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    10 views12 pages

    International Business Chapter 2 Notes

    Uploaded by

    Sehar Dogar
    UOL

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    Chapter 2: Political, economic and legal environments ~ Political, economic and legal environments + 2.2 An institution-based view of international BUSINESS .vreserserenenteeeenteeeiee 24 + 2.3 Political systems. cesnntnee 25 + 2.4 Economic systems. eenseseee 27 + 2.5 Legal system$.c.cscnn 29 2.6 Country development: political, economic and legal issues... 31 Dr. Catsina Atiende tor BCG 7Qp Pet University Co od MN Propated by fi h et Chapter 2: Political, economic and ——tegatenvironments———— wnced ain} ‘The aims ofthis thapter are to: 1 identify the nature of formal institutions in different Countries and the ways in which these reduce uncertainty ‘introduce the major types of political, economic and Tegal {[yReinas and port out the similarities and diflerencesin these Beross countries at + develop knowledge of how these afthibutes and difecences . 185s cauntriesimpact and constrain how businesses operate internationally Poswak, + provide 2 platform for debating the role of national formal ‘iEttttionsin international business and how they can be managed Chapter 2: Political, economic and _ ~~ legal environments 2.2 Learning outcomes exaghsrioN * define the concest of institutions and ieyrole in reducing uncertainty. + assess the basi differences among politica syst iteirinfivence on international business + ciscuss the ystemie differences among & the related challenges for international + describe the base differences between legal sisters the worl. + engoge in and asiess leading debst ono bd iegalinattutons area Chapter 2: Political, economic and legal environments 2.1.3 Essential reading + Peng, M. and K. Meyer International business. (London: Cengoge Learning, 2011) Chapter 2. + *Peng, M., D, Wang and ¥. Jiang ‘An institution- bated vew of international business statey, Journal of International Busines ' paula 55 39 2008, * Willcocks, L. Global business management foundations. (Stratford: Steve Brook ae ‘eve Brookes Publishing, 5 Chapter 2: Political, economic and legal environments. 2.1.6 Synopsis of chapter content The institution-based view of . international business; overview of political, economic and legal systems; how political economic and legal trends develop in different countries ee «+ peng and Meyer (2011) are great ihn of the institution-based view and fur discussed in Peng et al 2008. « Institutions establish the formal andi rules for operating in a country. + Companies need to know this rules before they enter the country. «+ Rules differ from country to country. informal iversity Coleg ottstemabad ff = Prepared by i \ ie Catalina Rion for n-based view of al business 2.2ANn institutio’ internation ) Table 2-4 «pngand Meyer 208) Instautions rata 2t creo «Ragas : aires ie 6 Ceres owns toe 2.2 An institution-based view of —international business —-——— * What do Institutions do? + Reduce uncertainty by limiting the range of acceptable actions. Or. * Reduce transaction costs. An institution-based view of ———international business * Transaction costs are the cost” associated with carrying out an economic transaction (the cost of doing business). * Institutional frameworks reduce the Potential for opportunistic behavior. Someone Gone taes — Reqawe acunrtege of LB ALEVE Selfish 2.2 An institution-based view of international business * Two core propositions Peng and Meyer 2013 table 42. ‘WMe22 Two cre pepsin the isttvion based view Prose insert sn | Seine nr ‘etitoral ranaecrk, nape ee a 2.2 An institution-based view of international business Example proposition 1 * Employment and redundancy laws in UK and Getmany influence firms behaviour in response to recession, Example proposition 2 In countries like Russia and Pakistan Informal institutions like caste and personal Connections &re very important to business. 