Various Political and Legal Factors That Influence the International Business. Political and Legal Influences

DRM 26 : International Business Management

1. Explain the various political and legal factors that influence the International Business.

Political and Legal Influences

The political situation.  The political relations between a firm’s country of headquarters (or other significant operations) and another one may, through no fault of the firm’s, become a major issue.  For example, oil companies which invested in Iraq or Libya became victims of these countries’ misconduct that led to bans on trade.  Similarly, American firms may be disliked in parts of Latin America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former shah.
Certain issues in the political environment are particularly significant.  Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means.  Some countries have little tradition of democracy, and thus it may be difficult to implement.  For example, even though Russia is supposed to become a democratic country, the history of dictatorships by the communists and the czars has left country of corruption and strong influence of criminal elements.
Laws across borders.  When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable.  Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application).  By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able to claim as a defense that it was forced to do so by the local government; such violations must, however, be compelled—that they are merely legal or accepted in the host country is not sufficient.
The reality of legal systems.  Some...