Week 5 : National Differences Flashcards
Motivation
o International Business (IB)
The MSc in IB is designed to provide a broad
overview of the international management field
including key theories, trends, phenomena, and the
methods that are used to study them.
Ivey B School, Queens B Schools, HEC
Introduction
International business more complicated than
domestic
• Differing political, legal, and economic systems
• Vary in economic development and growth trajectories
• Cultural, education, and skill levels vary
The political, economic, and legal systems are known as the political economy:
• Systems are interdependent
• Societal culture affects political economy, and political
economy shapes societal culture
Political Systems 1
Political system:
Political system: system of government in a nation
- Political systems assessed in terms of degree to which they:
- Emphasize collectivism as opposed to individualism
- Are democratic or totalitarian
Political Systems 2
Collectivism and Individualism
Collectivism: system that stresses the primacy of
collective goals over individual goals
- Traced to Greek philosopher Plato
- Society should be stratified into classes
- Property should be owned in common
• When collectivism is emphasized, needs of society as
whole are generally viewed as being more important than individual freedoms
Political Systems 3
Collectivism and Individualism continued
Socialism
- Modern socialists trace roots to Karl Marx
- Advocates state ownership of basic means of production, distribution, and exchange
- State then manages enterprises to benefit society as a whole
Political Systems 4
Collectivism and Individualism continued
• In the early 20th century, socialism split into:
Communists – socialism could only be achieved though violent
revolution and totalitarian dictatorship
• In retreat worldwide by mid-1990s
Social democrats, who worked to achieve same goals by democratic means
• Many state-owned enterprises failed to succeed,
and many nations
implemented privatization programs
Political Systems 5
Collectivism and Individualism continued
Individualism
Individualism
• Suggests individuals should have freedom over economic and political pursuits
- Traced to Aristotle, who argued that individual diversity and private ownership are desirable
- Refined in work of David Hume, Adam Smith, and John Stuart Mill
Individualism stresses:
- Individual freedom and self-expression
- Letting people pursue self-interests to achieve the best overall good for society
- Democratic systems and free markets
Political Systems 6
Democracy and Totalitarianism
Democracy
Democracy
• Political system in which government is by the people, exercised either directly or through elected representatives
• Most common form today is representative democracy – elected representatives vote on behalf of constituents
• Freedom of expression, opinion, and organization; Free media; Regular elections; Universal adult suffrage; Limited terms for elected officials; Fair court system; Nonpolitical state bureaucracy; Nonpolitical police force and armed services; free access to state information
Political Systems 7
Democracy and Totalitarianism continued
Totalitarianism
Form of government in which one person or political party exercises absolute control over all spheres of human life, and opposing political parties are prohibited
In most totalitarian regimes: • There is widespread political repression • There are no free and fair elections • Media is censored • Basic civil liberties are denied • Challenges to regime are prohibited
Political Systems 8
Democracy and Totalitarianism continued
Four major forms of totalitarianism today:
- Communist totalitarianism:
- Theocratic totalitarianism:
- Tribal totalitarianism:
- Right-wing totalitarianism:
- Communist totalitarianism:
advocates achieving socialism through totalitarian dictatorship
- Theocratic totalitarianism:
political power is monopolized by a
party, group, or individual that governs according to religious principles
- Tribal totalitarianism:
where a political party that represents
the interests of a particular tribe monopolizes power
- Right-wing totalitarianism:
individual economic freedom is
allowed but individual political freedom is restricted because it could lead to communism
Political Systems 9
Pseudo-Democracies
Pseudo-Democracies
- Many nations lie between pure democracy and complete totalitarianism
- Authoritarian elements capture much of the machinery of state and use this in an attempt to deny basic political and civil liberties
National Differences in Economic
Systems
National Differences in Economic
Systems
Economic Systems 1
Political ideology and economic systems are connected
Three types of economic systems: market economy,
command economy, and mixed economy:
• Market-based economic system likely in countries where individual goals are given primacy over collective goals
• State-owned enterprises and restricted markets are
common in countries where collective goals are dominant
Economic Systems 2
Market Economy
Goods and services a country produces and the quantity in which they are produced is determined by supply and demand:
- Supply must not be restricted by monopolies
- Government encourages free and fair competition between private producers
- Constant incentive to improve products and processes
Economic Systems 3
Command Economy
Command Economy
Goods and services a country produces, the quantity in
which they are produced, and the price at which they are sold are planned by government
- All businesses are state-owned and have little incentive to control costs and be efficient
- Because there is no private ownership, there is little incentive to better serve consumer needs
- Dynamism and innovation are absent
Economic Systems 4
Mixed Economy
Mixed Economy
Includes some elements of market economies and some elements of command economies
• Governments take over troubled firms considered vital to national interests
• Number of mixed economies becoming less common
National Differences in Legal Systems
National Differences in Legal Systems
Legal Systems 1
Legal system definition
Legal system of a country refers to rules, or laws, that
regulate behavior, along with processes by which laws
are enforced and through which redress for grievances
is obtained
A country’s legal system is important because laws:
- Regulate business practice
- Define manner in which business transactions are executed
- Set rights and obligations of those involved in business transactions
