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Political system is a set of formal institution that constitute a government It includes legislative body, political parties, lobbying group, trade unions Legal system is a system for interpreting and enforcing law A legal system include institution and procedure for ensuring order and resolving dispute in commercial activities, as well as protecting IP and taxing economic output Country risk can be resulted from installation of new government, shifting value and priorities of political party, new directions or initiative of special interest group, and the creation of new law or regulation 2. Totalitarianism: state regulate most aspect of public and private behavior(economic, political matter, attitude, value, belief of citizenry) Power is maintained by mean of secret police, propaganda disseminated through state-controlled mass media, regulation of free discussion and criticism, do not tolerate activities that are not directed toward the states goal. Totalitarianism is associated with command economy Socialism: based on the collectivist ideology that collective welfare of people is believed to outweigh the welfare of individual. Government control basic mean of production, distribution and commercial activities Socialism is associated with mixed economy Democracy: Private property right: people and firm can acquire property, utilize it, buy or sell it to whoever they want. Private property right is protected by law

Limited government intervention: government perform only essential function that serve all citizen such as national defense, maintain law and order, diplomatic relation and construction of infrastructure Democracy is associated with market economy. 3. Democracy: Private property rights: The ability to own property and assets and to increase ones asset base by accumulating private wealth. Tangibles: land and buildings, and intangibles: stocks, contracts, and patent rights. Democratic governments protect property rights. These rights encourage individual initiative, ambition, and innovation Limited government intervention: government perform only essential function that serve all citizen such as national defense, maintain law and order, diplomatic relation and construction of infrastructure 4. Economic freedom: the extent of government interference in business, the strictness of the regulatory environment, and the ease with which commercial activity is carried out according to market forces (www.freedomhouse.org) The more political freedom in a nation, the more its citizens enjoy economic freedom. 5. Major types of legal system Common law: Common law (case law) originated in England and spread to Australia, Canada, the United States -British Commonwealth. The basis is tradition, past practices, and legal precedents set by the nations courts through interpretation of statutes legislation, and past rulings. Open to interpretation by courts- it is more flexible Judges have substantial power to interpret laws based on the unique circumstances of individual cases.

Civil law is found in France, Germany, Italy, Japan, Turkey, Mexico, and in Latin America. back to Roman law and the Napoleonic Code- all-inclusive system of laws that have been codifiedclearly written and accessible. Three separate codes: commercial, civil, and criminal. Rules and principles form the starting point- produced by a legislative body Both common law and civil law systems originated in Western Europe and represent the common values of western Europeans. Religious Law influenced by religious beliefs, ethical codes, and moral values, mandated by a supreme being. Hindu, Jewish, and Islamic law- the most widespread is Islamic law, in the Middle East, North Africa, and Indonesia. Islamic law (shariah law) -interpretations of the Quran, and the teachings of the Prophet Mohammed. Norms of behavior regarding politics, economics, banking, contracts, marriage,... Most Muslim countries maintain both religious and secular courts. Indonesia, Bangladesh, Turkey and Pakistan have secular constitutions and laws. Saudi Arabia and Iran use religious courts as authority over all aspects of jurisprudence. Socialist Law mainly in the independent states of the former Soviet Union, China, and a few states in Africa. based on civil law, with elements of socialist principles - state rights take precedence over individuals. tend to view property and IP rights more loosely. As China and Russia adopt free-market principles, their legal systems increasingly incorporate civil law

Mixed Systems variation of two or more legal systems operating together. Legal systems in Eastern Europe mix elements of civil law and socialist law. Legal systems in Lebanon, Morocco, and Tunisia share elements of civil law and Islamic law. Socialism may include elements of common law and civil law. Totalitarianism associated with religious law and socialist law. Democracy is associated with common law, civil law, mixed systems, and, occasionally, socialist law. 6. Actors in Political and Legal Systems Government : The government is the most important actor, operating at national, state, and local levels. It has the power to enact and enforce laws. influential in how firms enter host countries and how they conduct business there. Regulate IB activity through institutions, agencies, and public officials. International organization : Supranational agencies such as the World Trade Organization , United Nations and the World Bank - strong influence on IB activities by providing administrative guidance, governing frameworks, and, occasionally, financial support. Regional economic bloc : Regional trade organizations, the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN) Special interest groups -to serve the interests of particular countries, industries The Organization of Petroleum Exporting Countries (OPEC) controls global oil prices, which, in turn, affect the cost of doing business and consumer prices. (Saudi Arabia, Kuwait, Iran, Venezuela, Nigeria, and Indonesia). Other special interest groups control sugar, coffee, and iron ore.

