Wednesday, May 18, 2011

Discuss the impact of politico-legal environment on business organizations.

Discuss the impact of politico-legal environment on business organizations. Illustrate your arguments with reference to your organization or any organization you are familiar with (Name and describe the organization).

Ans :
The political and administrative system in a country dictates policies formulation its implementation and control of business. Whenever there is a change in the political scenario of a country, there will be a change in economic policies. This is due to the fact that each and every political party does some promises with the people in their election manifesto. Business activities of a country are affected by the policies and directions, shelters and control exercised by the prevailing political system. In this regard, John Kenneth Gaibraith has rightly commented, “no country with a stable and honest Government that does not have or has not had a reasonably satisfactory state of economic progress.” He further argues that “In all these countries, the early emf is was not on capital investment but on political and then on cultural development.” The democratic political system like India under democratic set up comprises three major institutions, viz., legislature, executive I Government and judiciary. Legislature is the most powerful institution having powers as policy making, law-making, budgeting, executive control and acting a mirror of public opinion. Executive or Government is the authority who implements the dec of legislature. The third political institution judiciary determines the manner in which the work of the ext cutive has been fulfilled. It settles also the relationship between private citizens, on the one hand, and between citizens and the government upon the other, where these give rise to problems which do not admit of solution by government. The powers of the judiciary are of two types:

(I) the authority of the courts to settle legal disputes; and
(ii) Judicial review — the authority of the courts to rule on the constitutionality of

Therefore, it is necessary for a business to acquaint themselves with all the above three institutions It is also necessary for a business to make changes according to changes of political situations. The following points are necessary to be looked into by the business:

(1) Political administration such as democracy and totalitarianism

Changes in Environment

The legal environment refers to the principles, rules and regulations established by the government and applicable to people. These regulations come through various legislations. The government has passed and enacted various Acts. Now due to globalisation of economy, it became necessary to make changes in these Acts. For details of this section, see the chapter of Business and Government. Gary Hamel and C.K. Parallax have rightly observed the changing environment of the business Substantial challenges face any organization intent on getting to the future first. The first challenge, how to navigate from here to there arises as both public and private institutions struggle to plot a course through an increasingly inconsistent environment where experience is rapidly devalued and familiar landmarks no longer serve as guideposts. Never before has the institutional terrain been changing so quickly or have industry boundaries so malleable. Never before have competitors, partners, suppliers and been so indistinguishable. How, then, does one get to the future first even when there is
no map.

Organization Burger King Corporation

B urger King Corporation, owned by U.K.-based Diageo, operates in almost 60 countries and territories. Its independent franchise in Israel has been successful from the outset, operat ing 46 restaurants by 1999. In that year, Burger King opened a new restaurant in Ma’aleh Adumim, a sub urb that extends beyond the “green line” demarcat ing the 1967 border between Israel and the West Bank, which is now part of Jerusalem under Israeli sovereignty. The Ma’aleh Adumim branch drew both Jewish and Arab customers seeking brand-name fast food. How-ever, soon after its opening, the com-1, pany argued that it was unaware the restaurant was located outside Israel’s 1967 borders and informed the frank chide holder that their agreement covered only pre-1967 Israel—which the Israeli frank cheese disputed—and that its authority to operate the branch was being revoked. The decision
was prompted by Arab political pressure (the company has restaurants in Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and the United Arab Emirates), as well as by pressure from Moslem groups in Asia, Europe, and the United States, who threatened a boycott of the company. Israelis and American Jewish groups decried the company’s bow ing to Arab pressure and called for a worldwide boy cost on their part. In the meantime, the restaurant remained open pending the outcome of interna tional arbitratior to which Burger King and its fran chisee agreed to submit. The prolonged delay prompted U.S. Moslem groups to renew the boycott threat.
The political-legal environment provides a critical context for the MNE at home and abroad. As the Burger King case illustrates, political constraints and political risk are part and parcel of conducting business across national boundaries. Facing mul tiple national constituencies, it is often difficult to meet the demands of one con stituency without aggravating another. The MNE must not only respond to pres sures exerted by those constituencies, but also be proactive in identifying and responding to their concerns.

If the political environment identifies key constituencies, the legal environment sets the “rules of the game” as well as the range within which legitimate business activity is conducted. Since, at least in democratic systems, laws are enacted by elected legislative bodies, political processes both determine legal issues and are guided by them. Under U.S. law, boycotting Israel altogether would not be an op tion for Burger King despite its ownership by a British conglomerate. The company and the franchisee eventually agreed to binding arbitration to determine whether their agreement allowed for the opening of branches outside the green line. The ar bitration is to be conducted in the United States, as is customarily the case in in ternatiĆ“nal franchise agreements.

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