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the different in political and economic system among countries make international
business to become complex. Explain briefly relationship between political and
economic system and its implication to international business. Give some
illustration to strengthen your argument.

There are two types of political in the world;
A. Democracy
Democracy system is the system of national government by people, direct (e.g
Switzerland), or through elected representative (e.g Autralia). In respresentative
democracy, citizen periodically elect individuals to represent them. These elected
reprensentatives then form a government, whose function is to make decisions on
behalf of the electorate. Representative democracy rests on the assumption that if
elected representatives bfail to perform this job adequately, they will be voted
down at the next election
Representative democracy include;
a. an individual’s right to freedom of expression, opinion, and organization..
b. a free media
c. regular election in which all eligible citizen are allowed to vote
d. universal adult suffrage
e. limited terms for elected representatives
f. a fair court system that is independent from the political system
g. a nonpolitical state bureaucracy
h. a nonpolitical police force and armed service
i. relatively free access to state information

B. Autocracy/dictatorship/totalitarianism/socialism
In totalitarian country, all the constitutional guarantees on which reprensentative
democracies are built such as an individuals right to freedom of expression and
organization, a free media, and regular elections are denied to the citizens.

There are four major forms of totalitarianism exist in the world today, as follows;
a. Communist totalitarianism
Communism us a version of collectivism that advocates that socialism can be
achieved only through totalitarian dictatorship. The major exceptions to this
trend are China, Vietnam, Laos, North Korea, and Cuba.

b. Theocratic totalitarianism
Theocratic totalitarianisms is found in states where political power is
monopolized by a party, group, or individual that governs according to
religious principles. The most common form of theocratic totalitarianism is
based on islam and is exemplified by states such as Iran and Saudi Arabia.

c. Tribal totalitarianism
Tribal totalitarianism is found principally in African countries such as
Zimbabwe, Tanzania, Uganda, and Kenya.

d. Right-wing totalitarianism
Right wing totalitarianism generally permits individual economic freedom but
restricts individual political freedom on the grounds that it would lead to the
rise of communism.

The relationship between the political system and economic system are;
Economic systems are closely linked with political systems;

 Democracy theoretically operate a market economy in which goods and service s

are produced by individuals in response to consumer demand.

 Autocracy theoretically operate a command economy system in which resources

are allocated and goods produced according to a government plan.

Impilcation For International Business

1. The political, economic, and legal environment of a country clearly influences the
attractiveness of that country as a market and or investment site. The benefits,
costs, and risks associated with doing business in a country are a function of that
countrys political, economic, and legal systems.

2. the political, economic, and legal systems of a country can raise important ethical
issues that have implications for the practice of international business.

China and India
China = Liberal economic but not politic freedom
India = Political freedom but not to liberal economic

2. theories of international trade has evolved from classic to new theory since 16
century. National Competitive Advantage is one of the latest as proposed by
porter. Explain the concept and compare with theory of Comparative Advantage.

National competitive advantage compare with Comparative Advantage.

Porter’s diamond of National competitive advantage 1990 includes all of
the following except.
 Factor endowments refer to a nation’s position in factors of production necessary
to compete in a given industry.
These factors can be either basic (natural resources, climate, location) or
advanced (skilled labor, infrastructure, technological know-how).
 Demand conditions refer to the nature of home demand for the industry’s product
or service.
Sophisticated and demanding customers pressure firms to be competitive.
 Relating and supporting industries refer to the presence or absence of supplier
industries and related industries that are internationally competitive.
Local supplier cluster around producer and add innovation.
 Firm strategy, structure, and rivalry refers to the conditions governing how
companies are created, organized, and managed, and the nature of domestic
how companies are created, organized, and managed, and the nature of domestic
rivalry impacts firm competitiveness.
 Government policy
Policies that impact positively on each aspect of the diamond
 Chance
The major innovation

comparative advantage by David Ricardo in Principals of Political Economy

1817, suggests that countries should specialize in the production of those goods
they produce most efficiently and buy goods that they produce less efficiently
from other countries, even if this means buying goods from other countries that
they could produce more efficiently at home.

3. a multi National Company (MNC) likes to take benefit from regional economic
cooperation such as AFTA, NAFTA, APEC etc. Discuss benefit that an MNC can
take from the implementation of those economic cooperation.

Benefit that MNC can take from the implementation of those economic
cooperataion, that are:
1. MNCs engage in international investment over which the firm has
managerial control.
2. MNC can take the information and information communication
3. MNC can combine OLI (Ownership, Location, Internalisation) advantages
- ownership of firm specific proprietary assets/advantages
- location/foreigh country specific advantages
- markets or resources (natural, labor, knowledge, financial)
- Internalization to overcome market inefficiencies
- Lower transaction costs
- Overcome problems in codifying, pricing, protecting, and
enforcing IPR.

4. government tends to intervenes international business in order to protect national

interest of a country by using several instrument of trade policy. Identify kinds of
instrument trade policy that can be used by government and give some illustration
about that matters.

The main instruments of trade policy are:

• Tariffs
taxes levied on imports that effectively raise the cost of imported products
relative to domestic products.
Tariffs increase government revenues, provide protection to domestic
Ex: the government of Indonesia determine import taxes of an product from
foreign country.
• Subsides
The government give payment or incentives for domestic producer.
Ex: the government give facilities for domestic company to run the business.
• Import Quotas
Limit or restrict of the quantity of some goods that may be imported into a
Ex: import quota of rice from Thailand to Indonesia.
• Voluntary Export Restraints
are quotas on trade imposed by the exporting country, typically at the request
of the importing country’s government
• Local Content Requirements
demands that some specific fraction of a goods be produced domestically.
Ex: demand of Arts from Indonesia to export and sell in foreign country.
• Administrative Polices
bureaucratic rules that are designed to make it difficult for imports to enter a
• Antidumping Policies
designed to punish foreign firms that engage in dumping and protect domestic
producers from “unfair” foreign competition

5. Economic integration and globalization of business have brought significant

impact on economic development in many countries all over the world. Please
identify the positive and negative impact of globalization to economic
development in a particular emerging country.

Negative impact
a. Memperlakukan faktor endowment sebagai faktor semata
akibatnya supply dan demand akan di tentukan dan menentukan harga di
b. Dampak langsung krisis financial
c. Kemungkinan hilangnya pasar produk ekspor karena kalah
bersaing dengan produksi Negara lain yang lebih murah dari Negara lain
yang lebih murah dan berkualitas

Positive impact
a. Peluang usaha
b. Kenaikan kinerja financial Negara-negara yang dianggap masih terbelakang
dengan melakukan kebijakan industri
c. Terbukanya pasar untuk produk-produk export
d. Semakin mudah mengakses modal investasi dari luar negeri
e. Meningkatkan kegiatan pariwisata.