Chap002.ppt waqas asghar ali published s

uoilk iw

1. International Business
8e
By Charles W.L. Hill

2. Chapter 2
National Differences
in Political Economy
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

3. 2-3
What Is A Political Economy?
Thepoliticaleconomyofanationrefersto
howthepolitical,economic,andlegal
systemsofacountryareinterdependent
theyinteractandinfluenceeachother
theyaffectthelevelofeconomicwell-beingin
thenation

4. 2-4
What Is A Political System?
Politicalsystemreferstothesystemof
governmentinanation
Assessedaccordingto
thedegreetowhichthecountryemphasizes
collectivismasopposedtoindividualism
thedegreetowhichthecountryisdemocratic
ortotalitarian

5. 2-5
What Is Collectivism?
Collectivismstressestheprimacyof
collectivegoalsoverindividualgoals
canbetracedtotheGreekphilosopher,Plato
(427-347BC)
Today,collectivismisequatedwith
socialists(KarlMarx1818-1883)
advocatestateownershipofthebasicmeansof
production,distribution,andexchange
managetobenefitsocietyasawhole,rather
thanindividualcapitalists

6. 2-6
How Does Modern-Day
Socialism Look?
Intheearly20
th
century,socialismsplitinto
1.Communism–socialismcanonlybeachieved
throughviolentrevolutionandtotalitarian
dictatorship
inretreatworldwidebymid-1990s
2.Socialdemocrats–socialismisachieved
throughdemocraticmeans
retreatingasmanycountriesmovetowardfree
marketeconomies
state-ownedenterpriseshavebeenprivatized

7. 2-7
What Is Individualism?
Individualism-referstophilosophythatan
individualshouldhavefreedominhisown
economicandpoliticalpursuits
canbetracedtoGreekphilosopher,Aristotle(384-322
BC),whoarguedthatindividualdiversityandprivate
ownershiparedesirable
individualeconomicandpoliticalfreedomsarethe
groundrulesonwhichasocietyshouldbebased
impliesdemocraticpoliticalsystemsandfreemarket
economies

8. 2-8
What Is Democracy?
Democracyreferstoapoliticalsysteminwhich
governmentisbythepeople,exercisedeither
directlyorthroughelectedrepresentatives
usuallyassociatedwithindividualism
puredemocracyisbasedonthebeliefthatcitizens
shouldbedirectlyinvolvedindecisionmaking
most modern democraticstatespractice
representativedemocracywherecitizensperiodically
electindividualstorepresentthem

9. 2-9
What Is Totalitarianism?
Totalitarianismisaformofgovernmentinwhichone
personorpoliticalpartyexercisesabsolutecontrolover
allspheresofhumanlifeandprohibitsopposingpolitical
parties
1.Communisttotalitarianism–foundinstateswherethe
communistpartymonopolizespower
2.Theocratictotalitarianism-foundinstateswherepolitical
powerismonopolizedbyaparty,group,orindividualthat
governsaccordingtoreligiousprinciples
3.Tribaltotalitarianism-foundinstateswhereapoliticalparty
thatrepresentstheinterestsofaparticulartribemonopolizes
power
4.Right-wingtotalitarianism-permitssomeindividualeconomic
freedom,butrestrictsindividualpoliticalfreedom

10. 2-10
What Is An Economic System?
Therearethreetypesofeconomicsystems
1.Marketeconomies-allproductive
activitiesareprivatelyownedand
productionisdeterminedbytheinteraction
ofsupplyanddemand
governmentencouragesfreeandfair
competitionbetweenprivateproducers

11. 2-11
What Is An Economic System?
Therearethreetypesofeconomicsystems
1.Commandeconomies-governmentplans
thegoodsandservicesthatacountry
produces,thequantitythatisproduced,
andthepricesaswhichtheyaresold
allbusinessesarestate-owned,and
governmentsallocateresourcesfor“the
goodofsociety”
becausethereislittleincentivetocontrol
costsandbeefficient,command
economiestendtostagnate

12. 2-12
What Is An Economic System?
Therearethreetypesofeconomicsystems
1.Mixedeconomies-certainsectorsofthe
economyarelefttoprivateownershipand
freemarketmechanismswhileother
sectorshavesignificantstateownership
andgovernmentplanning
governmentstendtoownfirmsthatare
consideredimportanttonational
security

13. 2-13
What Is A Legal System?
Thelegalsystemofacountryreferstotherules
thatregulatebehavioralongwiththeprocesses
bywhichthelawsareenforcedandthrough
whichredressforgrievancesisobtained
Therearethreetypesoflegalsystems
1.Commonlaw-basedontradition,precedent,and
custom
2.Civiclaw-basedondetailedsetoflaws
organizedintocodes
3.Theocraticlaw-lawisbasedonreligious
teachings

