Einheit 2

Question 1

economic power shifts since end of WWII

Answer 1

After second world war,
global business was
dominated by Europe and
the US

With the growth of Japan,
a triad of global economic
powers was formed in
the 1980s

Emerging markets are
again changing the
puzzle of global business
in the new millennium

Question 2

regional insights africa, asia

Answer 2

Africa: Being labeled the “hopeless continent” in 2000 by The
Economist, we now have a more positive perspective

Asia: Asia is the global economic growth engine since the 1990s,
with specific significance of China and India

Question 3

regional insights europe, north, south america

Answer 3

Europe: Being the birthplace of global business, Europe currently tries
to find its position between Asia and North America

North America: With the US as the strongest global economy, North America
runs more aggressive global economic strategies than Europe

South America: While being resource-rich, South America struggles to develop a strong position in the global economy

Question 4

Europe’s hisorty of trade

Answer 4

Since 500 BC.
Cross-border Economic Activities develop; trade routes to
China exist since 500 BC (e.g., Silk Road)

Age of Exploration (15-18th century):
Global explorations and colonization by European powers and establishment of colonial trade networks

Industrial Revolution
(18th to 19th Century):
Technological advancement revolutionizing production and a
surge in international trade and global business expansion

World Wars Impact (20th Century):
Economic shifts and restructuring post-World Wars and the emergence of global institutions like IMF and World Bank

European Integration
(Mid-20th Century-):
Formation and evolution of the European Union and impact of
the EU’s Single Market on business dynamics

Era of Globalization (Late 20th to early 21st century):
European businesses play central role in global interconnectedness and technological advances reducing
international business barriers

Question 5

Europe’s present position

Answer 5

Role in world trade & economics:
-As mentioned: The largest amount of FDI is between US-Europe,
BUT this can (and most likely will) change
-Europe is struggling to maintain its good position (reasons below)

Power of EU vs. nations: Role of the single market and trade policies

Digitalization: Europe embraces digital transformation but is behind
China and the US

Sustainability: Initiatives under the European Green Deal for
sustainability

Politics: Various countries are struggling with polarization
-Brexit: Adjustments in response to new trade barriers
-Elections: Right-wing parties won various elections across
countries, partly resulting in protectionist tendencies
-War (Russia-Ukraine)

Question 6

important european firms

Answer 6

Siemens AG:
-pioneers in electrification and automation

Wienerberger:
-world’s largest brick producer, emphasis on sustainable production

Xapgemini:
-global leader in consulting and technology services

Question 7

North America’s history

Answer 7

Pre-1400s
Indigenous trade networks across the continent

1400s & 1500s
European exploration initiates colonization and first
international trade routes (Christopher Columbus 1492)

1600s & 1700s
Mercantilism and the triangular trade dominate the economy, with European powers exploiting resources

1800s
Industrial Revolution and infrastructure projects (e.g., Transcontinental Railroad) spur growth and expansion of MNCs

1900s
World Wars, the Great Depression, and the creation of international economic
institutions (IMF, GATT) reshape trade policies

1994
NAFTA established significant shift towards regional economic integration
among Canada, Mexico, and the USA

2000s
Digital revolution, 2008 financial crisis, sustainability trends, COVID-19
Pandemic → new challenges, transformation of global supply chains and business practices

Question 8

North America: present & Future

Answer 8

Staying on top is difficult amidst foreign competition & internal struggles

Role in world trade & economics: Preparing for the rising
influence of emerging markets (especially China) through policies
(subsidies for innovation and increasing protectionism e.g., tariffs)

Digitalization:
-Businesses are rapidly integrating digital technologies to streamline operations and access new markets (e.g., USMCA = Free trade agreement that replaced the North American Free Trade Agreement (NAFTA) with several updates reflecting modern
trade issues (digital trade, intellectual property, …).
-Government subsidies for innovation in AI, blockchain, and IoT
are expected to revolutionize business operations and market
approaches (aim at staying competitive with China)

Sustainability:
Shift towards sustainability, with companies increasingly committed to environmental, social, and governance
criteria (ESG); regional- and state-level sustainability initiatives

Politics: Tensions within the US given an increasing polarization
(i.e., ) and populism

Question 9

American Firms

Answer 9

Usually, the most well-known
MNEs are still from North America

BOEING:
-among the largest global aerospace manufacturers
-government contracts -> public and private sector impact

