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Slide 4.

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Chapter 4

International politics

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 4.2

International politics





Objectives
Introduction
Economic integration
The European Union (EU)
Other examples of economic integration
Economic integration and strategic management.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

© Pearson Education Limited 2009 . there has been a move towards market-driven economies in Eastern Europe and China.Slide 4. International Business.3 Introduction • Over the last few decades there has been a dramatic change in the political systems of many countries. 5th Edition. Alan M Rugman and Simon Collinson. • In particular.

– Totalitarianism: A system of government in which one individual or party maintains complete control and either refuses to recognize other parties or suppresses them. 5th Edition.4 Political ideologies and economics • Political systems – Democracy: A system of government in which the people directly or through their elected officials. © Pearson Education Limited 2009 . Alan M Rugman and Simon Collinson.Slide 4. International Business. decide what is to be done.

International Business.Slide 4.5 Political ideologies and economics (Continued) • Economic systems – Market-driven economy: An economy in which goods and services are allocated on the basis of consumer demand. Alan M Rugman and Simon Collinson. © Pearson Education Limited 2009 . – Centrally determined economy: An economy in which goods and services are allocated based on a plan formulated by a committee that decided what is to be offered. – Mixed economies: Economic systems characterized by a combination of market-and centrally-driven planning. 5th Edition.

Slide 4. © Pearson Education Limited 2009 . • Nationalization: A process by which the government takes control of business assets.6 Government control of assets • Privatization: The process of selling government assets to private buyers. Alan M Rugman and Simon Collinson. International Business. – Divestiture: A process by which a government or business sells assets. – Contract Management: A process by which an organization (such as the government) transfers operating responsibility of an industry without transferring the legal title and ownership. with or without remuneration of the owner. 5th Edition.

5th Edition.Slide 4.7 Government control of assets • Reasons for Privatization: – Increase efficiency – Change in political culture brings about desire to sell off these assets – More to be gained by selling a profitable company – To reduce national debt – Company is losing money – Company needs funds for R&D – To get assistance from international funding agencies Alan M Rugman and Simon Collinson. © Pearson Education Limited 2009 . International Business.

Slide 4. © Pearson Education Limited 2009 .8 Government control of assets • Reasons for Nationalization: – Promoting economic development. International Business. 5th Edition. coordinating assets of many businesses into one master plan – Earning profits for national treasury – Preventing companies from going bankrupt – Enhancing programs that are in the national interest – Increasing political or economic power of those in control – Ensuring goods and services to all citizens regardless of economic status Alan M Rugman and Simon Collinson.

Alan M Rugman and Simon Collinson. © Pearson Education Limited 2009 .Slide 4. • Business-government cooperation continues to be beneficial.9 Government – business cooperation • Although governments are privatizing assets. this does not mean that they are not involved in business. particularly in the EU and Japan. 5th Edition. International Business.

© Pearson Education Limited 2009 . Alan M Rugman and Simon Collinson. International Business.Slide 4.10 Economic integration • The establishment of transnational rules and regulations that enhance economic trade and cooperation among countries. 5th Edition.

• Trade diversion: A process in which members of an economic integration group decreases trade with non-member countries in favor of trade with each other.11 Trade creation and diversion • Trade creation: A process in which members of an economic integration group begin to focus their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other. International Business. 5th Edition. Alan M Rugman and Simon Collinson. © Pearson Education Limited 2009 .Slide 4.

NAFTA). © Pearson Education Limited 2009 . 5th Edition. • Customs Union: tariff between member countries are eliminated and a common trade policy toward nonmember countries is established. International Business. a common external trade policy and mobility of factors of production among member countries.12 Levels of economic integration • Free Trade Area: barriers to trade (such as tariffs) among member countries are removed (e. Alan M Rugman and Simon Collinson.g. • Common Market: elimination of trade barriers among member countries.Slide 4.

and factors of production among member countries and full integration of economic policies. © Pearson Education Limited 2009 . unification of economic policies and a single government.13 Levels of economic integration (Continued) • Economic union: A deep form of integration characterized by free movement of goods services. • Political union: An economic union in which there is full economic integration. 5th Edition.Slide 4. Alan M Rugman and Simon Collinson. International Business.

© Pearson Education Limited 2009 .14 Economic Integration: An overall perspective • Not necessary for a country to pursue economic integration starting with a free trade area • Economic integration in the form of free trade results in a winning situation for all group members • Bloc members can achieve internal and external economies of scale • Results in all bloc countries becoming more efficient in the long run. 5th Edition. Alan M Rugman and Simon Collinson. International Business.Slide 4.

© Pearson Education Limited 2009 .Slide 4. International Business. • Non-governmental organizations (NGOs) are private-sector groups that act to advance diverse social interests. environment. including opposition to global business. Alan M Rugman and Simon Collinson. organizations and institutions that act outside the government and the market to advance a diverse set of interests. MNEs and the civil society • The civil society is a group of individuals.15 Ethics. 5th Edition.

the Netherlands and West Germany. • European Free Trade Association (EFTA): A free trade area currently consisting of Iceland.Slide 4. © Pearson Education Limited 2009 . • European Union (EU): A treaty-based institutional framework that manages economic and political cooperation among its 27 member countries. 5th Edition. Liechtenstein. Alan M Rugman and Simon Collinson. Norway and Switzerland. Luxembourg.16 The European Union: formation • European Coal and Steel Community (ECSC): A community formed in 1952 by Belgium. International Business. France. Italy.

Alan M Rugman and Simon Collinson.Slide 4. International Business. © Pearson Education Limited 2009 .17 The European Union: organization • • • • • • European Council Council of the European Union European Commission European Parliament Court of Justice Court of Auditors. 5th Edition.

International Business.18 Figure 4. © Pearson Education Limited 2009 .Slide 4.1 The European Union’s institutions Alan M Rugman and Simon Collinson. 5th Edition.

Malaysia. • ASEAN: Founded by Indonesia.19 Other examples of economic integration • Andean Community: An economic union that consists of Bolivia. • FTAA: A free trade agreement of the Americas that has not yet been implemented. 5th Edition. © Pearson Education Limited 2009 .Slide 4. • Mercosur: A free trade group that consists of Argentina. Paraguay and Uruguay. the Philippines. Alan M Rugman and Simon Collinson. Ecuador. Colombia. Peru and Venezuela. Brazil. International Business. Singapore and Thailand.

International Business. – marketing cooperation. 5th Edition. Alan M Rugman and Simon Collinson.20 Economic integration and strategic management • A strategic alliance is a business relationship in which two or more companies work together to achieve a collective advantage.Slide 4. • These alliances can take a number of forms: – research cooperation. © Pearson Education Limited 2009 . – licensing of a product or technology for a specific market region.

21 Localization of business operations • MNEs must adapt their offering. 5th Edition. • These efforts result in the localization of business operations and typically focus on four areas: – – – – Products Profits Production Management. International Business. their expectations and the way in which they do business to each market in which they operate. Alan M Rugman and Simon Collinson.Slide 4. © Pearson Education Limited 2009 .