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INTERNATIONAL BUSINESS
PhD. Tran Nguyen Chat
Email: chattn@ftu.edu.vn

CHAPTER 2: NATIONAL DIFFERENCES

IN POLITICAL ECONOMY

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1. Understand how the political 3. Understand how the legal

systems of countries differ. systems of countries differ.

2. Understand how the economic 4. Explain the implications for

systems of countries differ. management practice of national
differences in political economy.

LEARNING OBJECTIVES
LEARNING OBJECTIVES

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2.1 Introduction
2.2 Political Systems
2.3 Economic Systems
2.4 Legal Systems

OUTLINE 2.1 INTRODUCTION

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What Is A Political Economy? 2.2 What Is A Political System?

➢Political economy of a nation - how the ➢Political system - the system of

political, economic, and legal systems of a government in a nation
country are interdependent ➢Assessed according to
➢ they interact and influence each other ➢ the degree to which the country emphasizes
➢ they affect the level of economic well-being in collectivism as opposed to individualism
the nation ➢ the degree to which the country is
democratic or totalitarian
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What Is Collectivism? How Does Modern-Day Socialism Look?

➢ Collectivism stresses the primacy of collective ➢ In the early 20th century, socialism split into
goals over individual goals
➢ can be traced to the Greek philosopher, Plato 1. Communism – socialism can only be
(427-347 BC) achieved through violent revolution and
➢ Today, collectivism is equated with socialists totalitarian dictatorship
(Karl Marx 1818-1883) ➢ in retreat worldwide by mid-1990s
➢ advocate state ownership of the basic means of
production, distribution, and exchange
➢ manage to benefit society as a whole, rather than
individual capitalists
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How Does Modern-Day Socialism Look? What Is Individualism?

➢ Individualism refers to philosophy that an individual
should have freedom in his own economic and
2. Social democrats – socialism is achieved political pursuits
through democratic means ➢ can be traced to Greek philosopher, Aristotle (384-322 BC)
➢ retreating as many countries move toward free ➢ individual diversity and private ownership are desirable
market economies ➢ individual economic and political freedoms are the ground
➢ state-owned enterprises have been privatized rules on which a society should be based
➢ implies democratic political systems and free market
economies

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What Is Democracy? What Is Totalitarianism?

➢ Democracy - a political system in which
government is by the people, exercised either
directly or through elected representatives ➢ Totalitarianism - form of government in which one
➢ usually associated with individualism person or political party exercises absolute
➢ pure democracy is based on the belief that citizens control over all spheres of human life and
should be directly involved in decision making prohibits opposing political parties
➢ most modern democratic states practice
representative democracy where citizens periodically
elect individuals to represent them
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What Is The Link Between Political Ideology and

What Is Totalitarianism? Economic Systems?

➢ Four major forms of totalitarianism exist today

1. Communist totalitarianism – found in states where the ➢Political ideology and economic systems
communist party monopolizes power
2. Theocratic totalitarianism - found in states where political are connected
power is monopolized by a party, group, or individual that
governs according to religious principles ➢ countries that stress individual goals are
3. Tribal totalitarianism - found in states where a political likely to have market based economies
party that represents the interests of a particular tribe
monopolizes power ➢ in countries where state-ownership is
4. Right-wing totalitarianism - permits some individual
economic freedom, but restricts individual political common, collective goals are dominant
freedom

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2.3 What Is An Economic System? 2.3 What Is An Economic System?

➢There are three types of economic systems 2. Command economies - government plans the
goods and services that a country produces, the
1. Market economies - all productive quantity that is produced, and the prices as which
activities are privately owned and they are sold
➢ all businesses are state-owned, and
production is determined by the governments allocate resources for “the good of
interaction of supply and demand society”
➢ government encourages free and fair ➢ because there is little incentive to control costs
competition between private producers and be efficient, command economies tend to
stagnate
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2.3 What Is An Economic System? 2.4 What Is A Legal System?