Apple:
-Tech giant, pioneering sustainablity in tech manufacturing

Tesla:
-expanding global footprint
-innovating energy storage and clean energy products worldwide

Question 10

South America’s history

Answer 10

Pre-1500s
Indigenous trade networs across the continent

Colonial Era
(15-19th Century)
European colonization for resource extraction (gold, silver), trade monopolies and forced labor systems

Early Post-Colonial
time (19th Century)
Emergence of independent nations, opportunities for international commodities trade and investment

19th and early 20th Century
Expansion of international trade in commodities (coffee, sugar,
minerals, rubber) and European and North American investment in
infrastructure to facilitate extraction and export (railways, ports)

20th Century
Increased foreign investment, especially from the United States, rise
of import-substitution industrialization policies, political instability, economic nationalism and persistent social inequality

Late 20th Century to Present
Adoption of neoliberal economic policies, regional economic
integration initiatives, and continuing challenges including income
inequality, corruption, and environmental degradation

Question 11

South America Present and Future:

Answer 11

The factors that hindered international trade in the past still persist

Role in world trade & economics:
-Key role in global commodity trade, grapples with market volatility
-Regional integration and trade deals are progressing, despite
internal economic disparities

Digitalization:
-Growing tech hubs contrasted with wide digital divides
-Initiatives for connectivity expansion impeded by infrastructure and
socioeconomic gaps

Sustainability:
-Rich biodiversity with initiatives for renewable energy and
conservation
-Challenges: deforestation, mining impacts, and policy enforcement

Politics:
-Economic progress amidst political instability. Anti-corruption and
reforms are ongoing, with varying degrees of success across the
continent

Question 12

South american firms

Answer 12

Consequently, it is difficult to
become a successful international firm from SA

Petrobras:
-publicly-held Brazilian multinational corporation in the petroleum industry
-significant international presence

mercado libre:
-largest e-commerce platform in Latin America, often linked to ebay or amazon
-listed on NASDAQ, expanded across LA and globally

Embraer:
-one of largest manufacturerers of commercial jets up to 150 seats
-strong global presence
–privately-owned and publicly traded

Question 13

Asia history

Answer 13

Asia’s rise as an international economic
superpower began after WWII

European Colonization (16th to 20th Century):
European Colonies control trade routes and resources in Asia

Rise of Trade Companies
(1600s-20th Century):
British and Dutch East India
companies

Post-World War II (Mid-20th Century)
Asian countries gaining independence,
Japan’s economic miracle, rapid
growth of the Asian Tigers

China’s Economic Reform (1978)
Opening up of China under Deng Xiaoping to become a global
manufacturing hub and a key international player

Regional Economic Integration (Late 20th C.)
Initiatives like ASEAN and RCEP aim to promote economic cooperation and reduce trade barriers
ASEAN = Association of Southeast Asian Nations
RCEP = Regional Comprehensive Economic Partnership; free trade agreement among Asia-Pacific nations

Digital Revolution (21st
Century):
Rise of technology companies transforming Asia into a global
leader in technology and innovation

Question 14

Asia Present and Future

Answer 14

China and other Asian countries are aiming for international trade leadership

Role in world trade & economics:
-Dominant in manufacturing, electronics; pivot to service sectors
-US-China trade tensions, diversifying trade with RCEP and CPTPP

Digitalization:
-Leader in tech innovation, e-commerce, digital finance
-High-tech cities contrast with rural areas lacking infrastructure

Sustainability:
-Green tech focus, but environmental degradation and urban
pollution persist
-Energy demands grow with economic growth, challenging carbon
reduction goals

Politics:
-Regional power dynamics complex with China’s rise. Internal
political issues and human rights concerns impact global relations

Question 15

Asian Firms

Answer 15

Many international firms come from the Asian Tigers, but we also see a rise in other Asian markets

Samsung electronics:
-global leader in consumer electronics, semiconductors, and smartphones
-combines public shareholding and family-led business apsects

Alibaba Group:
-major multinational conglomerate specializing in e-commerce, retail and technology
-strong international presence
-publicly traded with one of the largest IPOs in history

tcs:
-leading global IT servies, consulting, business solutions organization
-strong footprint in it outsourcing
-part of larger tata group, publicly traded on Indian stock exchanges

