September 19 /2 Flashcards
Economic Freedom
(6 Aspekte)
-
Size of government
- State involvement into free market – transfers, subsidies, tax, state-owned companies
-
Legal system and property rights
- Legal certainty – independent institutions, corruption, protection of property rights
-
Sound money
- Money growth, inflation, freedom to own foreign currency
-
Freedom to trade internationally
- The freer the better – tariffs, regulatory trade barriers, free movement of money/people
-
Regulation
- The lesser the better – credit market, labour market, business regulation
Other functions of the state and their importance for business
(5)
Negotiator:
- the state acts as an negotiator
- bilateral (2 countries), multilateral (more than 2 countries)
- e.g. WTO: reductions in barries to trade, movement of capital across borders
- such negotiations can be very good for business
Regulator:
- Regulations can affect a wide range of business activities
- e.g. Bank regulations/law after the financial crisis
- Regulations could increase or decrase costs heavily
- the main forms of regulations aththe national level (but supernations regulation is becoming increasingly important)
Deregulator:
- state can also deregulate, or liberalize
- the usa and eu liberalized their civil aviation sectors
- e.g. numerous low cost airlines emerged
- the extent of regulations is an indicator of the size of the state, or its willingness to intervene in business activities
Arbitrator:
- state acts as an arbitrator, or referee, between firms
- competition authoroties
Financial Guarantor:
- a crucial role for the state is the preservation of the economic & financial systems
- e.g. financial crisis, financial institutions were taken into pulic ownership
- governement could not allow the finanical system to crash
- money and credit provided by banks is avital lubricant for business in modern economy
Where does the largest amount of public spending (State) go?
- subsidies
- pensions
- social security
- unemployment benefits
followed by:
- spending on defence, law and order, education and health
Can you explain the role of MNE’s in global FDI (foreign direct investment) and trade?
The activities of multinational enterprises drive the economic globalization process to a very large degree. Therefore, the importance of multinational enterprises in foreign direct investment and production abroad is examined as well as their contributions to the international transfer of knowledge and technology and to foreign trade. It is argued that economic theory must account for multinationals’ activities in the analysis of the globalization process.
What international business trends can you identify?
- Digitization
- Automation
- AI
- IOT
Why do firms invest abroad?
What are the main goals of FDI?
– Increasing foreign market share
– want presence in foreign market
– Defend market share
-avoid trade barriers
– Low wages
– Resource acquisition
– Tax avoidance (transfer pricing)
Defintion of FDI (foreign direct investment)
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.[1] It is thus distinguished from a foreign portfolio investment by a notion of direct control.
The origin of the investment does not impact the definition, as an FDI: the investment may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
Law Systems
Continental legal System (civil law)
vs.
Anglo-American legal system (common law)
-
Continental legal system (civil law)
- Based on the code, code law
- Laws are clearly written down
- Ownership of intellectual property determined by registration
-
Anglo-American legal system (common law)
- Based on previous cases, case law
- Small law text and similar cases are based on earlier judgments
- Ownership of intellectual property by prior use
What are some possible “law issues” in Int.Bus?
- No clear regulation how a contract should be drafted?
- To understand both legal systems might be very complicated and their combination even more complex
- The two legal systems might even contradict each other. This leaves the company with the choice in which of the two countries it wants to break the law
-
Why does corruption harm economic development?
- Stability
- Higher costs (exports)
- Low confidence in economy
- The most efficient distribution is disturbed (not the best working company gets the contracts but the best bribing)
Intellectual property rights (2)
- Copyright: Exclusive right of holder to control for 10-30 years the reproduction or adaptation of creative works
- Patent: Granted to a new useful and non-obvious invention. It gives the patent holder a right to prevent other from copying the invention without a license for 20 years from the filing date of a patent application
- Trademark: A distinctive symbol used to distinguish the products or services of different businesses.
Key Points (SW2)
» The business environment is strongly influenced by its political environment.
» International businesses are exposed to a large number of different political and legal systems, which can affect company profitability (country risks).
» There are two main axes to map political systems. The first axis differs Totalitarianism from Democracy (systems). The second one differs Socialism and Liberalism (systems).
» Political and economic freedom often correlate, but there are prominent examples that show that also politically relatively unfree states (UK) can offer good economic freedom to businesses.
» There are four main systems of law: civil law (continental, code law, by registration), common law (Anglo-American, case law, by prior use), religious law and the mixed law.
