents

I. Context

II. Aims - Objectives

III. Political Environment of Business

IV. Political Environment of Business in Hong Kong

V. Conclusion

Context

• Globalisation, liberalization of the World Economy

Set up in new markets, with different politic

• Hong-Kong, English from 1842 to 1997

culture, laws, justice close from England, Very different politic from the rest of China

Aims - Objectives

• Aim :

describe the most important political factors for companies which set up overseas

+ focus on the political environment of Hong-Kong.

• Objectives:

- make a clear distinction between totalitarism and democracy, capitalism and socialism

- Demonstrate that the political environment is important in choosing the country to set up (for example war, corruption, economy opened to the other countries?)

- Analyse the political environment of Hong Kong

Elements of the political environment that a business must consider in order

to expand overseas

The Political Environment

Relatively uncontrollable factors outside the firm that influence its decision-making Legal and Political

Environment

Socio-Cultural Environment

EnvironmentEconomic

Technological Environment

Factors in government, the law and the regulatory system that affect the way an organisation operates

The Political Environment

Legal and Political Environment

SYSTEM STABILITY

POLICIES

SYSTEMIncludes the structures, processes, and activities by which a nation governs itself.

Political System

Totalitarian state Democratic state

SYSTEM

Totalitarian state

Imposed authorityLack of constitutional guaranteesRestricted participation

Companies might need to pay bribes to government The business law is vague

Democratic state

FreedomRights

Stable business environmentthanks to laws Freedom and no censorship

Doing business seems to be a risky proposition

Doing business in a democratic state seems to be safer

than in a totalitarian state

SYSTEM

Political Ideology

Capitalist system Socialist system

Capitalist System

- Private ownership of business is encouraged

Socialist System

- Public ownership of business is the norm

The political ideology affects - foreign government attitude towards profit repatriation.- foreign government attitude towards foreign direct investment

SYSTEM

Political relationships

Favorable political relationships

foster stable business environments

increase international cooperation in many areas

lead to increase business opportunities and lower risk

The World Trade Organisation can facilitate political relationships

The WTO ensures that trade flows as smoothly, predictably and freely as possible.

STABILITY

Political Stability : « A subjective governance indicator aggregated from a variety of sources and measuring perceptions of the likelihood of destabilization. » (United Nations Development Programme web site)

Political Risk

« The risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment. » (International Business environments and operations)

4 types of political risk

STABILITY

Systemic Political Risks

« When Political processes within a country do not routinely subject foreign operations to unfair treatment. » (International Business environments and operations)

Procedural Political Risks

« It’s Political actions which create frictions that interfere with people, products or funds transactions between a company or a country. » (International Business environments and operations)

STABILITY

Distributive Political Risks

« When countries revise their distribution policies to capture greater benefits from foreign companies. »

(International Business environments and operations)

Catastrophic Political Risks

« This is the Political developments that adversely affect the operations of all companies in a country. » (International Business environments and operations)

POLICIES

TAXATION

Governments use income and sales taxes which can vary from country to country.

POLICIES

• Intellectual Property

« Property that results from people’s intellectual talent and abilitie. » (International Business An integrated approach)

The problem is that laws in some countries are softer than in others

PROPERTY

• Industrial Property

« Industrial property includes patents and trademarks. »

(International Business An integrated approach)

• Copyrights

« Copyrights give creators of original works the freedom to publish or

dispose of them as they choose. » (International Business An integrated approach)

POLICIES

PRODUCT SAFETY AND LIABILITY

« Product liability holds manufacturers, sellers, and others, including individual company officers, responsible for damage, injury, or death caused by defective products. » (International Business An integrated approach)

The United States has the toughest product liability laws in the

world following by Europe.

Enforcement of product liability laws differs from nation to nation.

Hong Kong Facts

• British crown colony became Chinese territory in 1997

• China is a Communist nation that values stability over individual freedoms

• Hong Kong is a Special Administrative Region

• Population: 6,980,412 (July 2007 est.)

Hong Kong Political Environment

• Capitalist System or Socialist System• China has signed the "one country, two systems"

formula

• 50 years contract until 2047

• Relatively high political stability

Hong Kong Political Environment

• Totalitarian state or Democratic state• Limited democracy

• The legal system based on the English common law

• Basic Law which approved in 1990– “Mini-Constitution"

Conclusion

• The political environment has an important impact on the business

• There is a large field with many factors which the companies have to consider if they want to expand overseas

• Political environment is not stable and can change quickly

• The political environment creates advantages and disadvantages

Sources

• http://www.pearsoncourses.com/

• http://www.nytimes.com/specials/hongkong/

• https://www.cia.gov/library/publications/the-world-factbook/geos/hk.html

• International business, environments and operations, Daniels, Radebaugh, Sullivan

• International business : an integrated approach, John J. WILD, Kenneth L. WILD, Jerry C.Y. HAN