COUNTRY DIFFERENCES

Erwin Manalu
 Political Systems
• The political systems of a country shapes its
legal and economic systems.
• In the extreme, there are two types of political
systems: democracy and totalitarianism.
 Totalitarianism
Freedom of expression and organization, free media, and
elections are prohibited. Media are highly censored. Basic
civil liberties are denied.
• Theocratic Totalitarianism beliefs on a government that
rules based on religious belief and principles.
• Right-wing Totalitarianism beliefs based on an individual
freedom and but restrict political freedom backed by military.
• Tribal Totalitarianism beliefs a government must represent
a particular tribe and monopolizes power.
• Communist Totalitarianism. A version of collectivism
which believe only through totalitarian dictatorship.
 Democracy
• Democracy is a system of government in
which the people, either directly or through
their elected officials, decide what is to be
done.
• Safeguards of Democracy :
(1). Freedom of expression and organization, (2) Free
Media, (3) Regular election, (4) nonpolitical court
system, (5) Neutral police and military (6) access to
state information
 Political Risk
• Ownership Risk. Represent the risk of current
ownership structure.
• Operational Risk. Represent the change of rules of
the game in which the company operates.
• Transfer Risk. Involves the impediment to the
transfer of production factors e.g. newly imposed
capital controls.

Those three Risks are often interrelated.

Political Risk
Many Companies hired ex-government liaison to
strengthen its bargaining and political power.
 Economic Systems
Three broad economic system :
• Market economy. Production is determined by the interaction of
demand and supply indicated by the price system. To make the
market work, supply should not be restricted. A restriction happens
when a monopoly happens. The role of government is to promote
and provide fair competition for private producers.
• Command economy. The goods and services produces, the
quantity, the price are sold are all planned by the government. The
objectives are to allocate all resources for the good of community.
In a pure command economy, all business are state owned.
• Mixed economy. Certain sectors of the economy are left to private
ownership but other sectors have significant state ownership and
government planning. Government tends to take troubled private
entities to save the employees from being fired.
The future of Superpowers
China + India = 40% world’s population
World population 2016

1.382 China

1.326 India

324 US

259
Indonesia

209
Brazil

192
Pakistan

186
Nigeria

162
Bangladesh

143
Russia
126
Japan
China and India’s Combined Share of World Population
China and India’s Combined Share of World GDP
China and India’s Combined Share of World GDP
When China will overtake
the U.S. in GDP terms ?
Goldman Sachs (2003) : 2050

Goldman Sachs (2009) : 2027

The Economist (2012) : 2019

Chinese Academy of Sciences (2013) : 2019

 Legal systems
• Refers to the rules or laws that regulate
behavior along with the process by which the
laws enforced.

• The legal environment is very critical to the

attractiveness of a country as investment
destination.
 Legal Systems
• There are 3 main types of Legal Systems :
– Common Law is based on tradition, precedent, and
custom. Judges have the rights to interprets the laws and
applies to individual cases. The result can be a basis of
future cases.
– Civil Law is based on a very detailed set of laws organized
into codes. Judges only have power to apply the law.
Judges relies upon detailed legal codes than to interpreting
tradition, precedent, and custom.
– Theocratic Law is based on religious teachings. Islamic
Law is the most widely practiced Theocratic Law in the
world. However, many countries blend the Islamic/Sharia
law with common or civil law systems.
Legal Systems World Map
 The Emergence of International Institution
• International institutions are needed to regulate, manage, and
voice the global marketplace

Location : Geneva, Switzerland Location : Washington, D.C., U.S.A.

Established : 1 January 1995 Established : 1 January 1995
Members : 164 countries on 29 July 2016 Members : 189 countries
Functions : Functions :

• Administering WTO trade agreements Surveillance

• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations
Oversees the international monetary system and monitors
the economic and financial policies of its members
Lending
Provide loans to member countries experiencing actual or
potential balance of payments problems
Capacity Development
Helps member countries design and implement economic
policies that foster stability and growth by strengthening
their institutional capacity and skills.
Location : New York, U.S.A.
Established : 24 October 1945
Members : 193 countries
Functions :

Maintain International Peace and Security

prevent conflict; helping parties in conflict make peace; peacekeeping; and creating the
conditions to allow peace to hold and flourish.

