Transcript Slide 1

Global Business Environment
• Political, Economic and Legal Environment
• Political systems: individualism vs. collectivism;
democratic vs. totalitarian
• Legal system: property rights, protection of intellectual
property rights, product safety requirements
• Economic environment: market economy, command
economy & mixed economy
• Interconnection of political, legal and economic system
followed by a country
• Impact of differences in system on international business
Global Business Environment
• Cultural Environment
• Meaning of culture, values and norms
• Determinants of culture: social structure, religion,
education, language, aesthetics, history and
geography
• Impact of differences in culture on international
business
• Multinational Companies
• Concept and characteristics of MNCs and their
impact on host countries (political, economic and
cultural)
Political System
• Economic & Legal system shaped by political
system
• Political system means system of government in
nation
• Political system can be assessed in two related
dimensions
• Degree of emphasis on collectivism vs.
individualism
• Degree to which they are democratic or
totalitarian
Political system and functions
Political system and functions
• The inputs are aggregated through a process
“interest aggregation”
• The alternatives are debated, discussed,
agreed, and policies are made
• Policy makers: political parties, government
bureaucrats, state and federal legislatures,
courts
• During policy implementation, any
controversial features are adjusted through
the court process to determine if they’re legal
Political system: Individualism Vs.
Collectivism
Collectivism
• Primacy of collective goals over individual
goals
• Philosophy dates back to Plato argues that ‘
Individual rights should be sacrificed for the
good of majority and property should be
owned in common’
• In modern time it has been picked up by
socialist
Political system: Individualism Vs. Collectivism
Collectivism
• Socialism intellectual roots back to Karl Marx
advocates for ‘State ownership of basic means of
production, distribution and exchange’
• Logic for this is in case of state owned mean of
production, the state could ensure that workers
were fully compensated for their labour
• Two camps in socialism: communists (USSR
(former), Hungary, Cambodia, Laos and still in N.
Korea, Cuba) & Social democrats ( influence on
Scandinavian countries Sweden, Denmark,
France)
Political system: Individualism Vs. Collectivism
Collectivism
• Social democracy have good impact although ideology proved
more enduring than communism
• Consistent with Marxist roots, many social democrats governments
nationalized certain industries e.g.
gas companies in Bolivia
• Experience has shown that state ownership of the means
of production can run counter to the public interest
• Many social democratic party have been voted out in 70/80s in
UK, Germany while in UK in 97 Labour Party (Socialist) came
into power committed private ownership and was in power till last
election (2010) where Conservative Party formed government in
coalition with third largest party
• At present lots of socialist movement is ongoing in South America
(Venezuela, Bolivia)
Political system: Individualism Vs. Collectivism
Collectivism
Nationalization drive of Venezuela
• 2007: Venezuela stripped the world's biggest oil companies of
operational control over massive Orinoco
Belt crude projects (one of the world`s richest oil deposits)
• Oil companies like Chevron, Total (France), BP (Britain),
Statoil Hydro (Norway) negotiated deals with Venezuela to
continue as minority partners in projects
• ConocoPhillips and Exxon Mobil refuses to agree to terms of
being junior partners of project
• Exxon Mobil went into international courts and British Court
in January 2008 issued injunction freezing up $ 12 billion
assets of PDVSA (Venezuela state owned oil company)
Political system: Individualism Vs. Collectivism
Collectivism
Nationalization drive of Venezuela
• In response Venezuela`s state owned
company stopped selling crude oil
to Exxon Mobil
• State run televisions started airing
anti-Exxon statements “ Exxon Mobil
turns oil into blood.”
• Venezuela aims to increase oil sales to China by 50% and also
started working jointly for oil with Russia
• April 2008: nationalization of the cement industry ,
Venezuelan steel mill Sidor , take-over of a cement plant
owned and operated by Cemex, an international cement
producer
Political system: Individualism Vs. Collectivism
Collectivism
Nationalization drive of Venezuela
• February 2009: Hugo Chavez (President of Venezuela) ordered the
army to take over all rice processing and packaging plants
•October 2009: Venezuelan President Hugo Chavez has ordered the
obligatory acquisition of a Hilton-run hotel on the resort island of
Margarita
•January 2010: ordinance to nationalize six supermarkets in Venezuela
because of increasing price and speculation hoarding illicit
• June 2010: President Chavez orders the expropriation of textile industries.
President Chavez seizes the Venezuelan operations of U.S. Oil Company Helmerich
and Payne.
