Bangladesh University of Business and Technology

Assignment
On
VENTURE CAPITAL

Submitted by
Group Name: Magnet

Members Name ID
Sumaiya Howladar 18191101034
(Group Leader)
Md. Kaisar Mahmud 18191101096
Md. Nasir Uddin 18191101139
Md. Sakib Hossain 18191101144

Intake: 47th
Section: 03
Program: BBA
Bangladesh University of Business and Technology

Submitted To
Ms. Nargis Begum
Assistant Professor
Department of Management
Bangladesh University of Business and Technology
 Part-B
1. What are Political System and Economic System of a Country? Explain the political
system of country
Political system: Political system means the system of government in a nation. The political
system includes the set of formal and informal legal institutions and structures that comprise
the government or state and its sovereignty over a territory or people. Political system can be
assessed according to two dimensions. The first is the degree to which they emphasize
collectivism as opposed to individualism. The second is the degree to which they are
democratic or totalitarianism.
Economic system: An economic system is a means by which societies or governments organize
and distribute available resources, services, and goods across a geographic region or country.
Economic systems can be categorized into four main types:
 Market economy: What is produced & in what quantity is determined by
supply/demand and signaled to producers through a price system.
 Command economy: Planned by government
 Mixed economy: A balance of both market economy and command economy.
 State-directed economy: The state directly influences the investment activities of
private enterprise through “industrial policy”.

Explanation of political system: A society comprises of citizen, nature, economy, rights,

responsibilities, and policies. For a better governance of every policy regarding society, a group
of members collectively in an institution is elected by the voters and rules the state or country.
Political parties are an essential part of a country. It safeguards citizen rights and responsibilities
at the same time. It provides essential rights to the citizen of a country. Political system have
two dimensions:
 Collectivism vs. individualism.
 Democracy vs. totalitarianism.
Collectivism: Collectivism refers to a political system that stresses the primacy of collective
goals over individual goals. When collectivism is emphasized, the needs of society as a whole
are generally viewed as being more important than individual freedoms. Here individual rights
are sacrificed for the good of the majority. In the modern world collectivism is expressed
through socialism.
Socialism: Socialism is a populist economic and political system based on public ownership (also
known as collective or common ownership) of the means of a country. Socialist ideology is split
into two broad camps.
 Communism: Communists believe that socialism can only be achieved through violence
revolution and totalitarian dictatorship.
 Social democracy: Social democrats committed themselves to achieving socialism by
democratic means turning their backs on violent revolution and dictatorship.
Individualism: Individualism is opposite of collectivism. It refers to a political system that
stresses that the interest of the individual should take precedence over the interests of the
state. Individualism is builds on central tenets. Central tenets is that individual economic and
political freedom are the ground rules on which society is based.
Democracy: Democracy refers to a political system in which government is by the people,
exercised either directly or through elected representatives. In a representative democracy,
citizens periodically elect individuals to represent them. These elected representatives then
form of a government, whose function is to make decisions on behalf of the electorate.
Totalitarianism: It is a form of a government in which one person or political party exercises
absolute control over all spheres of human life and prohibits opposing political parties.
Totalitarianism can be categorized into four main types:
 Communist Totalitarianism: Found in states where the communist party monopolizes
power
 Theocratic totalitarianism: Found in states where political power is monopolized by a
party, group, or individual that governs according to religious principles.
 Tribal totalitarianism: Found in states where a political party that represents the
interests of a particular tribe monopolizes power.
 Right-wing totalitarianism: Permits some individual economic freedom, but restricts
individual political freedom.

2. Describe different types of economic system.

An economic system is a means by which societies or governments organize and distribute
available resources, services, and goods across a geographic region or country. Economic
systems regulate the factors of production, including land, capital, labor, and physical
resources. An economic system encompasses many institutions, agencies, entities, decision-
making processes, and patterns of consumption that comprise the economic structure of a
given community. There are many types of economies around the world. Each has its own
distinguishing characteristics, although they all share some basic features. Each economy
functions based on a unique set of conditions and assumptions. Economic systems can be
categorized into four main types: market economies, command economies, mixed economies,
and state-directed economies which are discussed below:
Market economies: Market economic systems are based on the concept of free markets. The
government exercises little control over resources, and it does not interfere with important
segments of the economy. Instead, regulation comes from the people and the relationship
between supply and demand. A market economy’s greatest downside is that it allows private
entities to amass a lot of economic power, particularly those who own resources of great value.
The distribution of resources is not equitable because those who succeed economically control
most of them. A pure market system doesn’t exist.
Command economies: In a command system, there is a dominant, centralized authority –
usually the government that controls a significant portion of the economic structure. Also
known as a planned system, the command economic system is common in communist societies
since production decisions are the preserve of the government. The command system works
very well as long as the central authority exercises control with the general population’s best
interests in mind. However, that rarely seems to be the case. Command economies are rigid
compared to other systems. They react slowly to change because power is centralized. That
makes them vulnerable to economic crises or emergencies, as they cannot quickly adjust to
changed conditions.
Mixed economies: Mixed systems combine the characteristics of the market and command
economic systems. For this reason, mixed systems are also known as dual systems. Sometimes
the term is used to describe a market system under strict regulatory control. Many countries in
the West follow a mixed system. Most industries are private, while the rest, comprised
primarily of public services, are under the control of the government.
State-directed economies: The state directly influences the investment activities of private
enterprise through “industrial policy”. The state-directed economic system is based on goods,
services, and work, all of which follow certain established trends. It relies a lot on people, and
there is very little division of labor or specialization.