2.2 An institution-based view of of the institution-based view and further discussed in Peng et al 2008, rules for operating in a country, * Companies need to know this rules before they enter the country * Rules difer from country to country, 2 international business AoC | 4 smrnerrcnnenincitie Pree nee * Peng and Meyer (2011) are great ftoRGkents Pane poo * Institutions establish the formal and informal 2.2 An institution-based view o5 international business \ Rag | rie2) Orewon inciting | wa | University Colegs cf nlsmabad FE Prepared by C N Dr.Catalina Ationde os ence Tans 2.2 An institution-based view of ~__ ~international business — * What do Institutions do? * Reduce uncertainty range of acceptab Or 'y by limiting the le actions, * Reduce transaction costs, 2.2An institution-based view of international business * Two core propostions Pent and Meyer 2022 table a4 TWble 22 Two core propositions ofthe ‘nstavion base view An institution-based view of | /___internationatbusiness ———_ * Transaction costs are the cost~ associated with carn economic trans; doing business) ving out an action (the cost of Potential for opportunistic behavior. Someone 05 Ea Reqae adeerctage ot BLAS, SAE 2.2 An institution-based view of international business Example proposition 1 * Employment and re, Germany influence FeSonse to recession, Example proposition 2 sin countries like Russia and Pakistan Informal stitutions like caste and personal Sonnections tre very important to business. 2.3 Political systems 2.3 Political systems 4 WRATKE Of FERELAE OF Political system represents the rule Coltectivism > Cavnnicy & Co Of the game on how @ country is as a whole are generally viewed as b B0verned politically. two dimensions: eee important than individual freedoms cape collectivism as opposed to + collectivism has been equated with socialism individualism (North Korea, Cubs) + Some societies can be collectivstic in their culture but not in their political» out beeity ode “nrg encase jpotsltaran or democratic apany Centratized absolaar Krom tna! gareinmank- University Ca Prepared by D 90 of slamatad consists sf kath ena and ae “ unenenk] Shoe ou “ Dy opiate nein, enoinin Tee ideology < pein — ‘ decom tiylaece “2.3 Politicalsystems_| |/ 9. poiticat systers weve hand fing fount tateen of governnf e a yeinm Berrie ve ot Ce metre cipe. +. facBons, +TSocial Deméciaey SS Social democracy apport * Social democracy, believes ina pomp etilive *2 Individualism “mixed economy of central econoreyy | 5 : mores o 46 3 Totalitarianism ~ a system planning, ea private Qe WeteP.of GoeQNMieNT THATS CenTeauZtd enterprises. (UK) RET Aid Brera FORMAL AWD ReGqurees oe doeek| Comapicte SUBSTRVIENE To THE eo State, —_m . aetna . E E ay a fore 80 SOVERMEE WEE praTTits Ex, URE A\ppostisn partes and enecder an Pe vemely Wah degree of combat over Pf pulic and pavatr Ufe . Te is, . 7 considered Hue most exWeme a4 Compute dona et eutharitaridn 2.3 Political systems 2.3 Political systems Individualism + Totalitarianism ann hampered by Adem Si, + Totalitarianism, where one person + two key concepts: os political party exercises absolute + 1 that individual freedom and self-expression control over all spheres of life, and are guaranteed. = opposing political parties are + 2 secand, that people are allowed to pursue ic their own self-interest in order to achieve the —forbidden. best overall 008 for society, j 2.3 Political SSE nek a eaeggeeie§ 0 “Forms of Totalitarianism doves cut pased on oioss i ° % Theocratic totalitarianism (Iran & Saudi Arabia, Taliban) / + Tribal totalitarianism (Tanzania, Zimbabwe) + Right-wing totalitaria Eeyat) & A gous o¢ Wud Si ie nism (Pakistan, EROS y dictoxers itd OS ah eit l > Mutoraie Aye ~ Sigs) Masno cant s .* Communist totalitarianism (North Korea) id. Kon (Hag, — * 2.3 Political system Democracy + Apolitcal system in which g: people, exercised either dire cA erected individuals. «+ characteristics of democracies in expression, free media, regu'ar €' court system, free access to state ir + Important Institutions are laid down in tre constitution. | __2.3 Political system: Variations in representation systems and forms of democracy \| * Proportional representation versus first-past-the- | Post. (Germany vs UK, Pakistan) * Direct versus indirect elections of government.( France vs USA) Countries) * Centraisation of ‘ower. ( Most countries vs USA, Uk, Australia) 2.3 Political systems! Why do they matter? * set the rules and whose interests are serves by TRETUIRS. 5 Waving Hee powwer be OL * determinefwhether and how businesses <1” influence legistative processes thre (mostly legatj or corruption (usually influence how frequently, and in winct » ‘ules of the game for business change. 