Question 16

Oceania history

Answer 16

From colonialization, to
independence, to commodity exporters & tourism hubs

Pre-Colonial Trade:
-Various indigenous peoples engaged in trade amongst themselves mainly based on barter (exchange of goods)

European Arrival (16th Century)
Introduction of global trade routes, colonization (Britain, France,
Germany) and the beginning of the shift in indigenous economies

19th to Early 20th Century
Expansion of European colonial economies with plantation systems
(Fiji, Papua New Guinea), export of sugar, copra, wool, meat, and
dairy, and the introduction of labor force from India and China

Post World War II and Decolonization
Movement towards independence, emergence of new nation-states
and reorientation towards diversified economies

Late 20th Century to Present
Increased globalization and trade liberalization, the emergence of
regional trade agreements, Australia and New Zealand as exporters
(minerals, coal), and smaller economies focusing on tourism and
niche exports (e.g., bottled water from Fiji)

Question 17

Oceania Present and Future

Answer 17

Role in world trade & economics:
-Australia and New Zealand dominant in mining, agriculture, services, and the global supply of certain raw materials
-Small islands face geographical isolation and limited diversification

Digitalization:
-Rapid advancements in Australia and New Zealand juxtapose with Pacific islands’ connectivity and digital access challenges

Sustainability:
-Committed to dealing with climate change due to its vulnerability
to rising sea levels and extreme weather, however, full transition
faces economic and infrastructural hurdles

Politics:
-Stable governance in major nations provides a favorable business climate
-Smaller islands need stronger regional political collaboration to
amplify their voice in global affairs

Question 18

Oceania Firms

Answer 18

Not many international firms from
Oceania are known outside this region

ANZ:
Australia and New Zealand Banking Group
-one of the largest banks in Australia
-operates with a strong presence in the Asia-Pacific region

Fletcher Building:
-one of new zealands largest listed companies
-operates in new zealand, australia, and the south pacific
-contributes significantly to local economies

Qantas:
-australias largest airline
-broad international footprint
-pioneering long-haul flight services
-leading sustainablitiy efforts in aviation

Question 19

Africa History

Answer 19

Pre-Colonial Era
Trade networks within the continent and with the outside worlds, indigenous systems of commerce and exchange

Colonial Era (Late 15th Century – Mid 20th Century)
European colonization led to exploitation of Africa’s resources,
including the transatlantic slave trade and extraction of raw materials for European markets

Post World War II and Decolonization
African countries gained independence, seeking economic selfsufficiency
amidst challenges of political instability and neocolonial influences
Movement towards independence, emergence of new nation-states
and reorientation towards diversified economies

Late 20th Century to Present
Integration into global economy, foreign investment, structural
adjustment programs initiated by international financial institutions
(mixed outcomes)

Question 20

Africa present and future

Answer 20

Exploitation continues to be
a problem in establishing an independent position

Role in world trade & economics:
-Africa’s market is resource-rich, AfCFTA set to bolster trade selfsufficiency
-Global Partnerships represent opportunities, however, external
market dependency and raw material focus remain challenging

Digitalization:
-Rapid mobile uptake sparks tech growth, however, access is uneven

Sustainability:
-Renewable energy projects are expanding, leveraging Africa’s vast
potential
-However, environmental management struggles against the pressures of industrial and agricultural expansion

Politics:
-Political reforms are emerging, but governance issues, corruption,
and civil unrest still pose significant risks to economic stability and
investment attractiveness

AfCFTA (African Continental Free Trade Area): An agreement to create a single continent-wide market for goods and services, aimed at boosting trade
and economic growth within Africa

Question 21

African Firms

Answer 21

struggling in establishing an importan international role

Dangote:
-one of africas largest industrial conglomerates
-primarily cement manufacturing, sugar, salt, flour milling
-extensive operations across several african countires

MTN:
-leading telecommunications provider in africa
-african countires and middle east

safaricom:
-largest mobile network operator in kenya
-mobile payment service, transformed financial services in the region

Question 22

differantiaton by economic characteristics by supranational instutions

Answer 22

IMF:
-IMF differentiates between ‘Advanced’ and ‘Emerging and Developing’ Economies
-There are no explicit thresholds
-Around 17% of all countries are considered ‘developed’

