ANALYSIS OF POLITICAL, ECONOMIC AND LEGAL SYSTEMS

OVERVIEW

 Introduction

 Political Economy

 Political Systems

 Economic Systems

 Legal Systems
  International business is much more complex and dynamic than
domestic business

 Countries differs in many ways from one another

 Economic development,
 Education and skill level,
Introduction  Resources and knowledge
 Cultural practices
 Politics and political orientations,
 Laws and rules and regulations.

 These effect the international business

 Benefits and cost;
 Risks associated with doing business in different countries;
 The way in which operations in different countries should
be managed;
 The strategy international firms should pursue in different
countries.
Introduction

Political Economy
Political
System

Political
Economy

Economic
Legal System
System
  Political Economy-
Refers to country’s

1. Economic,
2. Legal and
3. Political systems.

 These systems are

interdependent; they
interact with and
influence each other

Political Economy  A country political

economy has major
implication for the
international business
1. Political System
 It refers to the structure
and system of government
in a country, state or
nation.

 Political system can be

assessed in terms of
degree to which they

A. Emphasize collectivism as
opposed to individualism

B. Democratic or totalitarian.
 Collectivism vs Individualism

COLLECTIVISM

 Refers to a political system that stresses the primacy

of collective goals over individual goals.

 Collectivism focused on the needs of society as a

whole and consider society more important than
individual freedoms.

 Modern forms of collectivist system exist in shape of

Socialism

 Socialists- Those who believe in public ownership of

the means of production for the common good of
society rather than an individual.

 The logic here that state is the sole owner of the

mean of production and economic phenomenon.
Collectivism vs Individualism
 Socialist view further divided into 2 systems
 Communist- believe socialism can be achieved only
through revolution and totalitarian dictatorship.
North Korea, Russia, China.

 Social Democrats- Those committed to achieving

socialism by democratic means. Norway, Sweden,
Austria, France, Germany

 Many state-owned enterprises perform poor and

failed to succeed, and many nations implement
privatization.

 The privatization drive in Pakistan and in the global

market since 1990.
 Collectivism vs Individualism
Individualism- the opposite of
collectivism

 Individual should have freedom

over their economic and political
pursuits.

 Individual freedom and self-

express

 Letting people and firms pursue

their own self interests to achieve
the best overall good for society.

 Welfare of society is best served by

letting people pursue their own
 Democratic vs. Totalitarian
 Democracy- the system in which government is select by the people,
exercised control either directly or through elected representatives.

 Totalitarianism- the form of government in which one person or

political party exercises absolute control over all spheres of human
life and opposing political parties are prohibited.

 Communist Totalitarianism -A version of collectivism favoring

that socialism can be achieved only through a totalitarian
dictatorship.

 Theocratic Totalitarianism -A political system in which political

power is monopolized by a party, group, or individual that
governs according to religious principles.

 Tribal Totalitarianism -A political system in which a party, group,

or individual that represents the interests of a particular tribe
(ethnic group) monopolizes political power.

 Right-Wing Totalitarianism -A political system in which political

power is monopolized by a party, group, or individual that
generally permits individual economic freedom but restricts
individual political freedom, including free speech.
Political Ideology Economic System Economic and Political systems are
interconnected.

Individual goals Free Economy  In countries where individual goals are

preferred Capitalism given preferences over collective goals-
market economy or free economy.
Collective goals Command
preferred. State Economy
 In countries where collective goals are
control enterprises
given presences- the state may take
control over enterprises- command
economy.
Individual goals + Mixed Economy
state control (Hybrid)
 In countries where economy system is a
mix of both- mixed economy

2. Economic System
2. Economic System

 There are three types of economic systems

 The Market Economy (Capitalism)
 The Command Economy
 The Mixed Economy

Command Mixed Market

Economy Economy Economy
2. Economic System
2. Economic System
Market Economy

 An economic system in which the interaction of

supply and demand determines the quantity in
which goods and services are produced.

 The goods and services that a country produces,

and the quantity in which they are produced is
determined by market forces (demand and
supply)

 If the demand exceed the supply the prices will

raise

 If the supply exceed the demand the prices will

fall
2. Economic System
Command Economy
 The goods and services that a country produces, and
the quantity in which they are produced, and the
prices at which they are sold are determined by the
government.

 Investments are made in the best interests of the

nation as a whole rather than in the interests of
private individuals.

 State owned businesses have little incentive to control

costs and be efficient because they cannot go out of
business (no competition)

 They are static with no innovation and improvement

 North Korea, Cuba, Sudan, Saudi Arab
2. Economic System
 2. Economy
Mixed Economic System

 It consist elements of Market economy and

Command economy.

 Certain sectors of the economy are left to private

ownership and free market mechanisms, while
other sectors have significant state ownership and
government planning.

 Governments take over the ownership of troubled

firms considered vital to national interest. (Pakistan,
India, UK, USA, France etc.)

Example- 2018 Rs17bn bailout package for PIA

2008 the U.S. government took an 80% stake
in AIG to stop that financial institution from collapsing.
PIA, Steel Mill, PTCL, Cement and Sugar industries
 3. Legal System
Legal system refers to
 the rules and regulation that devise and regulate
behaviors, and the mechanism through which we
enforced the law and redress for grievances is
obtained

 Regulate business practices.

 Define the way in which the business transactions

are to be executed

 Set down the rights and responsibilities of those

involve in business

 The legal environments of countries differ in

significant ways.
 Differences in legal systems can affect the
3. Legal System

 Important- political ideology and

legal system are interconnected

Types of legal System

 1.Common law,
 2.Civil law, and
 3.Theocratic law
  Common law is based on the tradition, precedent, and
custom. When law courts interpret common law, they
consider for those characteristics.

 Tradition refers to a country’s legal history, precedent

to cases that have come before the courts in the past,
and custom to the ways in which laws are applied in
specific situations.

3. Legal  Common law can be found in Britain’s former

colonies (Pakistan, India, Bangladesh etc.), and USA.
System
3. Legal System Civil Law

 A civil law system is

based on a detailed set of
laws organized into codes.

 Courts interpret civil law

with regard to these codes.

 Judges decisions in the

civil law are stick to the
code(s).

 Exp- Germany, France,

Japan, and Russia etc.
 3. Legal System
Theocratic Law
 A theocratic law system is one in which the law
is based on religious teachings.
 Islamic law (Sharia), Hindu law, Jewish law

 The foundation for Islamic law is the Quran,

the Sunnah, or Ijtihad (Ijma)

 There is no pure Sharia law (Muslim countries

have a blend of Sharia and Common law)

 Exp- Pakistan, UAE, Gulf countries, Iran, Egypt

and Malaysia etc. (Pakistan Shariat Court)

 The world finical system also incorporate

Islamic financial mode of transaction (Islamic
banking)
Political Economy’s Effect on Business

 Business Contract- short contacts in civil law

(many issues are already covered in a civil
codes), while long and expansive contracts in
common law, because of the consideration of
explanation of every aspect.
(United Nations Convention on Contracts for
the International Sale of Goods (CISG)).

 Intellectual Property Rights- (copyrights,

patents, trademarks, and trade secrets etc.)

 Corruption (Foreign Corrupt Practices Act

(FCPA)
"Al-rashi Wal-murtashi Kila-huma Finnar"
 Product safety and liability- certifications etc.