2.4 The Political-Legal Environment

The political climate of a country is another critical factor for managers to consider in day-to-day business operations. The amount of government activity, the types of laws it passes, and the general political stability of a government are three components of political climate. For example, a multinational company such as General Electric will evaluate the political climate of a country before deciding to locate a plant there. Is the government stable, or might a coup disrupt the country? How restrictive are the regulations for foreign businesses, including foreign ownership of business property and taxation? Import tariffs, quotas, and export restrictions also must be taken into account.

In the United States, laws passed by Congress and the many regulatory agencies cover such areas as competition, minimum wages, environmental protection, worker safety, and copyrights and patents. For example, Congress passed the Telecommunications Act of 1996 to deregulate the telecommunications industry. As a result, competition increased, and new opportunities arose as traditional boundaries between service providers blurred. Today, the dramatic growth in mobile technology has changed the focus of telecommunications, which now faces challenges related to broadband access and speed, content streaming, and much-needed improvements in network infrastructure to address ever-increasing data transmissions.

Federal agencies play a significant role in business operations. When Pfizer wants to bring a new medication for heart disease to market, it must follow the procedures set by the Food and Drug Administration for testing and clinical trials and secure FDA approval. Before issuing stock, Pfizer must register the securities with the Securities and Exchange Commission. The Federal Trade Commission will penalize Pfizer if its advertisements promoting the drug’s benefits are misleading. These are just a few ways the political and legal environment affect business decisions.

Indigenous Business in Canada states, “Aboriginal communities and organizations often exist in a regulatory gap or overlap between federal, provincial, and municipal areas of control” (Brown et al., 2016, p.111). The book further explains that this gap is evident in various areas such as building code requirements, law enforcement, bylaws, and taxation (Brown et al., 2016, pp. 111-115). These variations in the political and legal landscape highlight the importance of conducting an external analysis before initiating business operations.

Companies that choose to engage in e-commerce must be aware of the legal environment because a lack of awareness of legal issues in e-commerce can lead to missteps as well as missed opportunities. Important legal issues for e-commerce are summarized below.

• Liability is the responsibility that a company or a person is obligated or legally responsible for. Responsibility can be distributed among the parties involved in e-commerce operations. However, the use of multiple networks and trading partners makes documenting responsibility difficult. For example, in e-commerce, it might be hard to determine what liability for errors, malfunctions, or fraudulent use of data would be, and/or who is responsible.
• The intellectual property laws, including copyright laws, protect creations of the human mind (e.g., patents, trademarks, music, images, videos, news, licenses, trade secrets).
• Taxation of sales transactions in e-commerce is regulated by the government. E-commerce companies have to collect sales taxes from the consumers for the countries or states in which they are selling their products and services.

SOURCE: “Indigenous Business in Canada Principles and Practices,” pp. 111-115, https://ebookcentral.proquest.com/lib/uoguelph/reader.action?docID=4814053, accessed July 8, 2024.