3. Mixed economies - certain sectors of the
economy are left to private ownership
and free market mechanisms while other
sectors have significant state ownership
and government planning
➢ governments tend to own firms that are
considered important to national security
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➢ Legal system - the rules that regulate behavior along
with the processes by which the laws are enforced
and through which redress for grievances is obtained
➢ the system in a country is influenced by the prevailing
political system
➢ Legal systems are important for business because
they
➢ define how business transactions are executed
➢ identify the rights and obligations of parties involved in
business transactions
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What Are The How Are Contracts Enforced

Different Legal Systems? In Different Legal Systems?

➢ Contract - document that specifies the conditions

➢ There are three types of legal systems
1. Common law - based on tradition,
precedent, and custom
2. Civil law - based on detailed set of laws
organized into codes
3. Theocratic law - law is based on religious
teachings
under which an exchange is to occur and details the
rights and obligations of the parties involved
➢ Contract law is the body of law that governs contract
enforcement
➢ under a common law system, contracts tend to be very
detailed with all contingencies spelled out
➢ under a civil law system, contracts tend to be much shorter
and less specific because many issues are already covered
in the civil code

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Which Country’s Laws Should Apply How Are Property Rights

In A Contract Dispute? And Corruption Related?

➢ The United Nations Convention on Contracts for

the International Sale of Goods (CIGS) ➢ Property rights - the legal rights over the use to
➢ establishes a uniform set of rules governing certain which a resource is put and over the use made
aspects of the making and performance of everyday of any income that may be derived from that
commercial contracts between buyers and sellers who resource
have their places of business in different nations
➢ Ratified by the U.S. and about 70 countries
➢ but, many larger trading nations including Japan and
the U.K. have not agreed to the provisions of CIGS
and opt for arbitration instead
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How Are Property Rights How Are Property Rights

And Corruption Related? And Corruption Related?

➢Property rights can be violated through ➢ The Foreign Corrupt Practices Act makes it
1. Private action – theft, piracy, blackmail illegal for U.S. companies to bribe foreign
2. Public action - legally - ex. excessive government officials to obtain or maintain
taxation or illegally - ex. bribes or business over which that foreign official has
blackmailing authority
➢ high levels of corruption reduce foreign direct ➢ facilitating or expediting payments to secure or
investment, the level of international trade, and expedite routine government action are permitted
the economic growth rate in a country
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How Can Intellectual How Can Intellectual

Property Be Protected? Property Be Protected?

➢ Intellectual property - property that is the product of ➢ Protection of intellectual property rights
intellectual activity
➢ Can be protected using differs from country to country
1. Patents – exclusive rights for a defined period to the ➢ World Intellectual Property Organization
manufacture, use, or sale of that invention
2. Copyrights – the exclusive legal rights of authors, ➢ Paris Convention for the Protection of Industrial
composers, playwrights, artists, and publishers to Property
publish and disperse their work as they see fit
3. Trademarks – design and names by which
merchants or manufacturers designate and
differentiate their products
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How Can Intellectual What Is Product Safety

Property Be Protected? And Liability?

➢ Product safety laws set certain standards to

➢ To avoid piracy, firms can which a product must adhere
➢ stay away from countries where intellectual property
laws are lax ➢ Product liability involves holding a firm and its
➢ file lawsuits officers responsible when a product causes
➢ lobby governments for international property rights injury, death, or damage
agreements and enforcement
➢ liability laws tend to be less extensive in less
developed nations
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Why Is Product Safety And How Can Managers Determine A Market’s

Product Liability Important? Overall Attractiveness?

➢ Question: ➢ The overall attractiveness of a country as a

➢ Does the high cost of liability insurance in the
U.S. make American companies less potential market and/or investment site for an
competitive? international business depends on balancing the
➢ Question: benefits, costs, and risks associated with doing
➢ Is it ethical to follow host country standards when
product safety laws are stricter in a firm’s home business in that country
country than in a foreign country? ➢ Other things being equal, more attractive countries
➢ Question: have democratic political institutions, market based
➢ Is it ethical to follow host country standards when
liability laws are more lax in the host country? economies, and strong legal systems that protect
property rights and limit corruption
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What Is Product Safety

And Liability?

➢ Product safety laws set certain standards to

which a product must adhere
➢ Product liability involves holding a firm and its
officers responsible when a product causes
injury, death, or damage
➢ liability laws tend to be less extensive in less
developed nations
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PhD. Tran Nguyen Chat

Email: chattn@ftu.edu.vn

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