What Is the Political Legal Environment of International Business

Let`s briefly discuss how the political and economic ideologies that define countries affect their legal systems. Essentially, there are three main types of legal systems – customary law, civil law, and religious or theocratic law. Most countries actually have a combination of these systems, creating hybrid legal systems. The most direct effects on business can be seen in Islamic law – which is a moral rather than a commercial legal system. Sharia has clear guidelines for aspects of life. For example, in Islamic law, the economy is directly affected by the concept of interest. Under Islamic law, banks cannot charge or profit from interest. This provision has given rise to a whole range of financial products and strategies to simulate an interest – or profit – for an Islamic bank, when they are not technically classified as interest. Some banks charge a high upfront fee. Many are allowed to sell, buy back or lease an asset. For example, if a company wanted to borrow money from an Islamic bank, it would sell its assets or products to the bank at a fixed price.

At the same time, an agreement would be signed for the bank to resell the assets to the company at a later date and at a higher price. The difference between the sale price and the redemption price acts as interest. In the Persian Gulf region alone, there are twenty-two Shariah-compliant Islamic banks that had assets of about $300 billion in 2024. Tala Malik, “Gulf Islamic Bank Assets to Hit $300bn,” Arabian Business, February 20, 2024, accessed December 21, 2024, www.arabianbusiness.com/511804-gulf-islamic-banks-assets-to-hit-300bn. It is clear that many global companies and investment banks are finding creative ways to do business with these Islamic banks so that they can comply with Islamic law while making a profit. While any country can theoretically pose a risk in all of these factors, some countries offer a more stable trading environment than others. In fact, political stability is an essential part of the government`s efforts to attract foreign investment to its country. Companies need to assess whether a country believes in free markets, government control, or heavy interference (often for the benefit of a few) in the industry.

The country`s vision of capitalism is also a factor in the vision of companies. In the broadest sense, capitalismAn economic system in which the means of production are owned and controlled by individuals. is an economic system in which the means of production are owned and under private control. In contrast, a planned economy is an economic system in which the government or state controls and controls the economy, including the means and decision-making for production. is one in which the government or state directs and controls the economy, including the means and decision-making for production. Historically, democratic governments have supported capitalism, and authoritarian regimes have tended to take a state-controlled approach to managing the economy. The study of political systems is vast and complex. A political systemThe system of politics and government in a country; It regulates a comprehensive set of rules, regulations, institutions and attitudes. is essentially the system of politics and government in a country. It regulates a comprehensive set of rules, regulations, institutions and attitudes. A major distinguishing feature of political systems is the philosophy of each system on the rights of the individual and the group, as well as the role of government. The philosophy of any political system affects the policies that govern the local economy and the business environment.

Rules and regulations could be directly enforced by the government based on their political and legal philosophies. With the advancement of existing technology, sellers and buyers have an easier time doing their own business. However, countries still have the ability to regulate or strongly induce companies to comply with their rules and regulations. As a result, the political and legal climate in the countries in which they currently operate or hope to operate in the future is monitored and assessed by their global activities. China is one of the most visible examples, with its strong government and limited individual rights. However, over the past two decades, China has found a new balance on the extent to which the state plans and manages the economy. While the government remains the dominant force, controlling more than a third of the economy, more and more private companies have emerged. China has managed to combine government intervention with private investment to develop a robust, market-oriented market economy – all within a communist form of government. In some countries, the government controls more aspects of daily life than in others.

While everyday language treats totalitarian and authoritarian as synonyms, there is a clear difference. For the purposes of this discussion, the most important relevant difference lies in ideology. Authoritarian governments centralize all control in the hands of a strong leader or a small group of leaders who have full authority. These leaders are not democratically elected and are not politically, economically or socially accountable to the people of the country. Totalitarianism, a more extreme form of authoritarianism, occurs when an authoritarian leadership is motivated by a particular ideology such as communism. In totalitarianism, ideology influences or controls the people, not just a person or a party. Authoritarian leaders tend to have no guiding philosophy and use more fear and corruption to keep control. Political Risks: Below is a short list of the types of political risks a company faces when operating internationally. It may seem obvious that companies would prefer to operate in open and democratic countries; However, it can be difficult to determine which countries meet the democratic criteria. As a result, there are a variety of institutions, including The Economist, that analyze and evaluate countries based on their openness and adherence to democratic principles.

There is no consensus on how to measure democracy, definitions of democracy are controversial, and there is a lively debate on the subject. Although the terms “freedom” and “democracy” are often used interchangeably, the two are not synonymous. Democracy can be seen as a set of practices and principles that institutionalize and thus ultimately protect freedom. Even if a consensus on precise definitions has proved elusive, most observers today would agree that the fundamental characteristics of a democracy include at least a government based on majority rule and the consent of the governed, the existence of free and fair elections, the protection of minorities and respect for fundamental human rights. Democracy presupposes equality before the law, due process of law and political pluralism. Liberty and Justice for Some,” Economist, August 22, 2024, accessed December 21, 2024, www.economist.com/node/8908438. It is common to find people who are interested in doing business with a country simply because they have read that this is the new “hot” economy. You may know little or nothing about the market or country – its history, the evolution of thinking, people, or how interactions are typically handled in a business or social context. .

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