Legal Systems 2
Different Legal Systems
1) Common law
2) Civil Law
3) Theocratic law
1) Common law
based on tradition, precedent, and custom
• Found in most of Great Britain’s former colonies, including the United States
2) Civil Law
Civil law: based on detailed set of laws organized into
codes
• Found in more than 80 countries, including Germany, France, Japan, and Russia
3) Theocratic law
based on religious teachings
• Islamic law is most widely practiced
Legal Systems 3
Differences in Contract Law
Common law and civil law systems approach contract law – body of law that governs contract enforcement –
differently
•A contract specifies conditions under which an exchange is to
occur and details rights and obligations of parties
- In a common law state, contracts are very detailed with all contingencies spelled out
- In a civil law state, contracts are shorter and much less specific
Legal Systems 4
Differences in Contract Law continued
United Nations Convention on Contracts for the
International Sales of Goods (CISG) establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have places of business in different nations
• Countries that adopt CISG signal to other nations they treat the Convention’s rules as part of their law
National Differences in Economic
Development
National Differences in Economic
Development
Introduction
Differences in political, economic, and legal systems
influence level of economic development and its
attractiveness for doing business
General move toward democratic forms of
government, market-based economic reforms, and
adoption of legal systems that better enforce property
rights
Differences in Economic Development 1
Level of economic development affects a country’s
attractiveness as a possible market or production
location for firms
• Common measure is gross national income (GNI)
• Purchasing power parity (PPP) adjustment provides a
more direct comparison of living standards in different
countries
• GNI and PPP data give a static picture of development
• Economic growth rates provide a dynamic picture of
development
Map 3.1 GNI per Capita, 2017
Slide 29
Canada and USA = Red (Upper high income: $20,001 or more
South America = mostly yellow and orange, lower middle and upper middle
Asia = Upper middle and lower middle
Africa = low income, low middle income, and upper middle
Map 3.2 GNI PPP per Capita, 2017
Purchasing power parity
Slide 30
Difference from GNI are largest in Russia and South America
Map 3.3 Average Annual Growth Rate in GDP (%) 2008 to 2017
Slide 31
Gross Domestic Product (GDP): is the total monetary r market value of all the finished goods and services produced within a country’s borders in a specific time period
Table 3.1 Economic Data for Select Countries
Slide 32
Table to compare GNI, GNI PPP, Annual GDP, and Size of Economy GDP with 13 countries compared
Differences in Economic Development 3
UN created the Human Development Index based on life expectancy, education attainment, and whether average incomes are sufficient to meet basic needs of life in a country
Map 3.4 Human Development Index, 2015
Slide 34
Canada and USA are very high, Russia / Asia is high
Africa has low human development
Map 3.6 Index of Economic Freedom, 2018
Slide 35
Figure 3.1 Country Attractiveness (slide 36)
Benefits: Size of the economy, likely economic growth
Costs: Corruption, lack of infrastructure, legal cost
Risks: -Political risks: Social unrest / antibusiness trends
- Economic risks: Economic mismanagement
- Legal risks: Failure to safeguard property rights
National Differences in Culture
National Differences in Culture
What Is Culture? 1
Scholars have not agreed on a simple definition
Culture definition
a system of values and norms shared among a
group of people and, when taken together, constitute a design for living
Society definition
a group of people sharing a common set of values
and norms
What Is Culture? 2
Values and Norms
Values:
provide the context within which a society’s
norms are established and justified
Norms:
the social rules that govern the actions of people
toward one another
2 types: Folkways and Mores
Folkways:
routine conventions of everyday life
Mores:
norms that are central to the functioning of a society and its social life
What Is Culture? 3
Culture, Society, and the Nation-State
Society reflects people who are bound together by a
common culture
- Nation-states are political creations that can contain a single culture or several cultures
- Some cultures embrace several nations
- Also possible to talk about culture at different levels within societies
What Is Culture? 4
Determinants of Culture
Values and norms of a culture evolve based on:
• Prevailing political and economic philosophies
• Society’s social structure
• Dominant religion, language, and education
Figure 4.1 Determinants of Culture (slide 43)
6 aspects Religion Political philosophy Economic philosophy Education Language Social structure
Social Structure 1
A society’s social structure is its basic social
organization
Two dimensions to consider:
• Degree to which the basic unit of social organization is the individual, as opposed to the group
• Degree to which a society is stratified into classes or castes
Social Structure 3
Individuals and Groups continued
The Individual
• Emphasized in Western societies
• Encourages individual achievement and entrepreneurship
• Fosters managerial mobility
• Encourages job switching and lack of loyalty to the firm
Social Structure 4
Individuals and Groups continued
The Group
• Emphasized in non-Westernized societies, such as Japan
• Cooperation and team work are encouraged and lifetime
employment is common
• Individual initiative and creativity may be suppressed
Social Structure 5
Social Stratification
• All societies are stratified on a hierarchical basis into social categories, or social strata
• Often defined by family background, occupation,
and income
• Societies differ in terms of:
• Degree of mobility between social strata
• Significance attached to social strata in a
business context
Map 4.1 World Religions
Slide 48
Language
Spoken Language
Countries with more than one spoken language often
have more than one culture
- Chinese is the mother tongue of the largest number of people in the world
- English is the most widely spoken language in the world and is becoming the language of international business
Economic Freedom
Is the fundamental right of every human to control their own labour and property
