Explain with examples how the political-legal environment of a country affects a global firm

Question

What will be an ideal response?

Answer 1

Nations differ greatly in their political-legal environments. In considering whether to do business in a country, a company should consider factors such as the country's attitudes toward international buying, government bureaucracy, political stability, and monetary regulations. Some nations are very receptive to foreign firms; others are less accommodating. For example, India has import quotas, currency restrictions, and other limitations that make operating there a challenge. In contrast, Singapore and Thailand court foreign investors and shower them with incentives and favorable operating conditions. Political and regulatory stability is another issue. For example, Russia is consumed by corruption and governmental red tape, which the government finds difficult to control, increasing the risk of doing business there. The country's recent geopolitical conflicts with Europe, the United States, and other countries have made doing business in Russia difficult and risky. Companies must also consider a country's monetary regulations. Sellers want to take their profits in a currency of value to them. Ideally, the buyer can pay in the seller's currency or in other world currencies. Short of this, sellers might accept a blocked currency — one whose removal from the country is restricted by the buyer's government — if they can buy other goods in that country that they need or can sell elsewhere for a needed currency. In addition to currency limits, a changing exchange rate also creates high risks for the seller. Most international trade involves cash transactions. Yet many nations have too little hard currency to pay for their purchases from other countries. They may want to pay with other items instead of cash. Barter involves the direct exchange of goods or services. For example, Venezuela regularly barters oil, which it produces in surplus quantities, for food on the international market — rice from Guyana; coffee from El Salvador; sugar, coffee, meat, and more from Nicaragua; and beans and pasta from the Dominican Republic. Venezuela has even struck a deal to supply oil to Cuba in exchange for Cuban doctors and medical care for Venezuelans.