International Business

To be viewed together with the book

International Business- Competing in the Global Marketplace by Charles
H.W. Hill and G. Tomas M. Hult
National Differences in Political,
Economic, and Legal Systems
Introduction
• Political Economy
• Political, economic, and legal systems of a country are interdependent
• They influence each other
Political Systems
• Political systems:
1. Collectivism vs. Individualism
2. Democratic vs. Totalitarian
Political Systems
• Collectivism and Individualism
• Collectivism
• The needs of society as a whole are generally viewed as being more important than
individual freedoms
• China/ France/ Scandinavian Countries?
• Socialism
• Karl Marx: The few benefit at the expense of the many in a capitalist society where
individual freedoms are not restricted
• Advocated for state ownership
• Communists vs. Social Democrats
• Nationalisation Vs. Privatization
Political Systems
• Collectivism and Individualism continued
• Individualism
• An individual should have freedom in his or her economic and political pursuits
• The interests of the individual should take precedence over the interests of the state
• Two tenets
• Guarantee of individual freedom and self-expression
• Welfare of society best served by letting people pursue their own economic self-interest
• Private Property
• USA
• India?
Political Systems
• Democracy and Totalitarianism
• At different ends of a political dimension
• Democracy and individualism go hand in hand, as do the communist version
of collectivism and totalitarianism, with exceptions
Political Systems
• Democracy and Totalitarianism continued
• Democracy
• Representative democracy
• Freedom of Expression/Free Media/Regular Elections/ Universal Adult Suffrage/Limited
terms/Independent Courts/Non-Politcal Bureaucracy and Police and Armed Forces/Access
to State Information
• Totalitarianism
• Communist totalitarianism (North Korea)
• Theocratic totalitarianism (Iran)
• Tribal totalitarianism (Parts of Africa)
• Right-wing totalitarianism (Pre- War Germany and Italy)
Political Systems
• Democracy and Totalitarianism continued
• Pseudo-democracies (Russia)
• Lie between pure democracies and complete totalitarianism systems
• Authoritarian elements have captured some or much of the machinery of state and use this
in an attempt to deny basic political and civil liberties
Full Democracies
• Civil Liberties and Political Freedom
• Conducive Political Climate
• Checks and Balances on Government
• Independent Media
• Independent Judiciary
Economic Systems
• Market Economy
• All productive activities are privately owned
• Production is determined by supply and demand
• Government encourages vigorous free and fair competition
• Anti-Trust Laws
Economic Systems
• Command Economy
• Government plans the good and services, quantity and price, then allocates
them for “the good of society”
• All businesses are state owned
• Historically found in communist economies
• No incentive for individuals to look for better ways to serve needs
• France and India
Economic Systems
• Mixed Economy
• Some sectors are privately owned, some are government owned
• Once common in developed world, less so now
• Britain, France, Sweden- Privatization
• Government may aid troubled firms
• U.S. helped Citigroup, General Motors
Legal Systems
• Legal Systems
• Rules or laws that regulate behavior
• Process through which laws are enforced
• Redress for grievances
• Influenced by the prevailing political system
• Collectivist States tend to create laws that restrict business
Legal Systems
• Legal Systems continued
• Different Legal Systems
• Common Law
• Tradition, precedent, custom
• More flexible than other systems
• Judges can interpret the law
• Civil Law
• Laws organized into codes
• Less adversarial/ Less power to interpret to Judges
• Theocratic Law
• Based on religious teachings
• Most common is Islamic law
Legal Systems
• Differences in Contract Law
• Governs the enforcement of contracts
• Common law
• Contracts are very detailed with all contingencies spelled out
• More expensive and can be adversarial.
• Civil law
• Contracts tend to be much shorter and less specific
Legal Systems
• Differences in Contract Law continued
• United Nations Convention on Contracts for the International Sale of
Goods (CISG)
• Establishes a uniform set of rules governing certain aspects of the making and
performance of everyday commercial contracts between sellers and buyers who have
their places of business in different nations
• Applies automatically to all contracts for the sale of goods between different firms
based in countries that have ratified the convention, unless the parties opt out
• Only 83 nations- India and UK.
• Arbitration Court in Paris
Legal Systems
• Property Rights and Corruption
• Property is a resource that an individual or business owns
• Land, buildings, equipment, capital, mineral rights, businesses, intellectual
property
• Most countries protect property rights
Legal Systems
• Property Rights and Corruption continued
• Private action
• Theft, piracy, blackmail
• Russia, Japan, Italy and Bihar?

• Public action and corruption

• Public officials extort income, resources, or property
• Levying excessive taxation, requiring expensive licenses or permits from property
holders, taking assets into state ownership without compensating the owners,
redistributing assets without compensating the prior owners
• Corruption, demanding bribes
Legal Systems
• Property Rights and Corruption continued
• Foreign Corrupt Practices Act (FCPA)
• Illegal to bribe a foreign government official to obtain or maintain business over which
that foreign official has authority
• Requires all publicly traded companies to keep detailed records that would reveal
whether a violation of the act has occurred
• Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions (1997)
• Allows for facilitating or expediting payments
Legal Systems
• Compensate the Originator/Inventor
• Stimulate Innovation and Creative Work.
• The Protection of Intellectual Property
• Patent- Product or Process
• Copyrights- Authors/Artists/ Publishers/ Composers
• Trademarks- Designs and Names
• World Intellectual Property Organization
• Paris Convention for the Protection of Industrial Property
Legal Systems
• Business Response- Avoid/ Lobby/
Lawsuit/
• Starbucks in China
Legal Systems
• Product Safety and Product Liability
• Product safety
• Product liability
• Greater if a product does not conform to safety standards
• Criminal and civil laws apply
• Ethical Issue: Cross border product safety?
Focus on Managerial Implications
• Two broad implications
• Political, economic, and legal systems of a country raise important ethical
issues that have implications for international business.
• Political, economic, and legal environments of a country clearly influence
the attractiveness of that country as a market or investment site.
• A country with democratic political institutions, market-based economic
system, and strong legal system clearly more attractive to do business in.
• Starting a business in Canada or Russia?
Questions?