National Differences in Political, Economic, and Legal Systems PDF

Global Business National Differences Learning Objectives 2-1 Understand how the political systems of countries differ. 2-2 Understand how the economic systems of countries differ. 2-3 Understand how the legal systems of countries differ. 2-4 Explain the implications for...

Global Business National Differences Learning Objectives 2-1 Understand how the political systems of countries differ. 2-2 Understand how the economic systems of countries differ. 2-3 Understand how the legal systems of countries differ. 2-4 Explain the implications for management practice of national differences in political economy. Introduction International business more complicated than domestic Differing political, legal, and economic systems Vary in economic development and growth trajectories Cultural, education, and skill levels vary The political, economic, and legal systems are known as the political economy Systems are interdependent Societal culture affects political economy, and political economy shapes societal culture Political Systems Political system: system of government in a nation Political systems assessed in terms of degree to which they: Emphasize collectivism as opposed to individualism Are democratic or totalitarian Political Systems Collectivism and Individualism Collectivism: system that stresses the primacy of collective goals over individual goals Traced to Greek philosopher Plato Society should be stratified into classes Property should be owned in common When collectivism is emphasized, needs of society as whole are generally viewed as being more important than individual freedoms Political Systems Collectivism and Individualism Political Systems Collectivism and Individualism Socialism Modern socialists trace roots to Karl Marx Advocates state ownership of basic means of production, distribution, and exchange State then manages enterprises to benefit society as a whole Political Systems Political Systems Collectivism and Individualism In the early 20th century, socialism split into: Communists – socialism could only be achieved though violent revolution and totalitarian dictatorship In retreat worldwide by mid-1990s Social democrats, who worked to achieve same goals by democratic means Many state-owned enterprises failed to succeed, and many nations implemented privatization programs Political Systems Collectivism and Individualism Individualism Suggests individuals should have freedom over economic and political pursuits Traced to Aristotle, who argued that individual diversity and private ownership are desirable Refined in work of David Hume, Adam Smith, and John Stuart Mill Individual freedom and self-expression Letting people pursue self-interests to achieve the best overall good for society Democratic systems and free markets COUNTRY COMPARISON Collectivism and individualism world map Political Systems 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 Freedom of expression, opinion, and organization; Free media; Regular elections; Universal adult suffrage; Limited terms for elected officials; Fair court system; Nonpolitical state bureaucracy; Nonpolitical police force and armed services; free access to state information Political Systems Democracy and Totalitarianism 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 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 regime are prohibited Political Systems Democracy and Totalitarianism Four major forms of totalitarianism today: Communist totalitarianism: advocates achieving socialism through totalitarian dictatorship Theocratic totalitarianism: political power is monopolized by a party, group, or individual that governs according to religious principles Tribal totalitarianism: where a political party that represents the interests of a particular tribe monopolizes power Right-wing totalitarianism: individual economic freedom is allowed but individual political freedom is restricted because it could lead to communism Hofstede’s Cultural Dimensions Political Systems 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 Economic Systems Political ideology and economic systems Three types of economic systems: market economy, command economy, and mixed economy Market-based economic system 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 Economic Systems Market Economy Goods and services a country produces and the quantity in which they are produced is determined by supply and demand Supply must not be restricted by monopolies Government encourages free and fair competition between private producers Constant incentive to improve products and processes Economic Systems Command Economy Goods and services a country produces, the quantity in which they are produced, and the price at which they are sold are planned by 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 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 Economic Systems Mixed Economy Includes some elements of market economies and some elements of command economies Governments take over troubled firms considered vital to national interests Number of mixed economies becoming less common Legal Systems Legal system of a country refers to rules, or laws, that regulate behavior, along with processes by which laws are enforced and through which redress for grievances is obtained A country’s legal system is important because laws: Regulate business practice Define manner in which business transactions are executed Set rights and obligations of those involved in business transactions Legal Systems 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 most widely practiced Legal Systems Differences in Contract Law Common law and civil law systems approach contract law – body of law that governs contract enforcement – differently A contract specifies conditions under which an exchange is to occur and details rights and obligations of parties 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 Legal Systems Differences in Contract Law 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 places of business in different nations Countries that adopt CISG signal to other nations they treat the Convention’s rules as part of their law Legal Systems Property Rights and Corruption Property rights: legal rights over use to which a resource is put and over use made of any income 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 Legal Systems Property Rights and Corruption Corruption is present in all countries to some degree, but countries with a high level of corruption face: Foreign direct investment falls International trade falls Economic growth falls Figure 2.1 Rankings of Corruption by Country, 2017 Source: Constructed by the author from raw data from Transparency International, Corruption Perceptions Index 2017. Legal Systems Property Rights and Corruption Foreign Corrupt Practices Act Makes it 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 it is clear whether a violation has occurred Facilitating or expediting payments to secure performance of routine government actions are permitted Legal Systems The Protection of Intellectual Property Intellectual property: property that is the product of intellectual activity Patents: give 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 Legal Systems The Protection of Intellectual Property The protection of intellectual property rights differs greatly from country to country 185 nations are members of 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 Legal Systems The Protection of Intellectual Property Responses 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 Legal Systems Product Safety and Product Liability Product safety laws set certain safety standards to which a product must adhere Product liability holds 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 standards of home country or of host country Product Liability Law Focus on Managerial Implications The Macro Environment Influences Market Attractiveness Political, economic, and legal systems of a country raise important ethical issues that have implications for practicing international business Political, economic, and legal environments of a country clearly influence attractiveness of 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 Market Attractiveness Summary In this chapter, we have Understood how political systems of countries differ. Understood how economic systems of countries differ. Understood how legal systems of countries differ. Explained implications for management practice of national differences in political economy.