Impact of Political & Legal Differences on International Retailing

Instructor: Scott Tuning

Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.

International businesses will always be impacted, sometimes significantly, by political and legal changes in the regions where they conduct business. This lesson explores some of those impacts.

How Regional Politics Influence International Retailing

Chinese President Xi Jinping is widely considered to be China's most charismatic leader since Chairman Mao. Jinping has brought about something of a bloodless revolution by purging many in China's Communist Party leadership circle, and by fighting corruption with an enthusiasm not seen in recent history. At present, it's likely that Jinping will not be subject to the term limits specified in the Chinese Constitution. As a result, he may hold power indefinitely.

President Jinping's reforms are an excellent example of how the political and legal environment of a country can be a game-changer for international retailers and other global businesses. With his hatred of corruption, President Jinping can forever alter the dynamic in which illegal bribes influence government leaders in his country. By purging the Communist Party's top leaders, Jinping is setting the stage to install his own picks for those powerful leadership roles. For a retailer doing business in China, a decrease in corruption and a shakeup of leaders who set political policy can change a business plan overnight

Legal Changes

As these changes unfold, an international retailer doing business in China would have several aspects of the changes to consider. The first, and perhaps most obvious, is an analysis of how the business environment will change if anti-corruption laws start to be aggressively enforced. In many countries, corruption, like bribes or 'quid pro quo' arrangements, are simply part of doing business.

Although they may not like it, international businesses paying bribes have often benefited from them and count on them for a degree of stability. If corruption is replaced by the rule of law, an international retailer who had come to rely on the stability provided through corruption should consider whether they will either face new regulations or the enforcement of existing regulations that had previously been ignored.

International retailers will be impacted when an international business region reduces or increase the presence of corruption.

Political Changes

Robert Mugabe and Xi Jinping both exerted profound influence the business environment in their respective countries. Mugabe, the former leader in Zimbabwe, could be counted on to influence politics and business in whatever way would personally benefit him the most. Xi Jinping, on the other hand, will be making political decisions of great interest to international business as he appoints new leaders in the country's Communist Party. The policy positions of the individuals appointed by the Chinese president may alter the business environment in China for decades to come. For retailers doing business in international markets, knowing the political positions of the country's leadership is essential to proper planning.

An international business environment can change when political leaders appoint officials, like judges, with differing political views.

Inconsistent Legal Environments

In 2013, a garment factory in Bangladesh experienced a structural collapse that killed hundreds and injured thousands. During the investigation, authorities discovered that the building had numerous code violations and structural deficiencies, and had been built with blatant disregard for the engineering limits of the structure. After the disaster, the government brought criminal charges against various individuals involved in the situation.

This example highlights the differences that can occur when laws, or the enforcement of laws, are widely varied from region to region. A structural collapse of this nature would be almost unheard of in the United States and other developed countries because buildings are regularly inspected, code violators are cited, and regulators are vested with the legal power to conduct emergency closures of buildings deemed to be in imminent threat.

Although building codes existed in Bangladesh, the collapse indicated just how loosely those regulations were being enforced. Sadly, this factory collapse was only one of many occurrences over the last decade in which dozens or hundreds were killed secondary to ineffective or absent code enforcement.

Although a building like this may have very similar building codes to those in the United States, the lack of enforcement means an international retailer may not truly be subject to similar standards.

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