Political and Legal Change
Common Law is based on tradition, past practices, and legal precedents set by courts; it is highly flexible as judges interpret the law based on specific case circumstances.
Civil Law (or Code Law) relies on a comprehensive set of written rules and statutes; it is less flexible than common law because the judge's role is to apply the code rather than interpret it.
Theocratic Law is based on religious teachings and divine revelation, where legal authority is derived from religious leaders and sacred texts.
Bureaucratic Law is found in authoritarian regimes where the law is whatever the bureaucrats say it is, often leading to unpredictable and inconsistent enforcement.
| Action | Compensation | Description |
|---|---|---|
| Confiscation | None | The forced transfer of assets from a company to the government without any reimbursement. |
| Expropriation | Partial/Fair | The seizure of assets where the government provides some form of compensation, though often below market value. |
| Domestication | Varies | A process where the government requires a company to transfer ownership and management to local citizens over time. |
Risk Assessment: Organizations use qualitative (expert opinion) and quantitative (econometric models) methods to forecast political stability and legal shifts.
Integrative Strategies: These involve becoming part of the local environment through joint ventures, local sourcing, and hiring local management to reduce the 'foreignness' of the firm.
Protective Strategies: These aim to keep the firm independent by maintaining control over technology, global distribution, or financial resources, making the firm too costly to seize.
Political Risk Insurance: Firms can purchase coverage from private insurers or government agencies (like OPIC in the US) to protect against losses from expropriation or currency inconvertibility.
Identify the Risk Type: When presented with a scenario, first determine if the change affects who owns the asset (Ownership), how it runs (Operating), or moving money (Transfer).
Legal System Logic: Remember that Common Law is 'bottom-up' (precedent-based) while Civil Law is 'top-down' (statute-based). This distinction often dictates how contracts are written.
Check for Compensation: The presence or absence of payment is the primary differentiator between confiscation and expropriation in multiple-choice questions.
Sanity Check: Always evaluate if a legal change is 'discriminatory' (targeting one firm) or 'non-discriminatory' (applying to all), as this affects legal recourse options.