3. Explain how political system and economic system influence international business.
Political system influence international business:
A political system is basically the system of politics and government in a country. It governs a
complete set of rules, regulations, institutions, and attitudes. What businesses must focus on is
how a country’s political system impacts the economy as well as the particular firm and
industry. Firms need to assess the balance to determine how a country’s policies, rules, and
regulations will affect their business. Depending on how long a company expects to operate in a
country and how easy it is for it to enter and exit, a firm may also assess the country’s political
risk and stability. A company may ask several questions regarding a prospective country’s
government to assess possible risks:
 How stable is the government?
 Is it a democracy or a dictatorship?
 If a new party comes into power, will the rules of business change dramatically?
 Is power concentrated in the hands of a few, or is it clearly outlined in a constitution or
similar national legal document?
 How involved is the government in the private sector?
 Is there a well-established legal environment both to enforce policies and rules as well
as to challenge them?
 How transparent is the government’s political, legal, and economic decision-making
process?
While any country can, in theory, pose a risk in all of these factors, some countries offer a more
stable business environment than others. In fact, political stability is a key part of government
efforts to attract foreign investment to their country. Businesses need to assess if a country
believes in free markets, government control, or heavy intervention (often to the benefit of a
few) in industry. The country’s view on capitalism is also a factor for business consideration.
Economic system influence international business:
A business’s success depends in part on the economic systems of the countries where it is
located and where its sells its products. Economic system refers to how a society uses scarce
resources to produce and distribute goods and services. Every economy is concerned with what
types and amounts of goods and services should be produced, how they should be produced,
and for whom. These decisions are made by the marketplace, the government, or both. The
major differentiator among economic systems is whether the government or individuals decide:
 How to allocate limited resources, the factors of production, to individuals and
organizations to best satisfy unlimited societal needs
 What goods and services to produce and in what quantities
 How and by whom these goods and services are produced
 How to distribute goods and services to consumers
Managers must understand and adapt to the economic system or systems in which they
operate. Companies that do business internationally may discover that they must make
changes in production and selling methods to accommodate the economic system of other
countries.
So it can be said that, political system and economic system influence international business.

4. What is economic transformation? Explain the nature of economic transformation?

Economic transformation involves moving labor from low to higher productive activities This
includes between sectors to higher value activities (for example, from agriculture to
manufacturing) and within sectors (for example, from subsistence farming to high-value crops).
It is widely accepted that poverty reduction and economic growth cannot be sustained without
economic transformation.
The shift toward a market-based economic system typically involves at least three distinct
activities: deregulation, privatization, and legal enforcement of property rights.
Deregulation: Deregulation involves removing restrictions on the free operation of markets, the
establishment of private enterprises, and the manner in which private enterprises operate.
Before the collapse of communism, the govt. in most command economies exercised tight
control over prices and output, setting both through detailed state planning. In mixed
economies, certain sectors the state set prices, owned businesses, limited private enterprise,
restricted investment by foreigners and restricted international trade. Deregulation in these
cases involved removing price controls, allowing establishment and operations of private
enterprises, and relaxing or removing restrictions on direct investment by foreign enterprises
and international trade.
Privatization: Privatization transfers the ownership of state property into the hands of private
investors. In order to attract investment and protect the interests of the private enterprise
encouraged by the first two activities, changes typically need to be made to legal systems to
protect the property rights of investors and entrepreneurs.
Legal systems: Laws protecting private property rights and providing mechanisms for contract
enforcement are required for a well function market economy. Without a legal system that
protects property rights, and without the machinery to enforce that system, the incentive to
engage in economic activity can be reduced substantially by private and public entities that
expropriate the profits generated by the efforts of private sector entrepreneurs.

5. It is commonly understood that differences in countries influence international

business. Now explain how this differences in countries influence international
business.
The dream of any international business is to sell products worldwide without the need to
adapt them to local laws and customs in the countries where they sell. Every country has its
own policies, systems, rules and regulations. Differences in country influence international
business which is discussed below:-
Attractiveness: Attractiveness is a measure of a country’s attractiveness to the international
investors. In international business, investment in foreign countries is the most important
aspect and hence firms want to determine how suitable a country is in terms of its external
business environments.
Benefits:
 First-mover advantage: A first mover is a service or product that gains a competitive
advantage by being the first to market with a product or service. Being first typically
enables a company to establish strong brand recognition and customer loyalty before
competitors enter the arena. Other advantages include additional time to perfect its
product or service and setting the market price for the new item.
 Late-mover advantage: The late-mover advantage means that followers can learn from
pioneers' mistakes, see whether there is a market worth entering and judge consumers'
tastes.
Cost: With regard to political factors, a company may have to pay off politically powerful
entities in a country before the govt. allows it to do business there. As for economic factor, it
can be costly to do business in relatively primitive or undeveloped economies because of the
lack of infrastructure and supporting business. As for legal factors it can be more costly to do
business in a country where local laws and regulations set strict standards.
Risk:
 Political risk: It has been defined as the likelihood that political forces will cause drastic
changes in a country’s business environment that adversely affect the profit and other
goals of a business enterprise.
 Economic risk: It has been defined as the likelihood that economic mismanagement will
cause drastic changes in a country’s business environment that hurt the profit and other
goals. Economic mismanagement may give rise to significant social unrest and hence
political risk.
 Legal risk: It has been defined as the likelihood that a trading partner will
opportunistically break a contract or expropriate property rights. Business risk arise
when a country’s legal system fails to provide adequate safeguards in the case of
contract violation or to protect property rights.