• August 2011: The Chavez government announces plans to nationalize
entire gold mining industry in Venezuela with the exception of Rusoro, a
Russian-Canadian mining company
• January 2012: Exxon Mobil was awarded nearly $908m in a dispute with
Venezuela over compensation for the nationalization of its assets
Political system: Individualism Vs. Collectivism
Individualism
• Refers to philosophy that ‘Individual should have freedom in his
or her economic & political pursuits’
• Philosophy dates back to Atistotle argues that ‘ Individual
diversity & private ownership are desirable’
Built in two central tenets
1. Emphasis on the importance of guaranteeing individual
freedom
2. Welfare of society is best served by letting people pursue their
own economic self interest as opposed to some collective body
(government) dictating what is in society`s best interest
•
Conflict between individualism & collectivism has recently
shaped history of the world
•
Individualism championed by USA and Collectivism by former
USSR
Political system: Individualism Vs. Collectivism
Individualism
•
Individualism translates into an advocacy for
democratic political systems and free market
• At current stage individualism has been on
ascending as political philosophy
• Pro business and pro free trade values of
individualism create a favourable environment in
which International Business can thrive
Political system: Democracy Vs. Totalitarianism
Democracy
•
Political system in which government is by the
people, exercised directly or through the elected
representative
• Democracy & individualism go hand in hand
• Number of safeguards that are typically enshrined
in constitutional law are
• Individual's right to freedom of expression,
opinion & organisation
• A free media
• Regular election in which all eligible citizens
are allowed to vote
Political system: Democracy Vs. Totalitarianism
Democracy
• Limited terms for elected representatives
• Fair court system independent from the political system
• A nonpolitical bureaucracy
• A nonpolitical police force and armed service
• Relatively free access to state information
Totalitarianism (4 major forms of totalitarianism)
• Communist: version of collectivism that advocates that
socialism can only be achieved through totalitarian
dictatorship
• Theocratic : political power is monopolised by a party,
group or individual that governs according to religious
principle as in Iran, Saudi Arabia
Political system: Democracy Vs. Totalitarianism
• Tribal: Has arisen from time to time in African countries
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•
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as Zimbawawe, Kenya , it occurs when a political party
that represents the interests of particular tribe (not always
the majority tribe) monopolizes power
Right Wing: generally permits some individual freedom
but restricts political freedom on the grounds that it
would lead to the rise of communism
Right wing government backed by military
Fascists regime in Germany 1930s and 40s
Military dictatorship in Latin America in 1980s and also
in Asian countries like S. Korea, Indonesia, the
Philippines
Political systems: democratic vs. totalitarian
Economic System: Market Economy
• In pure market economy all productive activities are
privately owned
• Goods and services produced in country is
determined by conditions of supply and demand
• For market to work in this system, no restriction on
supply
• Monopoly of firm restricts supply
• (Risk) dangers inherent in monopoly, role of
government in market economy is to encourage
vigorous competition between private producers
Economic System: Market Economy
• Government outlaws monopoly & restrictive
business practices aimed for monopoly in market
• Private ownership also encourages vigorous
competition & economic efficiency
• Private ownership ensures entrepreneurs have
right to the profits generate by their own effort
Economic System: Command Economy
• In pure command economy government plans quantity of
goods and services that country produces and price at
which they are sold
• Objective of command economy is for government to
allocate resources for ‘the good of society’
• Found in communist countries where collectivist goals
were given priority over individual goals
• Socialist inclined government have number of democratic
nations some components of command economy
• In command economy, state ownership have little
incentive to control costs and be efficient, because they
cannot go out of business
Economic System: Mixed Economy
• Between market economy & command economy
• Certain sectors are left to private ownership and free
market mechanism & while others have significant
state ownership & government planning
• India is example of mixed economy, Great Britain,
France & Sweden were also mixed economy not too
long age but privatization have reduced it
• Government also tend to take into state ownership
troubled firms whose continued operation is thought to
be vital to national interest e.g. Renault of France
Economic System
Market economy:
Consumer rules
 Command
economy: Govt.
rules
 Mixed: mixed ….

Dimension I
(Control)
1.Market
2.Command
3.Mixed
Dimension II
(Ownership)
1.Private
2.Public
3.Mixed
– Private: individual
ownership
– Public: government
ownership
– Mixed: mixed
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Economic System
Control
Market
Ownership
Private
A
(Individually owned
property)
Mixed
Command
Mixed
B
(Private & state
owned property)
D
(Private :
Democratic,
majority rule)
E
(Capitalist,
Socialist)
G
(Laissez-Fiare ,
Cooperative)
H
(Theocracy,
Dictatorship)
Public
C
(Communal society)
Common property
ownership
F
(Socialist: with
minimal private
property )
I
(Communism)
• In practice, countries do not fall under the extremes A and I…are generally of mixed nature
• But they tend to lean towards one or the other direction