Global Business Today 10e PDF

Global Business Today 10e by Charles W.L. Hill and G. Tomas M. Hult ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted witho...

Global Business Today 10e by Charles W.L. Hill and G. Tomas M. Hult ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  National Differences Source: © Hoang Dinh Nam/Getty Images Chapter 2: National Differences in Political, Economic, and Legal Systems ©McGraw-Hill Education.  Learning Objectives LO 2-1 Understand how the political systems of countries differ. LO 2-2 Understand how the economic systems of countries differ. LO 2-3 Understand how the legal systems of countries differ. LO 2-4 Explain the implications for management practice of national differences in political economy. ©McGraw-Hill Education.  Opening Case: Economic Transformation in Vietnam  Moving from centrally planned socialist economy to a more market oriented system  In 1986, Vietnam one of poorest countries in the world  Agricultural land privatized; state farm collectives dismantled  Farm productivity surged, price controls removed, barriers to FDI lowered  Today, living standards have surged  State-owned enterprises now only 40% of total output  Country too-dependent on commodity exports  Communist party still in power ©McGraw-Hill Education.  Introduction International business more complicated than domestic  Countries vary in economic development  Cultural, education, and skill levels vary  The political, economic, and legal systems are known as the political economy  Societal culture affects the political economy and the political economy shapes societal culture ©McGraw-Hill Education.  Political Systems 1 of 9  Political system: the system of government in a nation  Political systems can be assessed in terms of the degree to which they:  Emphasize collectivism as opposed to individualism  Are democratic or totalitarian ©McGraw-Hill Education.  Political Systems 2 of 9  Collectivism and Individualism  Collectivism: a system that stresses the primacy of collective goals over individual goals  Can be traced to the Greek philosopher Plato  Today, socialists support collectivism  When collectivism is emphasized, the needs of the society as whole are generally viewed as being more important than individual freedoms ©McGraw-Hill Education.  What About People’s Future Rights? Individualism versus collectivism is a century-old debate topic and an inherently interesting issue. For example, does an individual’s life belong to him or her or to the community, society, or country in which he or she resides? Most people have a direct and immediate answer, but there is no consensus on which answer depending on which country you reside in or which personal “compass” you subscribe to. Everyone has tendencies toward being both individualistic and collectivistic but prefers one way more than the other. So, which of these ideas— individualism or collectivism—do you think is correct, and which cultural belief do you prefer and why? Source: Objective Standard, March 3, 2014. www.theobjectivestandard.com ©McGraw-Hill Education.  Political Systems 3 of 9 Collectivism and Individualism continued  Socialism  Modern socialists trace their roots to Karl Marx  Advocated state ownership of the basic means of production, distribution, and exchange  The state then manages the enterprises for the benefit of society as a whole ©McGraw-Hill Education.  Political Systems 4 of 9 Collectivism and Individualism continued  In the early 20th century, socialism split into communists and social democrats:  Communists - socialism could only be achieved though revolution and totalitarian dictatorship  Social democrats worked to achieve the same goals by democratic means  Many state-owned enterprises failed to succeed, and many nations implemented privatization programs ©McGraw-Hill Education.  Political Systems 5 of 9 Collectivism and Individualism continued  Individualism: suggests individuals should have freedom over their economic and political pursuits  Can be traced to Aristotle who argued that individual diversity and private ownership are desirable  Individualism stresses:  Individual freedom and self-expression  Letting people pursue their own self-interests to achieve the best overall good for society  Democratic systems and free markets ©McGraw-Hill Education.  Political Systems 6 of 9 Democracy and Totalitarianism  Democracy: political system in which government is by the people, exercised either directly or through elected representatives  Most common form today is representative democracy- elected representatives vote on behalf of constituents  Totalitarianism: form of government in which one person or political party exercises absolute control over all spheres of human life, and opposing political parties are prohibited ©McGraw-Hill Education.  Political Systems 7 of 9 Democracy and Totalitarianism continued  In most totalitarian regimes:  There is widespread political repression  There are no free and fair elections  Media is censored  Basic civil liberties are denied  Challenges to the regime are prohibited ©McGraw-Hill Education.  Political Systems 8 of 9 Democracy and Totalitarianism continued Four major forms of totalitarianism today: 1. Communist totalitarianism: advocates achieving socialism through totalitarian dictatorship 2. Theocratic totalitarianism: political power is monopolized by a party, group, or individual that governs according to religious principles 3. Tribal totalitarianism: a political party that represents the interests of a particular tribe monopolizes power 4. Right wing totalitarianism: individual economic freedom is allowed but individual political freedom is restricted in the belief that it could lead to communism ©McGraw-Hill Education.  Political Systems 9 of 9 Pseudo-Democracies  Many nations lie between pure democracy and complete totalitarianism  Authoritarian elements capture much of the machinery of state and use this in an attempt to deny basic political and civil liberties  Russia under Vladimir Putin ©McGraw-Hill Education.  Economic Systems 1 of 4  Political ideology and economic systems are connected  There are three types of economic systems: the market economy, the command economy, and the mixed economy  A market-based economic system is likely in countries where individual goals are given primacy over collective goals  State-owned enterprises and restricted markets are common in countries where collective goals are dominant ©McGraw-Hill Education.  Economic Systems 2 of 4 Market Economy  In a pure market economy the goods and services that a country produces, and the quantity in which they are produced is determined by supply and demand  Supply must not be restricted by monopolies  The role of government is to encourage free and fair competition between private producers ©McGraw-Hill Education.  Economic Systems 3 of 4 Command Economy  In a pure command economy the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold are all planned by the government  All businesses are state-owned, and have little incentive to control costs and be efficient  Because there is no private ownership, there is little incentive to better serve consumer needs  Dynamism and innovation are absent ©McGraw-Hill Education.  