UNDP:
-UNDP differentiates between ‘Developed’ and ‘Developing’ Countries
-Ranking based on the Human Development Index (HDI)
-Relative threshold: 25% highest HDI-ranking countries are always developed countries

World Bank:
-World Bank differentiates between “High-Income” and ‘Low- and Middle-income’ Countries
-High-income categorization if US$ 14,005 GNI per Capita is exceeded (for 2025)
-Around 28% of all countries are high-income

Question 23

Emerging Markets

Answer 23

= markets that can no longer be defined as developing markets but at the same time do not meet all characteristics of a developed market

EM provide potential new operational locations and consumer markets for developed market firms, and at the same time bring new competitors.

An interesting group of EM are
the BRICS.

Question 24

Volkswagen in China

Answer 24

Volkswagen invested early in China as the emerging operational location offered opportunities

-In 1984, Volkswagen set up the Shanghai Volkswagen Automotive Co. Ltd., an International Joint Venture with three Chinese Partners. Volkswagen owned 50%of the equity.
-Joint Venture partners were Shanghai Automotive Industry Corporation (SAIC,
25%), providing substantial operational support; the Bank of China (15%), supporting the financing of the venture; and the China National Automotive Industry Corporation (CNAIC, 10%), providing the network in the Chinese automotive industry.
-The first car produced was the VW Santana

-Emerging operational locations, like China in the 1980s and 1990s, offer
operational opportunities for investing firms.
-International firms consider investing in foreign factories or facilities in emerging operational locations largely because of low factor costs.
-In the short run, regulatory and political uncertainty, cumbersome
administrative processes, or challenging infrastructure provide challenges for
investing firms.

Question 25

China as emerging consumer location for VW

Answer 25

-The Santana, rather unsuccessful in developed markets, was a major success in China, selling up to 300.000 units annually
-Volkswagen was able to operate with a rather low marketing and advertising
budget in China as competition was extremely limited, and most sales was
business-to-business in the 1980s and 1990s
-In 2001, Volkswagen had a market share of more than 50% in China
-While absolute sales were still increasing afterward, market share was
decreasing significantly since then

-Economic growth leads to more demand in emerging markets, while competition is rather limited
-Consequently, international firms enter emerging markets to sell their products
-Complex regulations, missing experience with distribution systems, and different demand structures (e.g., different culturally driven preferences) may provide challenges for investing firms

Question 26

new relevant competitors for global markets from emerging markets (BYD)

Answer 26

-The Chinese market provided relevant growth opportunities, not only for
international firms
-BYD used its competencies in battery development and –production to develop and produce electric vehicles (EVs)
-In 2023, BYD was the largest EV producer globally
-While the core sales market of BYD is still China (as of 2024), the company is
continuously expanding its global footprint

-Emerging market firms may have significant advantages (e.g., used to difficult market environments with relevant growth opportunities)
-Those firms are often high-end producers in specific markets and may start competing with developed-world companies
-Firms, however, could also be low-end producers that are highly efficient and
competitive (e.g., export-oriented emerging market firms)
-Such firms regularly display different internationalization behaviors due to
differences in management styles and “late-comer” status

Question 27

BRICS

Answer 27

BRICS is an acronym for Brazil, Russia, India, China, South Africa

The label BRICS was originally developed in the context of international investment strategies by former Goldman Sachs Chairman Jim O’Neill

BRICS today is a supranational institution and geopolitical counterpart to the G7

At the beginning of 2024, Egypt, Ethiopia, Iran, and the United Arab Emirates joined the organization (now referred to as BRICS plus)

BRICS plus is supposed to give a stronger geopolitical voice to the global south

More than 40 additional nations either expressed interest or formally applied as potential future members of BRICS plus

Question 28

factors that drive globalization

Answer 28

factors that drive globalization are diverse, interdependent, and condition each other

