International Business: The Challenges of Globalization (PDF)

International Business: The Challenges of Globalization Tenth Edition Chapter 4 Political, Economic, and Legal Systems Copyright ©...

International Business: The Challenges of Globalization Tenth Edition Chapter 4 Political, Economic, and Legal Systems Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Learning Objectives 4.1 Describe the key features of each form of political system. 4.2 Explain how the three types of economic systems differ. 4.3 Summarize the main elements of each type of legal system. 4.4 Outline several key legal issues important for international business. Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Tik Tok Rocks Social media app owned by China’s ByteDance – China’s political, economic, and legal systems differ from others on personal rights to privacy and individual freedoms – US government considered banning TikTok Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Understanding Political, Economic, and Legal Systems Individualism is a belief that individual rights and responsibilities should be placed above the group’s welfare. Collectivism stresses the relative importance of a group’s welfare over that of the individual. No nation is either completely individualist or completely collectivist in its cultural orientation. Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Political Systems Political system Structures, processes, and activities by which a nation governs itself We can arrange the world’s three political ideologies on a horizontal scale, with one on either end and one in the middle. – At the one extreme lies anarchism, at the other is totalitarianism, with pluralism in the middle Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Photo and Discussion Question (1 of 5) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Political System: Totalitarianism (1 of 4) Near-total centralization of political power Totalitarian governments tend to share three features: – Imposed Authority – Lack of Constitutional Guarantees – Restricted Participation Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Political System: Totalitarianism (2 of 4) Theocracy Political system in which a country’s religious leaders are also its political leaders Theocratic totalitarianism Political system under the control of totalitarian religious leaders – Iran Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Political System: Totalitarianism (3 of 4) Secular totalitarianism Political system in which totalitarian leaders maintain control through military and bureaucratic power – Communism ▪ Socialism – Tribal totalitarianism – Right-wing totalitarianism Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Manager: From Civil War to Civil Society War’s root causes The neighbors What is lost What to do Want to know more? Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Political System: Totalitarianism (4 of 4) Doing business in totalitarian countries – International companies can be relatively less concerned with local political opposition to their activities – But can be a risky proposition Investing in a totalitarian nation can also raise legal issues for a business and raise ethical dilemmas for managers. Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Photo and Discussion Question (2 of 5) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Democracy (1 of 3) Democracy Political system in which government leaders are elected directly by the wide participation of the people or by their representatives – Pure democracy as an ideal Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Democracy (2 of 3) Representative democracy Democracy in which citizens elect individuals from their groups to represent their political views – Strive to provide some or all of the following: ▪ Freedom of expression ▪ Periodic elections ▪ Full civil and property rights ▪ Minority rights ▪ Nonpolitical bureaucracies Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Democracy (3 of 3) Doing business in democracies – Democracies tend to encourage entrepreneurial activity and protect business with strong property- rights laws. – Private ownership of the means of production leads to the greatest economic progress for everyone. ▪ Free market Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Quick Study 4.1 1. How are anarchism, totalitarianism, and pluralism different? 2. What are the main characteristics of the political system known as communism? 3. What five things does a representative democracy strive to provide for its people? 4. How does doing business in a totalitarian country differ from doing business in a democracy? Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Economic Systems Economic system Structure and processes that a country uses to allocate its resources and conduct its commercial activities – Every economy displays a tendency toward individualist or collectivist economic values that reflects the nation’s culture. Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Figure 4.1: Range of Economic Systems Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Economic Systems: Centrally Planned Economy (1 of 3) Economic system in which the government owns a nation’s land, factories, and other economic resources and plans nearly all economic activity – Former Soviet Union Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Economic Systems: Centrally Planned Economy (2 of 3) Origins of the centrally planned economy – Rooted in collectivism – Popularized by Karl Marx in the nineteenth century – Implemented in the twentieth century by means of violent upheaval Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Economic Systems: Centrally Planned Economy (3 of 3) Decline of central planning – Failure to create economic value – Failure to provide incentives – Failure to achieve rapid growth – Failure to satisfy consumer needs State capitalism Economic system in which the state plays the role of leading economic actor and uses markets primarily for political gain – China Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Photo and Discussion Question (3 of 5) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Mixed Economy (1 of 3) Mixed economy Economic system in which land, factories, and other economic resources are rather equally split between private and government ownership – Assist key industries with special subsidies, maintain generous unemployment support, and provide subsidized or free health care ▪ Denmark, France, Norway, Spain, Sweden, India, Indonesia, Malaysia, South Korea, Argentina, South Africa Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Mixed Economy (2 of 3) Origins of the mixed economy – Advocates contend that a successful economic system should be efficient and innovative yet protect society from the excesses of individualism and organizational greed ▪ Low unemployment and poverty ▪ Steady economic growth ▪ Equitable distribution of wealth – France Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Mixed Economy (3 of 3) Progress of mixed economies – Proponents of mixed economies point out that European and US rates of productivity and growth were almost identical for decades after the Second World War ▪ They say that although the United States has created more jobs, it has done so at the cost of widening social inequality ▪ Instead of dismantling social welfare institutions, modernize them – Move toward privatization Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Market Economy (1 of 5) Market economy (or capitalism) Economic system in which most of a nation’s land, factories, and other economic resources are privately owned, by either individuals or businesses – Supply ▪ The quantity of a good or service that producers are willing to provide at a specific selling price – Demand ▪ The quantity of a good or service that buyers are willing to purchase at a specific