Protect Human Rights

The term “human rights” was mentioned seven times in the UN's founding Charter. protected
human rights through legal instruments and on-the-ground activities.

Deliver Humanitarian Aid

To coordinate humanitarian relief operations due to natural and man-made disasters in areas
beyond the relief capacity of national authorities alone.

Promote Sustainable Development

Sustainable development – development that promotes prosperity and economic opportunity,
greater social well-being, and protection of the environment – offers the best path forward for
improving the lives of people everywhere.

Uphold International Law

To establish conditions under which justice and respect for the obligations arising from treaties
and other sources of international law can be maintained.
 Location : Jakarta, Indonesia
Established : 8 August 1967
Location : Vienna, Austria Members : 10 countries
Established : 10-14 September 1960, Baghdad, Iraq Functions :
Members : 13 countries
Functions : • Accelerate the economic growth, social progress and
cultural development in the SEA region
to co-ordinate and unify petroleum policies among • To promote regional peace and stability
Member Countries, in order to : • To promote active collaboration in the economic, social,
cultural, technical, scientific and administrative fields
• secure fair and stable prices for petroleum • To provide assistance in the form of training and
producers research facilities in the educational, professional,
• an efficient, economic and regular supply of technical and administrative spheres
petroleum to consuming nations • To collaborate for the greater utilisation of their
• Ensure fair return on capital to those investing in agriculture, industries, expansion of trade,
the industry transportation, etc
• To promote Southeast Asian studies
• To maintain close and beneficial cooperation with
existing international and regional organisations
Cultural System
 Hofstede’s four dimensions of culture
Geert Hofstede is a Dutch psychologist who conducted one of the earliest and best-
known cultural studies in management, on IBM’s operations in 70 countries. He
mapped key cultural characteristics of these countries according to four value
dimensions:

• Power distance is the extent to which a culture accepts that power in

organizations is distributed unequally.

• Uncertainty avoidance the extent to which people feel threatened by

ambiguous situations and have created institutions and beliefs for minimizing or
avoiding those uncertainties

• Individualism The tendency of people to look after themselves and their

immediate family only

• Masculinity The degree to which the dominant values of a society are success,
money, and material things
 Trompenaars’ seven dimensions of culture
Fons Trompenaars built on Hofstede’s work by expanding the framework for
stereotyping and comparing different national cultures and by focusing more on the
management implications of cultural differences.

1. Universalism versus particularism. In universalistic cultures

rules and regulations are applied in all situations, regardless of
particular conditions or circumstances.
• Example

“A salesman who does not fulfill his monthly sales quota because he was looking after
his sick son. Should he be penalized according to standard company regulations or
should he be excused because of the particular circumstances?”
• According to Trompenaars’ findings,
Switzerland, Canada, and the United States
are among the most universalist. Australia and
the UK are also toward this end of the scale.
Germany is closer to the center, as is France,
but the latter sits on the particularist side of
the scale. Korea, Russia, and China are the
most particularist of countries.
Trompenaars’ seven dimensions of culture

2. Individualism versus collectivism. This

dimension, clearly building on Hofstede, centers on
whether individual rights and values are dominant or
subordinate to those of the collective society.

The most individualist countries are Canada, the United

States, Switzerland, and the UK. Among the most
collectivist are Japan, Egypt, and India (and Nepal and
Kuwait).
 Trompenaars’ seven dimensions of
culture
3. Neutral versus emotional. This reflects how much
emotions are displayed in the workplace. More importantly it
indicates whether emotional or subjective (rather than
objective) forms of assessment are thought to be the basis for
good decision making in organizations. Some organizations
emphasize reports, data, and analytical decision making by
managers, whereas others feel that opinions, intuition, and
gut feelings are credible or valid criteria.