1. Technology
   -Innovations such as telegraphs, telephones, and the internet facilitated instant communication and reduced costs for global exchange of information.
   -Advancements in transportation vehicles like cargo containers, airplanes, and ships enabled cost-effective movement of people and goods across the globe.
2. Economics
   -Globalization was fueled by the liberalization of world trade through
   agreements like GATT, the Uruguay round, and the WTO.
   -Economic opening of previously closed countries and market deregulation
   allowed companies to efficiently operate on a global scale, fostering international business and economic interdependence.
3. Politics
   -Increased mobility of companies and international business activities heightened competition among countries to create favorable business environments.
   -This competition constrained countries in regulating business activities, limiting
   their sovereignty and affecting their ability to pursue national interests
4. Social
   -Socially, globalization led to a debate on its impact on overall wealth and
   divergence between industrialized and developing countries.
   -Income per capita disparities increased, leading to social divergence within countries, prompting protectionism, as seen in Brexit.
5. cultural
   -Cultural convergence toward a global culture was driven by increased worldwide mobility of people, information, and products.
   -While national traditions still matter, factors like age, job, and lifestyle gained
   prominence, sparking discussions on the emergence of a unified global culture.
6. Ecological:
   -Globalization has contributed to ecological challenges, including pollution, ozone depletion, and the greenhouse effect. The rising demand for fossil fuels
   has led to environmental disruptions, necessitating global initiatives like the Earth Summit, Kyoto Protocol, and Paris Agreement to address climate change.

Question 29

de-globalization pressures through political developments and critical events

Answer 29

political developments
-trade wars
-populist politics
-(radical) movements

critical events:
-covid-19 pandemic
-wars & armed conflicts

Question 30

political pressures on globalization

Answer 30

Significant increases in tariffs in trade (sometimes referred to as ‘trade war’) for certain goods, e.g. between China, the US, and Europe, create direct cost and mistrust in global trade relations

Populist politics in many nations trigger negative perceptions toward
international trade and investment

Radical movements around the world increase the risk and cost of doing
international business (see pirates in Somalia, the planned concerts of Taylor Swift in Vienna, …)

Question 31

recent events that put pressures on globalization

Answer 31

Recent events brought globalization to a halt by disrupting global supply chains & FDI flows

-Covid-19 was attacking the weak spot in global (cheap/cost-effective) supply
chains
-Similarly, the wars and armed conflicts in Ukraine and Israel/Palestine,
disconnected regions from international trade
-This raised questions of risks in such global supply chains and whether they
should continue to exist in the same way
-Supply chain resilience and early warning systems become more important
-Events also reduced cash flows from existing investment projects, significantly negatively affecting FDI flows (globally in the case of COVID-19 and regionally in the case of recent military conflict).
-Further, many firms divested in countries associated with military conflict and/or sanctioned by the international community (e.g., significant divestments
in Russia)

Question 32

institutions as guiding framework for economic activity

Answer 32

Institutions provide the framework for economic activity and human interaction

Formal:
Explicit and codified rules,
laws, regulations, and
organizational structures
(e.g., tax regulations, curfews)

Informal:
Unwritten, norms, traditions, social practices (e.g., customs of how meetings are held: length of
talking about private life, the weather, etc.)

Regulatory:
Formal rules, laws, regulations
(based on legal mechanisms)

Normative:
social norms, values, beliefs

Cognitive:
shared beliefs, assumptions, mental models shaping an individual’s perception of the world

Question 33

Barrick Gold in Tanzania

Answer 33

Early 2000s: Barrick Gold entered a JV in Tanzania to operate the Bulyanhulu gold mine

Disputes arose over tax claims, export regulations, and a significant fine for
alleged environmental breaches and unpaid taxes

In 2017, the Tanzanian government banned the export of gold and copper
concentrates, impacting Barrick Gold’s operations, and demanded $190 billion in back taxes and penalties from its subsidiary

After long negotiations with the Tanzanian government, Barrick Gold reached a settlement: Pay $300 million in tax claims and share future economic benefits from the
mine

Barrick Gold has implemented various initiatives aimed at environmental
conservation, community development, and responsible resource extraction → Barrick Gold leverages these initiatives to enhance its government relationships

Question 34

formal national institutions

Answer 34

political systems

legal systems

economic systems

here are strong interdependencies between the institutional dimensions / systems

Question 35

role of political sstems

Answer 35

Political Systems: Political organization of a country (e.g., democracy, dictatorship) that can be recognized, observed, or otherwise declared by a state.

Power and authority:
the political system determines …
-where political decision-making happens
-which regulations are established
-which interests these regulations reflect.

The political system determines how MNCs can influence policymaking
via …
-legal (e.g., lobbying, connections) or
-illicit means (e.g., bribery).