 engage in political activity to advance specific causes, labor rights, environmental protection, Competing firms interest in opposing the entry of foreign firms into the local market and may lobby their government for protection. They often complain when foreign firms receive financial support 7. Political and legal system affects international business Government Takeover of Corporate Assets Confiscation -seizure of foreign assets without compensation. Expropriation -seizure of corporate assets with compensation. Nationalization -government takeover of an entire industry, with or without compensation. Embargoes and Sanctions to respond to offensive activities of foreign countries: Sanctions -ban on international trade, usually undertaken by a country, or a group of countries. Embargoes -official bans on exports or imports that forbid trade in specific goods with specific countries. The U.S. against Cuba, Iran, and North Korea, labeled as state sponsors of terrorism. Boycott against nation or firm- voluntary refusal to engage in commercial dealings with a nation or a company. Disneyland Paris and McDonalds targets of boycotts by French farmers -against U.S. agricultural policies and globalization. War, insurrection, and revolution- indirect effects- can be disastrous. Terrorism threat or actual use of force or violence to attain a political goal through fear, coercion, or intimidation. Foreign Investment Laws affect the type of entry strategy firms choose, their operations and performance. Controls on Operating Forms and Practices laws and regulations on how firms should conduct production, marketing, and distribution activities. Marketing and Distribution Laws determine which practices are allowed in advertising, promotion, and distribution.

 Laws regarding Income Repatriation. Limit the amount of net income or dividends that firms can remit to their home-country headquarters. Environmental laws. Preserve natural resources, combat pollution and the abuse of air, earth, and water resources, and ensure health and safety. Extraterritoriality - the application of home-country laws to persons or conduct outside of national borders to prosecute individuals or firms located abroad for some type of wrongdoing. 8. Some proactive actions that firm should take to minimize country risk when conducting cross-border business Proactive environmental Scanning Assess potential risks/threats to the firm through good sources of intelligence: Employees working in the host country, Embassy and trade association officials , Consulting firms, such as PRS Group (www.prsgroup.com) and Business Entrepreneurial Risk Intelligence (www.beri.com/).Firm then takes steps to minimize its exposure to country risks. Adherence to Ethical Standards Ethical behavior helps insulate the firm from country risks. Corporate social responsibility (CSR) -- the ethical, legal, commercial, and public expectations of stakeholders (customers, shareholders, employees, and communities) Trend- firms should behave not just to maximize their profits but in ways that benefit society. Complying with local and international laws; not discriminating in hiring or promoting; providing fair and adequate wages; ensuring health and safety in the workplace; fair system of regular and overtime work hours; avoiding child labor; providing adequate protection of the environment Allying with Qualified Local Partners Enter target markets in collaboration with a knowledgeable and reliable local partner.

 Protection through Legal Contracts A legal contract spells out the rights and obligations of each party. Firms must adhere to local standards. Three approaches for resolving contractual disputes: 1. Conciliation is the least adversarial method. Negotiation to resolve differences in a friendly manner. 2. Arbitration a neutral third party hears both sides of a case and decides in favor of one party or the other, based on an objective assessment of the facts. Saves time and expense. 3. Litigation is the most adversarial approach, one party files a lawsuit against another- it is most common in the U.S. Safeguarding IP Rights (IPRs) IP -patents, inventions, trademarks, industrial designs, and copyrights for works of literature, music, art, books, films, and TV shows. Protections by government, the WTO, the World IP Organization (WIPO) and various international treaties such as the International Convention for the Protection of Industrial Properties Right The protection of IP rightsis not guaranteed in much of the world. Laws enacted in one country are enforceable only within that country. Enforcement is a challenge. Individual country laws and practices differ widely.