Lecture 3+4 Flashcards
Enviromental differences
Culture refers to
the norms based on values, attitudes, and beliefs of a group of
people.
Culture can be based on
nationality,
ethnicity,
gender,
religion,
political ideology,
education,
work organization,
profession,
age,
income level,
etc.
Culture is an integral part of a nation’s …
operating enviroment
Cultural collision can occur when
company implements less effective practices
or
employees has difficulty in accepting or adjusting to foreign behaviors
Political risk refers to that
political decisions or political/administrative events in a
country negatively affect the profitability or sustainability of an investment.
weak legal systems, improvised institutions,
volatile political systems, and fragile regimes are examples of
Political risks
international business affecting results of russia invading ukraine
ex. Nationalisation of foreign corporate assets in Russia and destruction of f.d.i. in Ukraine
Types of political risk:
- Systemic risks
- Procedural risks
- Distributive risks
- Catastrophic risks
Systemic risks are risks that
impact all firms that operate in
a particular political system.
Procedural risks refers to the risk evolving from the
daily movement of people, products, and funds from point to point in the global market.
Political actions sometimes create frictions that interfere with these transactions.
Each move creates a procedural
transaction between the units involved, whether units of a company or a country.
Distributive risks is
a result of the profits generated by
foreign companies in the local economy.
If the host
country questions the distributive justice of the rewards of
operating in its market, it may wonder whether, as the
business grows more successful, it is receiving its “fair”
share of the growing profits.
Catastrophic risks includes
random political developments
that adversely affect the operations of every company in a
country.
Typically, it arises from specific dramatic events,
such as ethnic unrest, illegal regime change, civil disorder,
or insurrection. It disrupts the business environment in a
way that affects every firm in the country.
oder the types of political risk on a scale from micro to macro
- Systematic
- Procedural
- Distributive
- Catastrophic
Competing Perspectives (systematic)
The host government’s policies on, for instance, human rights, labor conditions, or environmental sustainability, create public relations problems for a foreign company at home.
Unilateral Breach of Contract(systematic- procedural)
The host government repudiates a contract negotiated with a foreign
company or approves a local !rm’s doing the same.
Tax Discrimination (procedual)
A foreign company is saddled with a higher tax burden than a local
competitor.
Restrictions on Profit Repatriation (prodedual- Distributive)
The host government arbitrarily limits the amount of profit that a foreign company can remit from its local operations to the home office.
Destructive Government Actions (Distributive)
Unilateral trade barriers, often via local-content requirements,
interfere with the distribution of products to local consumers.
Harmful Action Against People (Distributive-catastraphic)
Local employees of a foreign company are threatened by kidnapping, extortion, or terrorist actions.
Expropriation/Nationalization (catastrophic)
The host government or a political faction seizes a company’s
local assets. Compensation, if any, is usually trivial. Resurgent
totalitarianism and resource nationalism increase this risk.
Civil Strife, Insurrection, War (catastrophic)
Military action damages or destroys a company’s local operations.
Legal systems in the world
- Customary Law
- Civil Law
- Common Law
- Muslim Law
- Mixed system
Legal issues
- Operational concerns:
- Tax, Labor, Administrative
- Strategic concerns:
- Product safety and liability
- Marketplace behavior
- Product origin
- Legal jurisdiction
- Arbitration
- Intelectual property rights
Economic factors impacting on managerial decisions at international level:
- Exchange rates
- Currencies
- Inflation
- Public debt
- Purchasing power
- Savings rates, etc.