The political system determines the frequency of regime changes
leading to political risk and uncertainty.

Question 36

political system examples -> Resources and stability

Answer 36

Venezuela: Nationalizing resources
-After being one of the primary oil
exporters worldwide, Venezuela’s position started to decline
-PDVSA became partner for incoming FDI
-The Bolivarian Revolution in late 1998 led to an increased nationalization of resources

Stability as a crucial factor for firms:
-> J-Curve
-Concept by Ian Bremmer
-Openness does not linearly relate to stability
-Consolidated authoritarian/closed countries can exhibit relatively high levels of stability
-Countries transitioning from closeness to openness frequently face deteriorating levels of stability

Question 37

classification of political systems

Answer 37

democratic <-> authoritarian

democratic:
Decision-making is vested in the people
or elected representatives

authoritarian:
Decision-making is vested in a single,
unaccountable leader or a group of
individuals

Most countries are hard to classify:
-Russia is nominally democratic but in reality, a highly centralized authoritarian state.
-China is a more decentralized authoritarian state with some democracy at the local level
and calls for democracy within the communist party.

Governments are made up of competing political and bureaucratic interests. This is true for all political systems.
-The “Chinese”, “Japanese” or “French” states are not monoliths.
-Though governments openly support domestic firms relative to foreigners, local governments or some bureaucracies support foreign firms.

Question 38

Politial risks

Answer 38

Macro- and micropolitical risks can
have important consequences for nations’ stability

Different national political systems are associated with varying levels of political risk

Types of political risks
-Macropolitical risks affecting all firms in a country (e.g., war, change of government)
-Micropolitical risks affecting only specific firms, industries, or venture types (e.g., regulations, taxes)

Potential negative effects on a national level
-Government stability
-Policy changes
-Geopolitical tensions
-Changes in the “rules of the game”

Measurements of political risks
-POLCON: Likelihood of changes in the policy regime
-ICRG (International Country Risk Guide): Rating comprises 22 variables in three subcategories of risk: political, financial, and economic

Question 39

democratic countires in the context of politcal risk

Answer 39

Democratic countries tend to come with checks and balances that help protect against political risk

-Checks and balances protect against
changes and are therefore “first
order“ safeguards.
-Henisz (2000) developed a muchused
framework for the assessment
of political constraints (POLCON).
-This framework is based on the idea
that political systems that have
counterbalancing powers will lead
to a reduction in risk.
-As foreign firms generally fear
changes to the political environment,
more checks and balances are
assumed to be positive for
international investments.

Question 40

central questions when analyzing a political system

Answer 40

Who are the relevant actors?
President, bureaucrats, interest groups, voters

How is power distributed?
Centralized vs. federal

How much power do regional governments have?
“Heaven is high, the emperor is far away“

How stable is a state?
Particularly in developing countries

How stable is policy?
Again, think about POLCON

What is the capacity of government to create and execute policy?
This question helps in detecting corruption

Question 41

elections

Answer 41

Elections are a key events with heterogeneous outcomes in
democratic states – and bear implications for firms

Elections are clearly timed events with heterogeneous and uncertain outcomes in democracies

Elections have relevant implications for firm operations, investment, and financing

Question 42

implications of political system on legal and economic system

Answer 42

Members of the political system
design, vote on, and propose
legislation implemented via the
legal system

The political system determines
the role of the state in the
economic system

Question 43

Role of legal systems

Answer 43

The national legal system has significant direct and indirect effects on firms’ activities in a market as home-country laws do not apply abroad

Across legal systems of the world, we can differentiate between two core types of legal systems
-Civil law systems are based on written law that has been approved by political
authorities
-Common law systems, in contrast, are
developed through judicial decisions and precedents over centuries

Question 44

Civil Law

Answer 44

Core Idea:
Relies on codified statutes and
comprehensive legal codes
established by legislatures

Regions:
Prevalent in Europa, Latin America, Asia, and parts of Africa

Judicial Role:
Restricted role of judges:
interpretation and application of
statutes

Stare Decisis “ to stand by things decided”:
The principle of stare decisis /
binding precedent is not as
central

Contract and legal codes

Contracts and agreements
drafted by MNCs often based on
specific provisions outlined in the
legal codes

Question 45

Common Law

Answer 45

Core Idea:
Relies on the development of legal princip

Regions:
Originating in England, spread to various countries (especially British Commonwealth and the United States)

Judicial Role:
Judges have the authority to interpret laws and apply legal principles based on past rulings

Stare Decisis:
Doctrine of stare decisis: courts must follow precedents set by previous judicial decisions, ensuring consistency and predictability.