North Korea’s Command Economy Kim Jong-un, the leader of the Democratic People's Republic of Korea, inspecting a factory. North Korea functions as a centralized, single party, and tightly controlled dictatorial command economy. Source: © AFP/Getty Images ©McGraw-Hill Education.  Economic Systems 4 of 4  Mixed Economy  A mixed economy includes some elements of a market economy and some elements of a command economy  Governments take over troubled firms considered vital to national interests  The number of mixed economies in the world today is falling ©McGraw-Hill Education.  Legal Systems 1 of 11  The legal system of a country refers to the rules, or laws, that regulate behavior, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained  A country’s legal system is important because laws:  Regulate business practice  Define the manner in which business transactions are to be executed  Set down the rights and obligations of those involved in business transactions ©McGraw-Hill Education.  Legal Systems 2 of 11 Different Legal Systems  Common law: based on tradition, precedent, and custom  Found in most of Great Britain’s former colonies, including the United States  Civil law: based on detailed set of laws organized into codes  Found in more than 80 countries, including Germany, France, Japan, and Russia  Theocratic law: based on religious teachings  Islamic law is the most widely practiced ©McGraw-Hill Education.  Legal Systems 3 of 11 Differences in Contract Law  They approach contract law (the body of law that governs contract enforcement) differently  A contract specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved  In a common law state, contracts are very detailed with all contingencies spelled out  In a civil law state, contracts are shorter and much less specific ©McGraw-Hill Education.  Legal Systems 4 of 11 Differences in Contract Law continued  The United Nations Convention on Contracts for the International Sales of Goods (CISG) establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations  Countries that adopt CISG signal to other nations that they will treat the Convention’s rules as part of their law ©McGraw-Hill Education.  Legal Systems 5 of 11 Property Rights and Corruption  Property rights: 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  Private action: theft, piracy, blackmail, and the like by private individuals or groups  Public action: public officials extort income or resources from property holders  Excessive taxation, requiring expensive licenses or permits from property holders, or taking assets into state ownership without compensating the owners ©McGraw-Hill Education.  Legal Systems 6 of 11 Property Rights and Corruption continued  Corruption is present in all countries to some degree, however when a country has a high level of corruption:  Foreign direct investment falls  International trade falls  Economic growth falls ©McGraw-Hill Education. ©McGraw-Hill Education. Source: Constructed by the author from raw data from Transparency International, Corruption Perceptions Index 2015. Figure 2.1 Corruption by Country Rankings of  Legal Systems 7 of 11 The Foreign Corrupt Practices Act limits corruption in the U.S  It is illegal to bribe a foreign government official in order to obtain or maintain business over which the foreign official has authority  All publicly traded companies must keep detailed records so that it is clear whether a violation of the act has occurred  Facilitating or expediting payments to secure the performance of routine government actions are permitted ©McGraw-Hill Education.  Did You Know? Did you know that it's illegal for Americans to bribe public officials to gain business in a foreign country, even if bribery is commonplace in that nation? Click to play video ©McGraw-Hill Education.  Legal Systems 8 of 11 The Protection of Intellectual Property  Intellectual property: property that is the product of intellectual activity  Patents: give the inventor exclusive rights to the manufacture, use, or sale of that invention  Copyrights: exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit  Trademarks: designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products ©McGraw-Hill Education.  Legal Systems 9 of 11 The Protection of Intellectual Property continued  The protection of intellectual property rights differs greatly from country to country  185 nations are members of the World Intellectual Property Organization  Paris Convention for the Protection of Industrial Property: agreement signed by 170+ countries to protect intellectual property rights  Enforcement is lax in many nations especially in China and Thailand ©McGraw-Hill Education.  How Important are Intellectual Property Rights? Burundi is a landlocked country in the Great Lake region of Eastern Africa. Neighboring countries include Rwanda, Tanzania, and the Democratic Republic of the Congo. Burundi is hilly and mountainous, with access to Lake Tanganyika. The government system is a republic, with the chief of state and head of government being the president. Burundi has a traditional economic system in which the allocation of available resources is made on the basis of primitive methods, and many citizens engage in subsistence agriculture. At the same time, Burundi was last of the 131 countries ranked in the 2013 International Property Rights Index (IPRI). The IPRI is conducted by a partnership of 74 international organizations. The IPRI takes into account legal and political environment, physical property rights, and intellectual property rights. How much should companies focus on intellectual property rights in deciding where to (1) produce their products and (2) sell their products? Does it differ if you produce or sell in the country? Source: www.internationalpropertyrightsindex.org. ©McGraw-Hill Education.  Legal Systems 10 of 11 The Protection of Intellectual Property continued Response to violations of intellectual property  Lobbying governments for better laws and enforcement of those laws  Trade Related Aspects of Intellectual Property Rights (TRIPS) - requires WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years  Filing lawsuits  Avoiding countries with poor intellectual property laws ©McGraw-Hill Education.  Legal Systems 11 of 11 Product Safety and Product Liability  Product safety laws set certain safety 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  Liability laws are usually least extensive in less developed countries  Firms must decide whether to adhere to the standards of the home country or the standards of the host country ©McGraw-Hill Education.  Focus on Managerial Implications THE MACRO ENVIRONMENT INFLUENCES MARKET ATTRACTIVENESS The political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business The political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market and/or investment site A democratic country with a market-based economy, protection of property rights, and limited corruption is a more attractive place to do business. ©McGraw-Hill Education.  Summary In this chapter we have Explored how the political systems of countries differ. Explored how the economic systems of countries differ. Explored how the legal systems of countries differ. Explained the implications for management practice of national differences in political economy. ©McGraw-Hill Education.