14. 2-14
How Are Contracts Enforced In
Different Legal Systems?
Acontractisadocumentthatspecifiesthe
conditionsunderwhichanexchangeistooccur
anddetailstherightsandobligationsoftheparties
involved
Contractlawisthebodyoflawthatgoverns
contractenforcement
Underacommonlawsystem,contractstendtobe
verydetailedwithallcontingenciesspelledout
Underacivillawsystem,contractstendtobe
muchshorterandlessspecificbecausemany
issuesarealreadycoveredinthecivilcode

15. 2-15
How Are Contracts Enforced In
Different Legal Systems?
ManycountrieshaveratifiedtheUnited
NationsConventiononContractsforthe
InternationalSaleofGoods(CIGS)which
establishesauniformsetofrulesgoverning
certainaspectsofthemakingand
performanceofeverydaycommercial
contractsbetweenbuyersandsellerswho
havetheirplacesofbusinessindifferent
nations

16. 2-16
How Are Property Rights
And Corruption Related?
Propertyrightsrefertothelegalrightsovertheusetowhicha
resourceisputandovertheusemadeofanyincomethatmaybe
derivedfromthatresource
Canbeviolatedthrough
1.Privateaction–theft,piracy,blackmail
2.Publicaction-legally-ex.excessivetaxationorillegally-
ex.bribesorblackmailing
highlevelsofcorruptionreduceforeigndirectinvestment,
thelevelofinternationaltrade,andtheeconomicgrowth
rateinacountry
TheForeignCorruptPracticesActmakesitillegalforU.S.
companiestobribeforeigngovernmentofficialstoobtainor
maintainbusinessoverwhichthatforeignofficialhasauthority

17. 2-17
Which Countries Are Most Corrupt?
Rankings of Corruption by Country 2008

18. 2-18
How Can Intellectual
Property Be Protected?
Intellectualproperty-propertythatisthe
productofintellectualactivity
Canbeprotectedusing
1.Patents–exclusiverightsforadefinedperiodto
themanufacture,use,orsaleofthatinvention
2.Copyrights–theexclusivelegalrightsofauthors,
composers,playwrights,artists,andpublishersto
publishanddispersetheirworkastheyseefit
3.Trademarks–designandnamesbywhich
merchantsormanufacturersdesignateand
differentiatetheirproducts

19. 2-19
How Can Intellectual
Property Be Protected?
Protection of intellectual property rights differs
from country to country
World Intellectual Property Organization
Paris Convention for the Protection of Industrial
Property
To avoid piracy, firms can
stay away from countries where intellectual property
laws are lax
file lawsuits
lobby governments for international property rights
agreements and enforcement

20. 2-20
What Is Product Safety
And Liability?
Productsafetylawssetcertainstandardsto
whichaproductmustadhere
Productliabilityinvolvesholdingafirmandits
officersresponsiblewhenaproductcausesinjury,
death,ordamage
Whenproductsafetylawsarestricterinafirm’s
homecountrythaninaforeigncountry,orwhen
liabilitylawsaremorelax,thefirmhastodecide
whethertoadheretohomecountryorhost
countrystandards

21. 2-21
What Determines A Country’s Level
Of Economic Development?
Twowaystomeasurelevelsofeconomic
developmentare
1.Grossnationalincome(GNI)perperson
2.Purchasingpowerparity(PPP)involves
adjustingGNIbypurchasingpower
Nobel-prizewinnerAmartyaSenargues
economicdevelopmentshouldbeseenasa
processofexpandingtherealfreedomsthat
peopleexperience
theremovalofmajorimpedimentstofreedomlike
poverty,tyranny/momocracy/dictatorship,and
neglectofpublicfacilities
thepresenceofbasichealthcareandbasiceducation

22. 2-22
What Determines A Country’s Level
Of Economic Development?
The United Nations used Sen’s ideas to
develop the Human Development Index
(HDI)which is based on
life expectancy at birth
educational attainment
whether average incomes are sufficient to
meet the basic needs of life in a country

23. 2-23
How Do Countries Compare on
Economic Development?
Economic Data for Select Countries

24. 2-24
How Does Political Economy
Influence Economic Progress?
Innovationandentrepreneurshiparetheengines
oflong-runeconomicgrowth
Innovationandentrepreneurshiprequirea
marketeconomyandstrongpropertyrights
Democraticregimesareprobablymoreconducive
tolong-termeconomicgrowththandictatorships,
eventhebenevolentkind
Subsequenteconomicgrowthleadstothe
establishmentofdemocraticregimes

25. 2-25
How Do Geography And Education
Influence Economic Development?
Countrieswithfavorablegeographyare
morelikelytoengageintrade,andso,be
moreopentomarket-basedeconomic
systems,andtheeconomicgrowththey
promote
Countriesthatinvestineducationhave
highergrowthratesbecausetheworkforce
ismoreproductive