Contract & LEgal codes:
Doctrine of good faith and fair dealing
involving business deals; common law
principles influence how courts resolve
conflicts especially when local statutes are ambiguous

Question 46

MNCs in Civil Law

Answer 46

MNCs need to adhere to the respective principles of the legal systems

Multinational companies entering
foreign countries need to adhere to
local legal principles (e.g., US firm
entering Spain must adhere to
principles in Spain’s civil code)

Structured nature of civil law
provides predictability and clarity
in global business dealings

MNCs can navigate legal
requirements and resolve disputes
using explicit provisions in legal
codes

Question 47

MNCs in Common Law

Answer 47

multinational corporation from the
United States might rely on common
law principles when engaging in
business ventures in foreign countries,
ensuring consistency

Common law’s adaptability allows
businesses to navigate diverse legal
landscapes, utilizing established
principles for agreements, risk
mitigation, and dispute resolution,
contributing to legal predictability in
various jurisdictions.

Question 48

investor protection in civil law vs common law

Answer 48

Most countries adopted their legal system via occupation, colonization, and later independence (yet continuing the legal system)

Common law system countries have a stronger emphasis on investor protection compared to civil law systems

-French civil law countries protect shareholders and creditors the least
-Common law countries (e.g. US) have the highest investor protection rights

Stronger investor protection rights come with bigger and stronger financial market

Question 49

Implications of Legal system on political and economic system

Answer 49

The legal system defines how the
political system can propose,
adapt, and remove rules

Laws and rules in the legal system
define what is allowed on markets
in the economic system

Question 50

different types of economic systems

Answer 50

Market economies:
-Anglo-Saxon capitalism,
(neo)liberal / free market
economy
-core idea: A country’s trade and
industry are controlled by
private owners for profit
-e.g. UK; USA

Mixed economies:
–European social democratic models
-blend of market-driven capitalist dynamics and state-led interventions
-e.g. european states (sweden, austria)

State-led economies:
-command, pllaned, centralized, or a form of statist economy
-government has significant control over factors and directs economic activity
-e.g. cuba, singapore, japan

In reality, pure forms do not exist as most countries blend in aspects of other systems (e.g., US spends a very large percentage of GDP on defense, healthcare, and education)

A defining question is how different states intervene in their economies and what opportunities and problems intervening presents for business?

Question 51

Market economies

Answer 51

Economic philosophy:
-Minimal state intervention
-Markets are predominately driven by demand and supply
-Emphasis on entrepreneurship, private property and competition

Characteristics:
-Weaker unions
-Lower taxes
-Higher inequality

Role of the state:
-Maximizing economic efficiency
-Not picking industries or favored firms
-State is present in defense, health care, or education

Examples:
-USA, UK, Canada, Australia, or Hong Kong
-Chile is an example in Latin America

Question 52

state-led economies

Answer 52

Economic philosophy:
▪ Government directs economic activity
▪ Basic mechanisms of market economies present
▪ Investment, production, and allocation of capital goods based on
economic plans

Characteristics:
▪ Unions not present or prohibited
▪ State-owned enterprises are common
▪ Large governmental bureaucracies

Role of the state:
▪ Directing economic activities
▪ Picking industries or favored firms

Examples:
▪ Asian Tigers (e.g., South Korea, Singapore), Japan
▪ China
▪ Brazil
▪ Developing countries

Question 53

Mixed economic systems

Answer 53

Economic philosophy:
▪ Seeking a consensus and balance between business, labor, and state
interests
▪ Blending efficient market mechanisms with state interventions to
increase public welfare
▪ State intervention is necessary to correct market failures

Characteristics:
▪ Strong unions and restrictive labor regulations (collective bargaining)
▪ A substantial share of GDP is spent on social services
▪ Higher equality

Role of the state:
▪ Strong state involvement in social services (health care, pensions, or
education)

Examples:
▪ Scandinavian countries (e.g., Norway, Sweden)
▪ Austria
▪ Portugal

Question 54

how do economic systems affect key factors of international business activity

Answer 54

market dynamics

regulatory environment

labor dynamics

fincancial and invetment landscape

coprorate social responsibility and ehtics

supply chain management

access to resources

technology and innovation

trade policies and tariffs

intellectual property rights

government expenditure and state control

Question 55

impact of economic system on market dynamics

Answer 55

Market Systems: Demand and supply forces, minimal state intervention, agility,
innovation, and continuous market assessment.

