Chapter 2 & 3 Flashcards
A country’s political economy refers to its
political, economic, and legal systems
These systems ______ and
_______each other
interdependent; interact and influence
A political system is
the system of government in
a nation
Political systems can be assessed
Collectivism vs Individualism
Democratic vs Totalitarian
m is a system that stresses the
primacy of collective goals over individual goals
Collectivism
is a political philosophy that
suggests individuals should have freedom over their economic and political pursuits
Individualism
advocates state (government) ownership of the basic means of production, distribution, and exchange
Socialism
In the early 20th century, socialism split into
________
Communists and Social Democrats
communists held that collectivism should be achieved though
revolution and totalitarian dictatorship
social democrats worked to achieve collectivism by
democratic means
Today, many nations are moving toward
___________ whereby state-owned enterprises are sold to private investors
privatization
Individualism stresses
Individual freedom, self-expression, and personal responsibility; letting people pursue their own self-interests to achieve the best overall good for society; democratic systems and free markets
political system in which
government is by the people, exercised either
directly or through elected representatives
Democracy
What is the most common form of democracy today?
Representative Democracy
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
Totalitarianism
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
There are 4 major forms of totalitarianism today
Communist; Theocratic, Tribal, Right Wing
advocates achieving socialism through totalitarian dictatorship (ie. China)
communist totalitarianism:
political power is
monopolized by a party, group, or individual
that governs according to religious principles
(ie. Iran)
theocratic totalitarianism:
a political party that represents the interests of a particular tribe monopolizes power (ie. Syria)
tribal totalitarianism
individual economic freedom is allowed but individual political freedom is restricted in the belief that it could lead to communism (ie. fascism)
right wing totalitarianism:
There are three types of economic systems
the market economy, the command economy,
and the mixed economy
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
Legal system
A country’s legal system is important because
laws regulate business practice
laws define the manner in which business
transactions are to be executed
laws set down the rights and obligations of those
involved in business transactions
There are three main types of legal systems:
Common Law, Civil Law, Theocratic Law
Common law
based on tradition, precedent,
and custom
Civil law
- based on a very detailed set of
laws organized into codes
Theocratic law
based on religious teachings
In a common law state contracts
contracts are very detailed
where all contingencies are spelled out
In a civil law state contracts
contracts are shorter and much
less specific
establishes a uniform set of rules governing
commercial contracts who have their places of business in different nations
United Nations Convention in Contracts for
the International Sales of Goods (CIGS)
Property rights are
the legal rights over the use
to which a resource is put and over the use
made of any income derived from that resource
Property rights can be violated
by private action (theft, piracy, blackmail, and the
like by private individuals or groups)
by public action (public officials extort income or
resources from property holders)
when a country has a high level of
corruption:
Foreign direct investment falls
International trade falls
Economic growth falls
The Foreign Corrupt Practices Act
limits
corruption for U.S. companies
Intellectual property (IP)
is property that is the
product of intellectual activity (patents,
copyrights, and trademarks)
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
Political, economic, and legal systems of a
country
• raise important ethical issues for the practice of
international business
• clearly influences the attractiveness of that country as
a market and/or investment site
A country’s political economy influences its
level of economic development
Higher levels of economic development create a
more favorable
environment for international
business
One common measure is a country’s economic development
gross national income (GNI) per person of population
adjustment
allows for a more direct comparison of living
standards in different countries
Purchasing Power Parity
GNI and PPP data provide a _______ picture of
development
static ( it is also important to consider growth rates)
Amartya Sen held that development should be
assessed less by material output and more by the
capabilities and opportunities that people enjoy
The United Nations created the ________ based on life expectancy,
education attainment, and whether average
incomes are sufficient to meet the basic needs
of life in a country
Human
Development Index
2 Engines of growth for an economy
Innovation and Entrepeneur
new products, new processes,
new organizations, new management
practices, and new strategies
Innovation
first commercialize innovative
new products and processes
Entrepreneurs
creates greater incentives
for innovation and entrepreneurship
Market Economy
regimes tend to improve long-term
economic growth
Democratic
economic growth leads to
more
Democratic Regime
the likelihood that political
forces will cause drastic changes in a country’s
business environment that adversely affects the
profit and other goals of a business enterprise
Political Risk
the likelihood that economic
mismanagement will cause drastic changes in a
country’s business environment that adversely
affects the profit and other goals of a business
enterprise
Economic Risk
the likelihood that a trading partner
will opportunistically break a contract or
expropriate property rights
Legal risk
involves removing legal
restrictions on the free play of markets, the
establishment of private enterprises, and
the manner in which private enterprises
operate
Deregulation
transfers the ownership of
state property into the hands of private
investors
Privatization
that protects property rights
and the machinery to enforce that system
Legal system
For managers, there are two main implications in international business:
the political, economic, and legal systems of a country
raise ethical issues
the political, economic, and legal environment of a
country clearly influences the attractiveness of country
as a market and/or investment site
2
In an international market _______ are a function of market size, and current and future consumer purchasing power
benefits
Three types of cost in international business
Political, Economic, and Legal
include the cost of paying bribes
or lobbying for favorable or fair treatment
Political cost
relate primarily to the
sophistication of the economic system, including
the infrastructure and supporting businesses
Economic Cost
can be higher in countries with
dramatically different product, workplace, and
pollution standards, or where there is poor legal
protection for property rights
Legal Costs
Advantages accruing to the first to enter a market
first-mover advantage
Handicaps experienced by being a late entrant in a market
Late-mover disadvantages
Since the 1980s there has been a move away from
______________ economies and ____________ economies towards ______________
Centrally-planned; mixed
Free market
Democracy has spread to new countries
because
many totalitarian regimes failed to deliver
economic progress to the majority of their
population
new information and communication
technologies have broken down the ability of
the state to control access to uncensored
information
economic advances of the last quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms
A document that specifies the conditions under which an exchange is to take place and details the rights and obligations of the partners involved
Contract
Grants the inventor of a new product or process exclusive rights to the manufacture, use, or sale of that invention
Patent
The exclusive legal rights f authors, composers, playwrights, artists, and publishers to publish and disperse their work as they wish
Copyright
The design and names, oftn oficially registered, to which merchants or manufacturers disiginate and differentiate their products
Trademarks
What is GNI?
The total annual income of a nation’s residents
An international organization whose members sign treaties to agree to protect intellectual property
World Intellectual Property Organization
An adjustment to GDP per capita to reflect differences in the cost of living
Purchasing Power PArity