26. 2-26
How Is The Political
Economy Changing?
Sincethelate1980s,twotrendshaveemerged
1.Democraticrevolution(late1980sandearly1990s)
manytotalitarianregimesfailedtodelivereconomicprogressto
thevastbulkoftheirpopulations
newinformationandcommunicationtechnologieshavebroken
downtheabilityofthestatetocontrolaccesstouncensored
information
economicadvancesofthelast25yearshaveledtoincreasingly
prosperousmiddleandworkingclasseswhohavepushedfor
democraticreforms
2.Amoveawayfromcentrallyplannedandmixed
economies
morecountrieshaveshiftedtowardthemarket-basedmodel

27. 2-27
How Free Are
Countries Politically?
Political Freedom in 2008

28. 2-28
How Free Are
Countries Economically?
Distribution of Economic Freedom in 2008

29. 2-29
What Is The Nature Of
Economic Transformation?
Theshifttowardamarket-basedsystem
involves
deregulation–removinglegalrestrictionsto
thefreeplayofmarkets,theestablishmentof
privateenterprises,andthemannerinwhich
privateenterprisesoperate
privatization-transferstheownershipofstate
propertyintothehandsofprivateinvestors
thecreationofalegalsystemtosafeguard
propertyrights

30. 2-30
What Does The Changing
Economy Mean For Managers?
Marketsthatwereformerlyoff-limitstoWesternbusiness
arenowopen
Byidentifyingandinvestingearlyinapotentialfuture
economicstars,firmsmaybeabletogainfirstmover
advantages(advantagesthataccruetoearlyentrantsinto
amarket)andestablishloyaltyandexperienceinacountry
ex.China-1.2billionpeopleandIndia–1.1billionpeople
However,thepotentialrisksarelarge
Itcanbemorecostlytodobusinessincountrieswith
dramaticallydifferentproduct,workplace,andpollution
standards,orwherethereispoorlegalprotectionfor
propertyrights

31. 2-31
What Does The Changing
Economy Mean For Managers?
Managersmustconsider
1.Politicalrisk-thelikelihoodthatpoliticalforceswill
causedrasticchangesinacountry'sbusiness
environmentthatadverselyaffectstheprofitandother
goalsofabusinessenterprise
2.Economicrisk-thelikelihoodthateconomic
mismanagementwillcausedrasticchangesinacountry's
businessenvironmentthatadverselyaffectstheprofitand
othergoalsofabusinessenterprise
3.Legalrisk-thelikelihoodthatatradingpartnerwill
opportunisticallybreakacontractorexpropriate
propertyrights

32. 2-32
How Can Managers Determine A
Market’s Overall Attractiveness?
Theoverallattractivenessofacountryasa
potentialmarketand/orinvestmentsiteforan
internationalbusinessdependsonbalancingthe
benefits,costs,andrisksassociatedwithdoing
businessinthatcountry
Otherthingsbeingequal,thebenefit-cost-risk
trade-offislikelytobemostfavorablein
politicallystabledevelopedanddeveloping
nationsthathavefreemarketsystemsandno
dramaticupsurgeineitherinflationratesor
privatesectordebt

33. 2-33
Review Question
A political system that stresses the primacy of
collective goals over individual goals is called
a) individualism
b) collectivism
c) a democracy
d) a market economy

34. 2-34
Review Question
_____ believe(s) that socialism can only be
achieved through violent revolution and
totalitarian dictatorship.
a) communists
b) social democrats
c) social republicans
d) Plato

35. 2-35
Review Question
A form of government in which one person or
political party exercises complete control over all
spheres of human life and prohibits opposing
political parties is
a) a democracy
b) a representative democracy
c) totalitarianism
d) socialism

36. 2-36
Review Question
______ is found in states where political power
is monopolized by a party according to
religious principles.
a) tribal totalitarianism
b) right-wing totalitarianism
c) theocratic totalitarianism
d) communist totalitarianism

37. 2-37
Review Question
In which type of economic system are all
productive activities privately owned?
a) a mixed economy
b) a command economy
c) a representative economy
d) a market economy

38. 2-38
Review Question
Which type of law is based on tradition,
precedent, and custom?
a) civil law
b) common law
c) theocratic law
d) contract law

39. 2-39
Review Question
Which country is notamong the most corrupt
countries in the world?
a) Haiti
b) Indonesia
c) Malaysia
d) Nigeria

40. 2-40
Review Question
Design and names by which merchants or
manufacturers designate and differentiate
their products are called
a) trademarks
b) copyrights
c) patents
d) name brands

41. 2-41
Review Question
Which is not a primary determinant of a
nation’s rate of economic development?
a) its political system
b) its economic system
c) its geography
d) its currency