Understanding Politics,

Laws and Economics

GLOBAL t PENG
INTERNATIONAL BUSINESS,NEW REALITIES 5TH EDITION, 2020, Cavusgil, Knight,
Riesenberger,
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Copyright © 2020, 2017, 2014 by Pearson
 CHAPTER 2 LEARNING OBJECTIVES

After studying this module, you should be able to:

Explain how economics, political/legal and financial environment affects
business.
LO6. Describe political and legal environment in International Business
LO7. Determine political & legal system and its participants
L08 Identify the country risks produced by political systems
L09 The nature , instruments , evolution & consequences of government
intervention
L10 Evolution & Consequences of government intervention
L11 How firms can respond to government intervention.
L12 The nature, instruments, evolution & consequences of government
intervention
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rights reserved.
 Class Schedule
Understanding Politics, Laws & Economics

Module 02 L06 The political & legal environment in International Business

EA02 Wk 3 Wk 4 1.50 11-Oct

Wk 3-4 L07 The political & legal systems and its participants

L08 The country risks produced by political systems

L09 The nature , instruments , evolution & consequences of government intervention

L10 Evolution & Consequences of government intervention

L11 How firms can respond to government intervention.

L12 The nature, instruments, evolution & consequences of government intervention

Case Study: India's Transformation to a Liberal Economy & Hollywood Movies & Global
Culture

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right
Country Risk as One of Four Major Risks in
International Business

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.
Protectionism
 National economic policies designed
to restrict free trade and protect
domestic industries from foreign
competition.

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Why government imposed tariffs?

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 Government Intervention

 Defensive Rationale
1. Protection of the nation’s economy
2. Protection of an infant industry
3. National Security
4. National Culture and Identity.
 Offensive Rationale
1. National strategic priorities
2. Increasing Employment

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Types & Effects of Government Intervention

Source: Adapted from the Office of the United

States Trade Representative, retrieved from
. www.ustr.gov

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Tariff Percentages in Selected Countries

Source: Adapted from the Office of the United

States Trade Representative, retrieved from
. www.ustr.gov

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Tariffs in Developing & Advance Economies

Source: Adapted from the Office of the United

States Trade Representative, retrieved from
. www.ustr.gov

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2017, 2014 by Pearson Education, Inc. or its affiliates. All Rights
Reserved
©
© 2010 Cengage Learning. All 2010 Cengage
Learning. All rights reserved.
Copyright © 2020, 2GLOBAL PHENOMENON
2017, 2014 by Pearson Education, Inc. or its
affiliates. All Rights Reserved
rights reserved.
© 2010 Cengage Learning. All 2010 Cengage
Learning. All rights reserved.
Copyright © 2020, 2GLOBAL PHENOMENON
2017, 2014 by Pearson Education, Inc. or its
affiliates. All Rights Reserved
rights reserved.
© 2010 Cengage Learning. All 2010 Cengage
Learning. All rights reserved.
Copyright © 2020, 2GLOBAL PHENOMENON
2017, 2014 by Pearson Education, Inc. or its
affiliates. All Rights Reserved
rights reserved.
© 2010 Cengage Learning. All 2010 Cengage
Learning. All rights reserved.
Copyright © 2020, 2GLOBAL PHENOMENON
2017, 2014 by Pearson Education, Inc. or its
affiliates. All Rights Reserved
rights reserved.
© 2010 Cengage Learning. All 2010 Cengage
Learning. All rights reserved.
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2017, 2014 by Pearson Education, Inc. or its
affiliates. All Rights Reserved
rights reserved.
How Firms Can Respond to Government
Intervention
1. Research to gather knowledge & intelligence
2. Choose the most appropriate entry strategies
3. Take advantage of foreign trade zones
4. Seek favorable customs classification for exported
products
5. Take advantage of investment incentives and other
government support programs.

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Learning. All rights reserved.
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rights reserved.
 Regional Integration
Regional Integration, regional economic integration refers to the
growing economic interdependence that results when two or more
countries within a geographic region form an alliance aimed at
reducing barriers to trade and investment.

Free trade agreement

A formal arrangement between two or more countries to reduce or
eliminate tariffs, quotas, and barriers to trade in products and
services.

Free trade area

A stage of regional integration in which member countries agree to
eliminate tariffs and other barriers to trade in products and
services within the bloc. (same meaning as block but use the
French term)
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Regional Integration

Customs union A stage of regional integration in which the

member countries agree to adopt common tariff and
nontariff barriers on imports from nonmember countries.
Common market A stage of regional integration in which
trade barriers are reduced or removed; common external
barriers are established; and products, services, and factors
of production are al-lowed to move freely among the
member countries.
Economic union A stage of regional integration in which
member countries enjoy all the advantages of early stages
but also strive to have common fiscal and monetary policies.
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Leading Economic Blocs in the World

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 Advantages and Implications of Regional
Integration

Regional integration contributes to corporate and industrial

growth and hence to economic growth, better living standards,
and higher tax revenues for the member countries.
 Internationalization inside the block- It increases market size
by integrating the economies within a region.
 Restructuring Operations- It increases economies of scale
and factor productivity among firms in the member countries
and attracts foreign investors to the bloc.
 Regional Products & Marketing- Countries standardize their
products & marketing in unity with their bloc.
 Acquire stronger Defensive & Political Posture- Countries are
more powerful when they don’t operate alone.
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Learning. All rights reserved.
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rights reserved.