Predictably the most emotional countries include Italy and

France and the least emotional groups (in the workplace at
least) are the Japanese, Germans, Swiss, Chinese, and
Indonesians.
 Trompenaars’ seven dimensions of
culture
4. Specific versus diffuse. Do work relationships (such
as the hierarchical relationship between a senior
manager and a subordinate) exist just in the workplace
(are they specific), or do they extend into the social
context outside the workplace (diffuse)? Here a telling
example is whether an employee is willing to help paint
a senior manager’s house over a weekend.
• China, Japan, India, and Singapore display highly
diffuse relationships, Australia and Netherlands, the
most specific.
 Trompenaars’ seven dimensions of
culture
5. Achievement versus ascription. This dimension
refers to one’s status within organizations, contrasting
those cultures where status, credibility, authority, and
ultimately power tend to be based on merit (achieved)
against those where class, gender, education, or age tend
to be the defining characteristics (status is ascribed).

Countries where status tends to be ascribed include

Egypt, Turkey, and Argentina (and slightly less so, Russia,
Japan, and France), and those where it is achieved
include Norway, Sweden, and predictably the United
States, Australia, Canada, and the UK.
 Trompenaars’ seven dimensions of
culture
6. Attitudes toward time. Sequential (time as a
sequence of events) versus synchronic (several
events juggled at the same time) views of time tend
to relate to punctuality for meetings and deadlines.

Swedes and other northern European cultures tend to be

punctual and plan according to specific timetables. Many
southern European, Latin American, and Arabic cultures
see punctuality and chronological precision as far less
important. They also tend to naturally cope with a range
of issues simultaneously, rather than one by one.
 Trompenaars’ seven dimensions of
culture
7 Attitudes toward the environment. This dimension
reflects the emphasis a particular culture places on
people’s relationship with nature and the natural
environment. On the one hand some cultures
emphasize control and subjugation of
environmental forces, whereas others emphasize
the need to work with nature, in harmony with the
environment.
• Clearly religious and philosophical differences
around the world influence differences within
this dimension.
 The GLOBE project’s nine dimensions of culture
The Global Leadership and Organizational Behavior Effectiveness (GLOBE) project involved 150
researchers collecting data from 18,000 managers across 62 countries in the telecommunications,
food, and banking industries. The GLOBE project, ends up with nine key cultural dimensions:
1. Assertiveness (quality of being self-assured and confident without being aggressive). The U.S.,
Austria, Germany, and Greece are high; Sweden, Japan, and New Zealand are low.
2. Future orientation. A propensity for planning, investing, delayed gratification:
Singapore, Switzerland, and Netherlands are high; Russia, Argentina, and Italy are low.
3. Gender differentiation. The degree to which gender role differences are maximized:
South Korea, Egypt, India, and China are high; Hungary, Poland, and Denmark are low.
4. Uncertainty avoidance. A reliance on societal norms and procedures to improve predictability,
a preference for order, structure, and formality: Sweden, Switzerland, and Germany are high; Russia,
Bolivia, and Greece are low.
5. Power distance. Russia, Thailand, and Spain are high; Denmark, Netherlands, Israel are low.
6. Institutional collectivism (individualism vs. collectivism). Promoting active participation in social
institutions: Sweden, South Korea, and Japan are high; Greece, Argentina, and Italy are low.
7. In-group/family collectivism. A pride in small-group membership, family, close friends, etc.: Iran,
India, and China are high; Denmark, Sweden, and New Zealand are low.
8. Performance orientation (much like achievement orientation). Singapore, Hong Kong, and the
United States are high; Russia, Argentina, and Italy are low.
9. Humane orientation. An emphasis on fairness, altruism, and generosity: Ireland,Malaysia, and Egypt
are high; Germany, Spain, France, Singapore, and Brazil are low.
 Costs
Benefits
Corruption
Size of Economy
Lack of Infrastructure
Economic Growth
Legal Costs

Overall
Country
Attractiveness

Risks
Political Risks
Economic Risks
Legal Risks