International Business

9e

By Charles W.L. Hill

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 2

National Differences
in Political Economy
 What Is A Political Economy?
Political economy of a nation - how the
political, economic, and legal systems of a
country are interdependent
they interact and influence each other
they affect the level of economic well-being in
the nation

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 What Is A Political System?
Political system - the system of
government in a nation
Assessed according to
the degree to which the country emphasizes
collectivism as opposed to individualism
the degree to which the country is democratic
or totalitarian

2-4
 What Is A Political System?
 Collectivism stresses the primacy of collective
goals over individual goals
 Individualism – an individual should have
freedom in his own economic and political
pursuits
 Democracy - government is by the people,
exercised either directly or through elected
representatives
 Totalitarianism - one person or political party
exercises absolute control over all spheres of
human life and prohibits opposing political
parties

2-5
 What Is An Economic System?
 There are three types of economic
systems
1. Market economies - all productive
activities are privately owned and
production is determined by the
interaction of supply and demand

Ex: Singapore, Hong Kong (China) and UK

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 What Is An Economic System?
2. Command economies - government plans the
goods and services that a country produces, the
quantity that is produced, and the prices as which
they are sold.
Ex: North Korea, Cuba and Former Soviet Union
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
Ex: Philippines, United States and France
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 What Is A Legal System?
 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

2-8
 What Is A Legal System?
 There are three types of legal systems
1. Common law - based on tradition,
precedent, and custom.
 constitutional law, procedure, corporations law,
taxation, insurance, labor relations, banking and
currency.
2. Civic law - based on detailed set of laws
organized into codes.
 family relations, property, succession, contract
and criminal law
3. Theocratic law - law is based on religious
teachings.
 Islamic Law
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 How Are Property Rights
And Corruption Related?
 Property rights - the legal rights over the
use to which a resource is put and over
the use made of any income that may be
derived from that resource
 Property rights can be violated through
1. Private action – theft, piracy, blackmail
2. Public action - legally - ex. excessive taxation or
illegally - ex. bribes or blackmailing

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 How Are Property Rights
And Corruption Related?
 Corruption is a form of dishonesty or criminal
offense undertaken by a person or organization
entrusted with a position of authority, to acquire
illicit benefit or abuse power for one's private gain.
 Done by demanding bribes from businesses in
return for the rights to operate in a country,
industry, or location
 The government of the late Ferdinand Marcos in
the Philippines was famous for demanding bribes
from foreign businesses wishing to set up
operations in that country. The same was true of
government officials in Indonesia under the rule of
former president Suharto.
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 Which Countries Are
Most Corrupt?
Eritrea (E. Africa) 23
Nicaragua (C. America) 22
Cambodia (S.E. Asia) 20
Chad (C. Africa) 20
Iraq (M.E. Asia) 20
Turkmenistan (C. Asia) 19
Rep. of Congo (C. Africa) 19
Burundi (E. Africa) 18
Haiti (C. America) 18
DR Congo (C. Africa) 18
Guinea-Bissau (W. Africa) 18
Libya (N. Africa) 18
North Korea (E. Asia) 17
Venezuela (S. America) 16
Afghanistan (S. Asia) 16 • Lowest CPI from 1-
Sudan (N. Africa) 16
Yemen (M.E. Asia) 15
100 means the
Syria (M.E. Asia) 13 most corrupt
12
South Sudan (N. Africa)
9
country
Somalia (N.Africa)
0 5 10 15 20 25

Corruption Perception Index

The Corruption Perception Index (CPI) scores and ranks countries/ territories based on
how corrupt a country's public sector is perceived to be by experts and business executives. 2-12
 Which Countries Are
Least Corrupt?
Japan (E. Asia) 73
Estonia (E. Europe) 74 • Highest CPI from
Ireland (W. Europe) 74 1-100 means the
Belgium (W. Europe) 75
Hong Kong (E. Asia)
least corrupt
76
Austria (W. Europe) 77 country
Australia (Oceania) 77
United Kingdom (W. Europe) 77
Canada (N. America) 77
Iceland (N. Europe) 78
Germany (W. Europe) 80
Luxembourg (W. Europe) 80
Netherlands (W. Europe) 82
Norway (N. Eupore) 84
Sweden (N. Europe) 85
Switzerland (W. Europe) 85
Singapore (S.E. Asia) 85
Finland (N. Europe) 86
Denmark (N. Europe) 87
New Zealand (Oceania) 87

65 70 75 80 85 90
Corruption Perception Index

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 How Can Intellectual
Property Be Protected?
 Intellectual property - property that is the
product of intellectual activity
 Can be protected using
1. Patents – exclusive rights for a defined period to the
manufacture, use, or sale of that invention
2. Copyrights – the exclusive legal rights of authors,
composers, playwrights, artists, and publishers to
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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 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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 How Can Managers Determine A
Market’s Overall Attractiveness?
 The overall attractiveness of a country as a
potential market and/or investment site for an
international business depends on balancing the
benefits, costs, and risks associated with doing
business in that country
 other things being equal, more attractive countries
have democratic political institutions, market based
economies, and strong legal systems that protect
property rights and limit corruption

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