selling price – Price mechanism Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Market Economy (2 of 5) Origins of the market economy – Emphasis on individualism – Laissez-faire economics – Economic freedom ▪ Canada and the United States Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Market Economy (3 of 5) Features of a market economy – Free choice ▪ Alternative purchase options – Free enterprise ▪ Firms choose products and markets – Price flexibility ▪ Prices follow supply and demand Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Photo and Discussion Question (4 of 5) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Market Economy (4 of 5) Government’s role in a market economy – Enforce antitrust (antimonopoly) laws ▪ Laws designed to prevent companies from fixing prices, sharing markets, and gaining unfair monopoly advantages – Preserve property rights ▪ Legal rights to resources and any income they generate – Provide fiscal and monetary stability – Preserve political stability Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Market Economy (5 of 5) Economic freedom – Countries with the greatest economic freedom tend to have the highest standards of living, whereas those with the lowest freedom tend to have the lowest standards of living. But greater economic freedom does not guarantee a high per capita income. ▪ Ancient Greece Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Map 4.1: Economic Freedom (1 of 2) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Map 4.1: Economic Freedom (2 of 2) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Quick Study 4.2 1. What factors contributed to the decline of centrally planned economies? 2. Why do mixed economies split the ownership of land, factories, and other economic resources rather equally between private and government ownership? 3. What are three key features of a market economy that make it run smoothly and properly? 4. What feature do countries with the greatest amount of economic freedom tend to have? Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Legal Systems Legal system Country’s set of laws and regulations, how its laws are enacted and enforced, and how its courts hold parties accountable – Influenced by political moods and upsurges of nationalism ▪ India Three types of legal systems: – Common law – Civil law – Theocratic law Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Legal Systems: Common Law Three elements: – Tradition ▪ A country’s legal history – Precedent ▪ Past cases that have come before the courts – Usage ▪ How laws are applied in specific situations – Found in Australia, Britain, Canada, Ireland, New Zealand, the United States, and some nations of Asia and Africa Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Legal Systems: Civil Law Legal system based on a detailed set of written rules and statutes that constitute a legal code – Practiced in Cuba, Puerto Rico, Quebec, all of Central and South America, most of Western Europe, and many nations in Asia and Africa Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Photo and Discussion Question (5 of 5) Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Legal Systems: Theocratic Law Legal system based on religious teachings – Three prominent theocratic legal systems: ▪ Islamic law ▪ Hindu law ▪ Jewish law Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Cultural Insights: Playing by the Rules Understanding legal systems in other countries begins with an awareness about cultural differences. – Japan: Japan’s harmony-based, consensus-driven culture considers court battles to be a last resort. – Saudi Arabia: Islam permeates every aspect of life in Saudi Arabia and affects its laws, politics, economics, and social development. – China: China’s legal system is socialist but based on the civil law model. – Want to Know More? Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Quick Study 4.3 1. Which legal system decides cases by interpreting the law based on tradition, precedent, and usage? 2. Which legal system is based on a detailed set of written rules and statutes that constitute a legal code? 3. What do we call a legal tradition based on faith? Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues Firms must adapt to dissimilar legal systems in global markets because there is no clearly defined body of international law that all nations accept. – Movement toward standardizing the interpretation and application of laws in more than one country ▪ International treaties and agreements – United Nations, the Organization for Economic Cooperation and Development, and the International Institute for the Unification of Private Law – European Union Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues: Intellectual Property (1 of 3) Property that results from people’s intellectual talent and abilities – Considered essential to achieving the United Nation’s Sustainable Development Goals because it incentivizes innovation and creativity Cloud computing Delivery of computing services over the internet, or the cloud Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Figure 4.2: Business Software Piracy Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues: Intellectual Property (2 of 3) Industrial property Intellectual property consisting of patents and trademarks Patent Property right granted to the inventor of a product or process that excludes others from making, using, or selling the invention Trademark Property right in the form of words or symbols that distinguish a product and its manufacturer Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues: Intellectual Property (3 of 3) Copyright Property right giving creators of an original work the freedom to publish or dispose of it as they choose – Copyrights are protected under the Berne Convention for the Protection of Literary and Artistic Works – A copyright is granted for the tangible expression of an idea, not for the idea itself. ▪ “Good Morning to All”/“Happy birthday to you” Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues: Product Safety and Liability Product liability Responsibility of manufacturers, sellers, individuals, and others for damage, injury, or death caused by defective products – Tobacco companies – Global internet companies Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues: Antitrust Regulations By enforcing antitrust laws, governments try to guarantee consumers a wide variety of products at fair prices and support the growth of commerce – The United States and the European Union are the world’s strictest antitrust regulators ▪ GE’s merger with Honeywell ▪ Google’s purchase of Fitbit – Japan’s Fair Trade Commission enforces antitrust laws but it is often ineffective because absolute proof of wrongdoing is needed to bring charges. Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Global Legal Issues: Taxation Nations pass indirect taxes, called “consumption taxes,” which help pay for the consequences of using particular products. Many countries impose a value added tax (VAT) – A tax levied on each party that adds value to a product throughout its production and distribution Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Table 4.1: Effect of Value Added Taxes (V AT) Production Stage Selling Price Value Added VAT (10%) Total VAT Shrimper $1.00 $1.00 $0.10 $0.10 Processor 1.70 0.70 0.07 0.17 Wholesaler 2.80 1.10 0.11 0.28 Retailer 3.80 1.00 0.10 0.38 Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Quick Study 4.4 1. What are some examples of intellectual property? 2. What are the different types of industrial property? 3. What are laws called that hold parties responsible for damage, injury, or death caused by defective products? Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved Copyright This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Copyright © 2023, 2019, 2016 Pearson Education, Inc. All Rights Reserved