Competency 2 Flashcards by Contina Walters

In global business, define Institution.

The rules of the game that govern individuals’ and firms’ behavior.

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How do institutions reduce uncertainty?

They signal which actions are legitimate and which are not.

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What is a Formal Institution?

Laws, rules, & regulations that focus on political, legal, & economic systems.

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What is an Informal Institution?

Norms, culture, & ethics.

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What are the three pillars supporting institutions?

Regulatory (formal), Normative (informal), and Cognitive (informal).

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What is the regulatory pillar?

Coercive power of government (formal).

i.e., contracts you write.

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What is the normative pillar?

How values, beliefs, and actions of other players influence individuals & firms (informal).

i.e., Different in other countries.

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What is the cognitive pillar?

Internalized, beliefs & values taken for granted that guides behavior (informal).

i.e., whistleblowers

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What are the two core propositions of the institution-based view?

Managers & Firms pursue interests within formal and informal constraints (also known as bounded rationality).
When formal constraints (rules) has fail or unclear, informal constraints play a larger role in reducing uncertainty and providing constancy to firms & individuals.

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What are the two main political systems (1 of the formal institutions)?

Democracy and Totalitarianism.

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What is democracy?

Citizens elect representatives to govern the country; freedom of expression & organization (is highly recognized & the laws are transparent).

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What is totalitarianism?

One person or party exercises absolute political power to govern the country.

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What are the four types of totalitarian regimes?

Communist (focus on communist (one) party)
Right-Wing (military-backed, anti-communist)
Theocratic (religious led party)
Tribal (one ethnic group/tribe monopolizing power)

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What is political risk?

the rules of the game on how a country is governed politically

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Give an example of political risk.

Zimbabwe demanded that foreign mining companies cede 51% of their equity without pay.

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What are the three Legal Systems?

Civil Law, Common Law, & Theocratic Law.

What is civil law?

Derived from Roman law, the oldest, & most widely distributed around the world. Comprehensive statutes & codes in Europe, Asia, and Latin America.

What is Common Law?

English origin; Based on precedents & traditions from previous judicial decisions; used in the U.S., U.K., Canada, Australia, South Africa, India (more flexible compared to civil law)

What is Theocratic Law?

Based on religious teachings; used in countries like Iran, Saudi Arabia, & United Arab Emirates (UAE).

What are property rights?

Legal rights to use economic property & derived income & other benefits from it.

How to protect Property Rights?

By legal systems (patents, copyrights, and trademarks), Country-specific laws (country by country), and Global agreements (Paris Convention and TRIPS under WTO)

What is Intellectual Property Rights (IPR)?

Intangible property from intellectual activity

i.e., Patents (inventions), Copyrights (creative works), Trademarks (brand identifiers)

What are the three types of Intellectual Property (IP) protection?

Patents (inventions-new technology), Copyrights (creative works-books), & Trademarks (brand identifiers).

How is IPR protected globally?

The Paris Convention sets a global standard, and countries must adopt it to join the WTO’s Agreement on TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement.

What are the business implications for conducting international business in countries with different political and economic systems?

Political and economic systems affect rules, risk, and market access; Market = private business; command = government control. Democracies are stable; totalitarian = high risk. Businesses must check legal systems, corruption, and IP protection before expanding. Check laws, corruption, and IP protection.

Why are intellectual property protections critical in today’s global business environment?

• Encourages innovation • Prevents counterfeiting • Ensures fair competition • Attracts investment • Secures trade secrets • Supports trade agreements

What is the Economic Systems?

the rules of the game on how a country is governed economically.

What are the three Economic Systems?

Market, Command, & Mixed Economy

What is a Market Economy?

“Invisible Hand” of market forces of supply & demand, all factors of production should be privately owned (in pure form); emphasizes private property

What is a Command Economy?

Also called a Centrally Planned Economy, the government owns the factors of production, supply & demand, & pricing are planned by the government (in pure form); emphasizes publicly owned production

What is a Mixed Economy?

Combines elements of market and command systems; most economies are mixed; most flexible

Describe the political system of Totalitarianism

Totalitarian countries often experience war, riots, protests, chaos, & breakdowns which result in higher political risks & negatively impact domestic & foreign firms.