Comparative Environmental Framework

Course: MBASubject: GLOBAL BUSINESS ENVIRONMENT.

Unit: 2

National Differences in Political Economy

What Is A Political Economy?

• The political economy of a nation refers to how the political, economic, and legal systems of a country are interdependent– they interact and influence each other– they affect the level of economic well-being in the

nation

What Is A Political System?

• Political system refers to the system of government in a nation

• Assessed according to– the degree to which the country emphasizes

collectivism as opposed to individualism – the degree to which the country is democratic.

What Is Collectivism?

• Collectivism stresses the primacy of collective goals over individual goals– can be traced to the Greek philosopher, Plato

(427-347 BC)• Today, collectivism is equated with socialists

(Karl Marx 1818-1883) – advocate state ownership of the basic means of

production, distribution, and exchange– manage to benefit society as a whole, rather than

individual capitalists

How Does Modern-Day Socialism Look?

• In the early 20th century, socialism split into1. Communism – socialism can only be achieved

through violent revolution and totalitarian dictatorship– in retreat worldwide by mid-1990s

2. Social democrats – socialism is achieved through democratic means– retreating as many countries move toward free market

economies– state-owned enterprises have been privatized

What Is Individualism?

• Individualism refers to philosophy that an individual should have freedom in his own economic and political pursuits– can be traced to Greek philosopher, Aristotle (384-322

BC), who argued that individual diversity and private ownership are desirable

– individual economic and political freedoms are the ground rules on which a society should be based

– implies democratic political systems and free market economies

What Is Democracy?

• Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives– usually associated with individualism – pure democracy is based on the belief that citizens should

be directly involved in decision making– most modern democratic states practice representative

democracy where citizens periodically elect individuals to represent them

What Is Totalitarianism?

• Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties

What Is An Economic System?• There are three types of economic systems1. Market economies - all productive activities are privately owned and

production is determined by the interaction of supply and demand – government encourages free and fair competition between private

producers2. Command economies - government plans the goods and services that a

country produces, the quantity that is produced, and the prices as which they are sold– all businesses are state-owned, and governments allocate resources for

“the good of society”– because there is little incentive to control costs and be efficient, command

economies tend to stagnate 3. Mixed economies - certain sectors of the economy are left to private ownership

and free market mechanisms while other sectors have significant state ownership and government planning– governments tend to own firms that are considered important to national

security

What Is A Legal System?

• The legal system of a country refers to the rules that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained

• There are three types of legal systems1. Common law - based on tradition, precedent, and

custom2. Civic law - based on detailed set of laws organized

into codes3. Theocratic law - law is based on religious teachings

How Are Contracts Enforced In Different Legal Systems?

• A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved

• Contract law is the body of law that governs contract enforcement

• Under a common law system, contracts tend to be very detailed with all contingencies spelled out

How Are Property Rights And Corruption Related?

• Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource

• Can be violated through1. Private action – theft, piracy, blackmail 2. Public action - legally - ex. excessive taxation or illegally - ex.

bribes or blackmailing • high levels of corruption reduce foreign direct investment, the level of

international trade, and the economic growth rate in a country

• The Foreign Corrupt Practices Act makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authority

Which Countries Are Most Corrupt?

Rankings of Corruption by Country 2008

How Can Intellectual Property Be Protected?

• Intellectual property - property that is the product of intellectual activity

• Can be protected using1. Patents – exclusive rights for a defined period to the

manufacture, use, or sale of that invention2. Copyrights – the exclusive legal rights of authors,

composers, playwrights, artists, and publishers to publish and disperse their work as they see fit

3. Trademarks – design and names by which merchants or manufacturers designate and differentiate their products

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

What Is Product Safety And Liability?

• Product safety laws set certain standards to which a product must adhere

• Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage

What Determines A Country’s Level Of Economic Development?

• Two ways to measure levels of economic development are

1. Gross national income (GNI) per person2. Purchasing power parity (PPP) involves adjusting

GNI by purchasing power• Nobel-prize winner Amartya Sen argues economic

development should be seen as a process of expanding the real freedoms that people experience – the removal of major impediments to freedom like

poverty, domination, and neglect of public facilities– the presence of basic health care and basic education

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

Culture differences in IB

Concepts of Culture and Ethnicity• Culture – a set of values, beliefs & traditions that are

held by a specific social group and handed down from generation to generation

• Dominant group – the group within the culture that has the authority to control the value system.

• Minority group – usually has some physical or cultural characteristic that identifies the people within it as different

Cultural and Ethnic Influences on Entering Another Country

• Gender Roles – It is important to know who is the dominant figure in a family

• Language and Communication – Some customer may not be able to speak the English Language

• Socio-economic conditions

Ethics in International Business

Characteristics

• Japanese people never look deeply to your eyes

• In some Arabic culture, women cannot go outside without a man

• Religious Muslims dont drink alcohol and drugs (Never try to serve)

If You Want to Make an International Agreement (tricks) or (hints)

Germany; You must be timely France; You must wear an official dress (suit

up) Italy; While at a business dinner, keep talking

about Italian food Russia; While negotiation if they doing hand

contact or touch your shoulders, they start to trust you

Saudi Arabia; During the greetings kiss three time (never, ever try to kiss a woman)

Introduction

• Ethics - accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization

• Business ethics are the accepted principles of right or wrong governing the conduct of business people

• Ethical strategy is a strategy, or course of action, that does not violate these accepted principles

Ethical Issues in International Business

• The most common ethical issues in business involve – employment practices– human rights– environmental regulations– corruption– the moral obligation of multinational companies

Employment Practices

Question: When work conditions in a host nations are clearly inferior to those in a multinational’s home nation, what standards should be applied?

• The standards of the home nation?• The standards of the host nation?• Something in between?

Human Rights

Question: What is the responsibility of a foreign multinational when operating in a country where basic human rights are not respected?

• Basic human rights taken for granted in the developed world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are not universally accepted

Environmental Pollution

Question: Should a multinational feel free to pollute in a developing nation if doing so does not violate laws?Answer:

• When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise

• The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals resulting in its degradation

Corruption

Question: Is it ethical to make payments to government officials to secure business?

Answer:• In the United States, the Foreign Corrupt Practices Act outlawed the

practice of paying bribes to foreign government officials in order to gain business

• The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions adopted by the Organization for Economic Cooperation and Development (OECD) obliges member states to make the bribery of foreign public officials a criminal offense

Corruption

• Some economists suggest that the practice of giving bribes might be the price that must be paid to do a greater good– In countries where preexisting political structures distort or limit the

workings of the market mechanism, corruption in the form of black-marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments may actually enhance welfare

• However, other economists have argued that corruption reduces the returns on business investment and leads to low economic growth

Moral Obligations

Question: Do multinationals have a responsibility to give back to the societies that enable them to grow and prosper?

Answer:• Social responsibility - the idea that business people should take the social

consequences of economic actions into account when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and good social consequences

The Roots of Unethical Behavior

Question: Why do managers behave in an unethical manner?

Answer:• Managerial behavior is influenced by– Personal ethics– Decision making processes– Organizational culture– Unrealistic performance expectations– Leadership

Sources:-• http://www.slideshare.net/NeerabImAn/chapter-2-international-business• http://www.slideshare.net/UmutKeklik/culture-effects-international-busi

ness• http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&

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