Chapter 10 Summary

LO 10.1 National Differences in Political Systems

• Political systems can be categorized into two prominent groups: democratic and totalitarian.
• In representative democratic political systems, citizens periodically elect individuals to represent them in legislative bodies and make decisions on their behalf. Political freedom is guaranteed by a constitution.
• In the totalitarian political system, the state is run by a party, a group, or an individual. Political power is concentrated by those in power, and citizens are denied political freedom.
• Government institutions are divided into three categories: the executive, the legislature, and the judiciary. The legislature passes the law, the executive implements the law, and the judiciary interprets the law and ensures that the law is in accordance with the constitution of the country.

LO 10.2 National Differences in Legal Systems of Different Countries

• There are three main types of legal systems around the globe: Common law, Civil law, and Theocratic law.
• Differences in legal systems have an impact on contract law, an important part of business dealings between two or more parties.
• The cost of drawing a contract depends on the legal system of the country where the contract is drawn.

LO 10.3 Risks Associated with Different Political and Legal Systems

• Common types of risks associated with political and legal systems include government interference and expropriation, transfer and conversion of currency, political instability, violence and corruption and intellectual property.

LO 10.4 Strategies to Mitigate Risks of Political and Legal Systems

• Mitigation strategies that can be used to reduce the impact of political risk on an organization are due diligence, developing a relationship with the government in the target market, involving key external stakeholders, adjusting operational and financial policies, and acquiring political risk insurance.

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