» Regardless which law system is in place, to minimize country risks it is important that the existing rules are followed and fairly enforced (rule and law).
» There are six types of country risks: government take over assets; embargos and sanctions; boycotts; war & terrorism, host-country legal risks, home-country-legal risks.
» The following methods may help to minimize country risks:
» Proactive scan of the environment
» Follow strict ethical standards
» Involve qualified local partner
» Look for protection through legal contracts.
The following methods may help to minimize country risks (4)
- Proactive scan of the environment
- follow strict ethical standards
- invole qualifed local partner
- look for protection trough legal contracts
What are the most common cause of inflationary or deflationary pressure?
The most common cause of inflationary or deflationary pressure is a mismatch of aggregate demand for goods and services with the economy’s production capacity. Such situations can arise, for example, because of unexpected economic developments abroad or major fluctuations in exchange rates. Inflationary pressures increase when the economy is overheating, and they decrease when production capacity is not fully utilised. The SNB must gradually restore price stability by tightening monetary policy, in the first case, and easing it, in the latter. Consequently, monetary policy that is geared to price stability has a smoothing effect on aggregate demand and thus fosters steady economic growth.
Inflation / Deflation: most commen couse is the mismatch of aggregated demand for goods an services with the econom’y capacity. Why is the situation more complex if price incresases are triggered by shocks that increase companies costs –> and reduce production?
The situation is more complex if price increases are triggered by shocks that increase companies’ costs and cause these companies to reduce production. A sustained rise in oil prices is an example of such a shock. In such circumstances, monetary policy must, on the one hand, make sure that the higher production costs do not create an inflationary spiral. On the other hand, it must ensure that the companies affected by the increased production costs are not overburdened. A hasty restoration of price stability could have adverse effects on the economy and on employment.
The political environment comprises institutions that:
(3)
- influence political environment through their policies
- pass laws and establish regulations (erlassen)
- implement and enforce laws and regulations (umsetzen)
Also—groups and organizations in the public realm and the wider political culture—e.g. the media and civil society groups
Where are decisions made that affect the political environment? (4)
−
international level
−
national level
−
regional level
−
local level
What are the characteristics of Liberal democracy?
−
right of citizens to elect governments to represent their interests
−
governmental institutions based on majority rule
−
members drawn from a varietyof political parties
−
free elections
−
a permanent, skilled, and impartial public service
−
the right to personal freedom and to express views freely
−
State institutions which are constrained in their powers by other institutions e.g. an independent judiciary
Which are the oldest democracies in the world?
- USA 2. Switzerland 3. New Zealand 3. Canada 5. UK
USA 219 years old
Switzerland 171 years old
What does it mean that the US has been downgraded by the EIU from “full democracy” to “flawed democracy”?
In 2017,
the US has been downgraded by the EIU from a “full democracy” to a “flawed democracy” by the Economist Intelligence Unit. The downgrade reflects Americans’ drop in confidence in governmental institutions:
Public trust in the US government remains near historic lows in 2019.
What are the charecteristics of Authoriatarian and Absolutist System?
Restrictions on operations of political parties
−
Power in hands of one or a few people
−
No checks or balances on those holding power (keine Kontrolle/Ausgewogenheit der Machthaber)
−
Power retained through patronage (Gönnerschaft)
What are the characteristics of Communism?
−
Means of production owned by the State
−
Domination by one political party
−
The party controls the legislative, executive, and judicial branches of the State as well as trade unions and the media
What are the characteristics of the Thecratic System?
−
Religion/faith plays dominant role
−
Religious leaders and political rulers are the same people
−
Political decisions derived from principles of the dominant religion
What are the main differences between the
unitary systems
vs.
federal systems?
Unitary systems:−
decision-making power is centralized in hands of central government—the regions have little or no autonomy
Federal systems:
−
power is shared between the centre and the regions, e.g. Switzerland a Confederation.
All of political systems (liberal democratic, authoritarian, communist, theocratic) can be Unitary or Federal in theory—what distinguishes them is the way in which these are practised.
Name the 4 political systems
All of political systems (liberal democratic, authoritarian, communist, theocratic) can be Unitary or Federal in theory—what distinguishes them is the way in which these are practised.
The Functions of the State (6)
establishes the legal framework
regulator and deregulator
public expenditure and taxation
international negotiator
internal and external security
arbitrator/judge