2.4 Economic systems ‘Mt teonomie stem fers to a country is governed e there are three types of the rules by which +3 Religious Law 2.5 Legal systems asea tee pest to Gene Saeced) n, Precedent and custom. Common Law * Based on trastiy + tadges took at to decide how + Englshinony influericed cour . Meo eee eOuntes in Aico, Asa, Sut A how previous cases have been ea" to treat current cases iin buthas stretched to many Ens" onde Risbosedonautne + Judges are arbiter gecsor ae eee and Juries are decision " PIC POILY UY Uiennetue, veneered a of Islamabad : 2.5 Legal systems Common Law Implications for business + greater freedom to design contracts and codes of practice; + detailed contracts are needed to fil in for gaps in the legal framework; + more legal disputes involving much use of lawyers; + a greater legal burden may favour the more powerful companies. 2.5 Legal systems ‘Gil awis based on 2 detailed set ofl into codes. ‘This type of system, which is practied in more than 80 Countries including Germany, Japan and Russia less adversarial than common law = under civil law, judges only have the power to apply the existing law, not interpret the law + Iawis codified in books of law + judges lead the proceedings including questioning and eciding. ws organised Civil Law implications for businesses + Relatively short contracts and codes of practice Suster of ZENZAS | + more consumer and employee protection Taose| available under the law eos WE Businesses often complain about the alr ‘O% ‘bureaucracy of civil law cok LOSTE + but cvillaw als often gives greater legal oto’ certainty ee yes regres serene cnet University coiere ote Proparee Dr Geta: 22 25 Legal systems _| | ___2.5 Legal systems ———— Religious law. + Religious law is based on religious teachings. + Today, Islamic law is the most widely practiced theocratic law system. + Iran, Libyaaudi Arabia, seem of gosernmenk is usinile At Priest Sake name of ged 2.5 Legal systems Religious aw implications for business + Islamic jurors and scholars are struggling to applythe Tury) +, foundations of islamic law to the modern ~ world, + Muslim countries today are actually practicing Islamic law combined with common law or — civillew. 2.5 Legal systems Islamic law implications for business + No interest is allowed + Strict dress code for women + Restriction in the use of images fo 2° «+ Restriction in goods marketed, hall yment and poor Patt + Mainly Male environ of women in business + ETC. 2.5.1 Issues for international i jinesses [ * 2.5 Legal systems busine cow i i an What happens if a common law country has main legal issues that can g wnaKkenas pus ress contract with a civil law country? oe influence IB (wre * To deal with this type of scenario, about y * Fo counties have signed the Uited Nations + 1 Property rights Convention on Contracts for the International Sale of Goods (C168). + 2 Intellectual Property rights + which established a uniform set of rules iabilit joverning certain aspects of the making and + 3 Product safety and product liability Performance of everyday contracts between Rules and sellers and buyers who have their places of * 4 Corporate governance => business in different nations, by which a lecard of Prachies Pa directors CAsunes ak counto tity . ¢ Varnes s 0nd MoSpaventy Wh aN Sravewolders . University Coteus of! Prepared by Dr. Catala fi 2.5.1 Issues for international “25.1 |ssues for international niin . basin ‘Spanish gsleil ; emPenyy Cin madi Propertrrights Property rights & ee fe eae * Property rights, Property rights are the legal rights over + simply taking assets into stato Sontrat (Aeusor ton y these fo which a esource put and over the use oh YPF) expropriation by Argentina in 2 te aryincome that maybe derived fram thot resoure pan bepruation by Argentina in 2022) | + thelaws ae not consistently enforced = ONAL B al Se aubpesetsns Se < i PS + Pr rights can be violated through public actions . ‘ate violations like theft, piracy or blackmail Sey aes Ear ne are done by individuals could be dealt with the H Levying excessive taxes [Venezuela levied high taxes on law. Fe “at companies in 20055) (now * fequring special expensive licenses (microwave a Wery comer frequeney tor cellphones) mea entries have rest trictions on foreigners Owning land assets e.g Ag strate 2.5.1 Issues for international 2.5.1 Issues for international businesses i Intellectual property issues ee “tect property ih aright asseciate ownership ot ineectual property Soe ates with the luteal propery ean be peter inte wns " Apstertgestheimveniorofo new procera cc ‘hclsiverights ta manufocure,use bras