D270 Midterm: Chapter 3 Flashcards
CASE: China
Why do companies rush to China?
- Market potential (1.34 billion citizens)
- Market performance (will become world’s lgst. economy between 2016-2036
- Infrastructure
- Resources (well-educated population)
- Strategic positioning
CASE: China
What are complications companies face when entering China’s market?
- “State Capitalism”: gov. manipulates market to achieve political goals
- lg. mix of old vs. new
- v. hard for MNEs to open local operations
- frustrating bureaucratic system
- v. ambiguous legal system
- intellectual property not protected well
What is the political system?
Structural dimensions & power dynamics of the gov that…
- Specify institutions, organizations, & interest groups
- Define norms/rules that govern political activities
What is the goal of the political system?
To integrate diverse elements of society
What is the test of the political system?
Uniting society in the face of diverse viewpoints
What is “laissez-faire?”
Belief that the gov. should not intervene in business affairs
What are the primary principles of collectivism?
Needs of group > needs of individual
Assumes common goal to improve welfare of all members of society
What is political ideology?
- Encapsulates doctrine of political behavior & changes
- Outlines procedures for turning ideas into actions
What is pluralism?
There are multiple opinions about an issue, and each contains part of the truth, but none with whole truth
How is political freedom measured?
- Degree to which fair & competitive elections occur
- Extent to which individual & group freedoms are guaranteed
- Legitimacy ascribed to Rule of Law
- Freedom of the press
What are the key elements of democracy?
- Participation by citizens in fair/just decision-making process
- Authority of the many over the few
- Strongly related to individualism
- MNEs operate on economic (not political) standards
What are the key elements of totalitarianism?
- Consolidates power in a single agent who controls political, economic, & social activities
- Focus on collectivism
- Differing opinions to standard political ideology not tolerated
What are 2 business implications of totalitarianism?
- Private enterprises support state control of economic activities
- State favors local over foreign companies
What was the Third Wave of Democratization?
- 1970’s-80’s
- 30+ countries switched from totalitarianism to democracy
What powered the Third Wave of Democratization?
- Regime legitimacy: totalitarian govs. couldn’t deliver economic progress
- Communication innovations: eroded totalitarian states’ control of info
- Freedom’s consequences: led to economic dividends
What were implications of the Third Wave of Democratization?
- Stabilized business environments for MNEs
- Industries developed
- Middle class emerged
- Globalization accelerated
- Freedom flourished
What 4 political systems does the Economic Intelligence Unit identify?
- Full democracy
- Flawed democracy
- Hybrid regime
- Authoritarian regime
What factors are currently promoting authoritarianism?
- Political economy of growth
- Democracy set-backs in major democratic nations
- Global financial crisis
What worldwide trends increase political risk for companies?
- Many fast-growing emerging markets have factors that increase instability
- Aftermath of financial crisis increased political risk in all markets
What is systemic political risk?
Influences macro business environment & affects all firms
- Shifts in public policy
- New politicians
What is procedural political risk?
Institutes impediments that constrain flexibility of local operations
What is distributive risk?
Gradual elimination of local property rights of foreign companies
- Creeping expropriation: officials slowly take bigger share of MNE’s rewards
What is catastrophic risk?
Devastates companies and countries
What characterizes a common law system?
Developed by judges through decisions of courts (stare decisis)