State-Led Systems: State objectives influence market access, pricing, and
production volume, requiring alignment with predetermined goals.

Question 56

impact of economic system on regulatory environment

Answer 56

Market Systems: Operational flexibility with rigorous self-regulation to address
global standards.

State-Led Systems: Intricate regulatory maze with policies on local sourcing,
technology transfers, and partnerships, demanding localized strategies.

Question 57

impact of economic system on labor dynamics

Answer 57

Market Systems: Market-determined wages, competitive HR strategies for talent attraction, retention, and comprehensive benefits.

State-Led Systems: Standard wage structures, mandatory benefits, potential for
strikes, requiring robust labor relations strategies.

Question 58

impact of economic system on financial and investment landscape

Answer 58

Market Systems: Competitive taxation, reduced trade restrictions, currency
volatility management through financial hedging.

State-Led Systems: Influenced profits by higher taxes, tariffs, and statecontrolled
exchange rates, impacting pricing and investment decisions.

Question 59

impact of economic system on CSR and ethics

Answer 59

Market Systems: Voluntary CSR initiatives driven by market pressures and
ethical considerations beyond compliance.

State-Led Systems: State-mandated CSR activities, legal allocation of profits to
societal development projects, and specific ethical standards.

Question 60

impact of economic system on Supply Chain Management

Answer 60

Market Systems: Efficiency, cost, speed, and global best practices drive supply
chain optimizations.

State-Led Systems: Adherence to local mandates, quotas, and specific industry
services, posing challenges in quality control and efficiency.

Question 61

impact of economic system on acess to resources

Answer 61

Market Systems: Determined by market availability, competition, and costs,
focusing on best sources and logistical considerations.

State-Led Systems: State-controlled key resources, leading to negotiations with
state entities or authorized distributors.

Question 62

impact of economic system on technology and innovation

Answer 62

Market Systems: A competitive environment fosters innovation, necessitating R&D investments and scouting for disruptive technologies.

State-Led Systems: Mandated technology transfers or sharing with local partners
for market access, requiring a balance with IP protection.

Question 63

impact of economic system on trade policies and tariffs

Answer 63

Market Systems: Liberal trade policies, minimal tariffs, and potential
uncertainties from geopolitical tensions.

State-Led Systems: Protective measures introduce tariffs, quotas, and licensing
requirements, necessitating awareness and anticipation of trade barriers.

Question 64

impact of economic system on Intellectual property rights

Answer 64

Market Systems: Robust IP rights protect innovations and brand identities,
enabling confident R&D investments.

State-Led Systems: Varied IP protections, managers strategize on effective
protection and leveraging of intellectual assets.

Question 65

impact of economic system on government expenditure and state control

Answer 65

Overview indicates that state-led economies like Japan or Korea have similar government spending ratios as

Market economies, with European mixed economies
showing the highest shares around the 30-50% mark of GDP.

Question 66

bullet train vs convoy system strategy

Answer 66

Many states had policies to support industries that they believed would be profitable, allowing very fast development → like a
“bullet train”

US government does not choose winners.
Many firms enter many industries. Some
succeed and some fail → a “convoy system”

Question 67

example bullet train: embraer in brazil

Answer 67

3rd biggest airplane manufacturer worldwide (behind Airbus and Boeing)

Founded by the Brazilian Government in 1969 as Empresa Brasileira de Aeronáutica (Embraer)

Existed for two decades as a state-owned enterprise (SOE) before being privatized in 1994

Substantive post-privatization support by the Brazilian government (e.g., PROEX – export financing program, BNDES – Brazil’s national
development bank)

BNDES helped consolidate and modernize a big part of Brazil’s heavy industry

Question 68

impacts of economic system on political and legal system

Answer 68

The success of the economic
system influences the tasks and
faith of the political system

The basic ideas of the economic
system and its functioning is
implemented in the legal system