te eee, * Aeprigtitecrduie rer chaungn ere ‘their work as thay see fit, publshand dspozeof Aaracernats Ses tenes, tata SSiputeor aver ign or name that merchants or ate their pro i may be officially ‘manufacturers to ducts, Starbucks threatens Sattar Buksh if they do not change their logo. 2.5 1 Legal Issues + ‘Hf you claim rights to use a mark, you may use reste ademart) or SM (service mart designation to alert the public to your c'aim o ownership ofthe mark, regarcless of whether have filed an application wit ite Sates Patent and Trademark Office (USPTO) However, you may only use the federal registration symbol “*” after the USPTO actually registers a mark, and not while an application is pending” @.g. Caslner Lets. wee Mlagiacsry Univessty Gotevee* Prepare! ty Dr. Coating Ationds “y Tock a a 25 1 Legal yor | —— vo" which a product must adher Issues Product safety and product liability . Product safety laws set certain standards to re product liability prone: holding a company and its officers ‘ ‘or damage. a wil sponsible when a product causes injury, death These vary greatly across countries, 2.5 1 Legal Issues __ Known, = whaks OY ae *+ Product safety and product iability ethical dilemma for companies. a * What should a company do if the standards in fotl H? a foreign market are lower than the Standards thay €at home? Should they comply with home standards even if this puts them at a gots competitive disadvantage2 > PM rnaggi needlet — banned tm rchios - nectte = Dent truth 44 pakistani ste pa rtet. = Fmd mene plow. noid 251 Legal fart fees ate o ‘“** Corporate governance. the rules by which sharehot makers. | In emerging markets shareh; ina family or the state. Pres bee Issues ders and other interested parties control corporate decision jolders concentrated 2.5 1 Legal Issues! Governan Variations across countries are SiFerences in economic and ie Common iaw systems have closely related to 6 in ways Provide strong protection for financial investrs (i. shareholders} Jn civil aw count Denmark, the law tends 2.6 Country development: political, economic and legal issues Gross Nations Gross National Income (G\N\) alincome table 25 in P&M 2011 PEC ANUS. pe cosy ca es aed ree + The Gross national income (GNI) is the total domestic and foreign output claimed by residents sot a kad tf a country, consisting of gross domestic product eet =a = {GDP} plus factor incomes earned by foreign bey a = residents, minus income earned in the domestic bl ees s ‘economy by nonresidents o = oS + GNI should be adjusted by PPP ~ fixes power ve como te ‘@ ‘GNI can also be expressed per capita," fase on neice oe University Cotege of Prepared by Dr. Catsina Ari i 2 2.6 Country development: political, 2.6 Country development: political, —economic and legal issues” —|-———economic and legal issues” «= International Business should consider GNI and HDI of the country they want to invest and their variations within that country. | Human Development index «+ The Human Development Index (HO!) developed by Sen measures the quality of life in different countries. - | HO is based on life expectancy at birth, + Even if GNI per capita is low for India, there ‘educational attainment. > rot, adwuary] are still more than 100 million Indians that are sverge incomes in 8 sufficient to in the middle class and an excellent potential average incomes in acount ened pu good mroriat. meet the basic needs of life in that country. market. ~ erode pe Goo 2.6 Country development: political, 2.6 Country development: political, economic and legal issues economic and legal issues Why some countries succeed and others failat econo Why some countries succeed and others fail at development (North 2005). economic development (North 2005) in Peng . ake and Meyer 2001. a factor which + Institutions ensure that companies are able 10 decisiow'y ofectt gains from trade, + Lack of strong, formal market-supporting institutions « North sees political, economic and legaiy maeee institutions as the basic determinants of @ One country’s nationaLeconomic performance "ot because these influence incentives and the ¢ * costs of doing business. + Einerging formal market-supporting institutions Support foreign businesses moving i completed long-sistance trade with 8 countcy a gril propery rights are protected, this wifey innovation, entrepreneurship, more econo 8°" increased inward investment Vion

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