International Business

Chapter 5: Governmental and Legal Influences

Chapter Summaries

• The type of government present in a country has a major impact on business. There are two basic types: democratic and totalitarian.
• Governmental policies and regulations play major roles in international trade. Governments influence trade through their political policies, whether they are isolationist, conservative, or liberal. They also influence trade though their economic policies, through taxes, trade barriers, free-trade policies, or presence of political risks.
• In international business, there are several types of legal systems: 1) common law, a set of codes based on local customs, tradition, and precedent; 2) civil law, a set of codes based on broad legal principles; and 3) theocratic law, a set of laws based on religious teachings.
• Laws and regulations vary around the world, affecting areas such as product safety and consumer protection, labor laws, intellectual property laws, and licensing requirements.
• The three methods for resolving international trade disputes are: 1) litigation, a legal process used to resolve a dispute through the court system; 2) mediation, a process of intervention between conflicting parties that promotes resolution of their conflict outside the court system; and 3) arbitration, a process to resolve disputes in which each side presents its case to an independent individual, the arbitrator, who makes decisions that are binding.