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How Political And Legal Systems Affect

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Political and legal systems play a major role in the International businesses for the companies that source, produce, market and export products in foreign countries. They pose a big challenge to the companies and the companies need to overcome the factors to become successful in the international stage. We will see the various political and legal environments available and how they would affect the international business. Political Systems

The political system is essentially the government, rules, norms and the political factors that run the country. The political systems play a major role in the business decisions of the firms. The different political systems that are present in the world today include 1. Individualism or Anarchism: In this system, individuals control the political activities and public government is rendered as unimportant and do not play any role in any of the activities including the international trade and business. The government may intervene some times to deal with the market defects but otherwise will not affect international business in any other way. Risk associated:

The government is powerless and hence the international trade cannot be monitored or regularized. This will increase competition and also there will be no trade laws. 2. Democracy: This is the system where people elect the government and thus indirectly participate in the decision making process. This is the most common form of the government and is present in more than half the countries of the world. Most businesses prefer the democratic government to do their business as the political system is most stable in such countries. The companies need to take care of the change in the leadership during elections which might affect the policies of international trade and businesses. Also, the companies should decide the duration of their businesses in those countries and assess the political risk and stability. Generally, this political stability is the one that attracts the foreign investment and international businesses. Unlike individualism, some businesses like Oil and natural gas etc. have to be routed and governed by the government. Risk Associated:

The government changes after every election and the change in government might change the policies of International business. This is a huge risk for the companies 3. Totalitarianism:This is the system where the government holds the complete power in all the decision making process. It is completely the opposite of Anarchism and in this; the government dictates the trade policies and all the factors of the international trade. The power is concentrated at the hands of few people and thus, very unsuitable for international trade and business. Risk Associated:

This is the highest risk for International business as the power is in the hands of individuals and they will dominate the decision making process which is a huge risk Political Risk: Apart from the type of the government, political risk plays a major role in the international trade. It reflects how much the political climate changes in the country. If it changes frequently, it is risky for the companies to establish international businesses in that country. Legal Systems

Apart from the political systems, legal systems also play a major role in the international trade. The laws of the country affect both the day to day operations and the long term sustainability of the business in that country. The main laws in any country are 1) Common Law which includes the tradition of the country and is based on the collective wisdom of the judges. Risk Associated:

Since the law is not written, it should be studied properly to ensure what aspects of international trade are legal. 2) Civil Law which is the most common form of law which is based on the detailed listing of what is permissible and what is not. Risk Associated:

This is comparatively the safest law as the rules will be pre decided but care should be ensured that what aspects are legal in what country. 3) Theoretical Law or Religious Law which is based on the religious precepts like the Islamic law. Risk Associated:

Some goods cannot be traded in some countries because of the religious law and they should be studied by the companies Legal Factors that affect International Business
1. Intellectual Property Laws: The intellectual property laws like patents, trademarks and copyrights vary from country to country and might pose a serious threat to international business if not studied and followed properly. 2. Taxation and Other laws: The tax and custom laws are different for various countries and the firms willing to participate in the international trade and business should consider them as well. 3. Product Safety and Legality: Not all products and the products of all qualities can be sold in all the countries. So, care should be taken to know about the legal aspects of the products and the quality standards in each county. Conclusion

The political and the legal factors affect and play a major role in the success or failure of International business. It should be noted that complete study of the political and legal factors is essential for the success of the company dealing with international trade and businesses. All the potential risks and the benefits should be analyzed and then implemented.


1) Bergen Community College (2005, March 3). How Political, Legal, Economic and Technological Systems Affect International Business. Retrieved April 30, 2013, from http://www.bergen.edu/faculty/rangiello/global3.html 2) ConneXions, & Dr. Donald J. McCubbrey (2010, October 6). Political and legal risk in international business. Retrieved April 30, 2013, from http://cnx.org/content/m35597/latest/?collection=col11227/latest 3) FAO (n.d.). Chapter 4: The Legal, PoliticalTrade Environment. Retrieved April 30, 2013, from http://www.fao.org/docrep/W5973E/w5973e08.htm

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