INTERNATIONAL BUSINESS MANAGEMENT TEST [6 HOURS DURATION]
Eirwan
WEEK2SLIDESPOLITICALANDECONOMICENVIRONMENT.pptmRECAP -WHAT DID WE LEARN IN LECTURE 1?
Concept of globalization
Drivers of globalization
Impact of globalization – globalization of markets and production
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WEEK 2: National Differences in Political and Economic Systems
Dr Manjit Sandhu
Source: © Hoang Dinh Nam/Getty Images
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Listening to changing customer demands and monitoring your environment allow you and the firm to identify potential growth opportunities.
2
Learning Objectives
Understand how the political systems of countries differ.
Understand how the economic systems of countries differ.
Explain the implications for management practice of national differences in political and economic systems.
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Economic Transformation in Vietnam
Moving from centrally planned socialist economy to a more market oriented system
In 1986, Vietnam one of poorest countries in the world(GDP percapita- USD100)
Agricultural land privatized; state farm collectives dismantled
Farm productivity surged, price controls removed, barriers to FDI lowered
Today, living standards have surged, GDP PERCAPTA is USD5700(2014)
State-owned enterprises now only 40% of total output (remaining ones are inefficient)
Country too-dependent on commodity exports (IS THIS A PROBLEM?)
Communist party still in power/courts lack independence/corruption is rampant
Vietnam bans all independent political parties, labor unions and human rights organisations.
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To compound matters, corruption is rampant in Vietnam. Transparency International, a nongovernmental organization that evaluates countries based on perceptions of how corrupt they are, ranks Vietnam 112 out of the 167 countries it ranks. Corruption is not a new problem in Vietnam.
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Introduction
International business more complicated than domestic
Countries vary in economic development.
Countries have different political, economic and legal systems.
Cultural, education, and skill levels vary
Societal culture affects the political economy and the political economy shapes societal culture.
This will impact on the benefits, costs and risks of doing business internationally.
This will impact international management practices/strategies.
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Political Systems
HOW DO POLITICAL SYSTEMS IMPACT IB?
NEED TO ASSESS POLITICAL SYSTEMS
Political system: the system of government in a nation.
Types of political symtems
Democratic
Socialism
Totalitarianism
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LO 2-1 Understand how the political systems of countries differ.
Political Systems
Democracy and Totalitarianism
Democracy: political system in which government elected is by the people, exercised either directly or through elected representatives
Most common form today is representative democracy- elected representatives vote on behalf of constituents
Totalitarianism: form of government in which one person or political party exercises absolute control over all spheres of human life, and opposing political parties are prohibited
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Political Systems
- Democracy is a political system based on 1) representative government; 2) citizen participation in the political process; 3) freedom (in the wide sense; basic freedoms of citizens); 4) transparency of political acts and process in general
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Political Systems
Totalitarianism
In most totalitarian regimes:
There is widespread political repression.
There are no free and fair elections.
Media is censored.
Basic civil liberties are denied.
Challenges to the regime are prohibited.
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Political Systems
Totalitarianism continued
Forms of totalitarianism today:
Communist totalitarianism: advocates achieving socialism through totalitarian dictatorship
Theocratic totalitarianism: political power is monopolized by a party, group, or individual that governs according to religious principles
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Political Systems
Socialism (EXTREME) –LIKE NORTH KOREA –JUST LIKE COMMUNIST TOTALITARIANISM
Modern socialists trace their roots to Karl Marx
Advocated state ownership of the basic means of production, distribution, and exchange
The state then manages the enterprises for the benefit of society as a whole.
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Political Systems
In the early 20th century, socialism split into communists and social democrats:
Communists - socialism could only be achieved though revolution and totalitarian dictatorship.
(China, Laos, Cuba, Vietnam) vs North Korea
Social democrats worked to achieve the same goals by democratic means. Very common in countries using mixed economic system where resources are allocated though free market but government intervention is there to reduce market failure(common in Europe- Sweden, Germany, Denmark etc) –high safety nets
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Social democracy
Extensive welfare benefits, corporatist collective bargaining between labor and capital that is managed by the state, and some state ownership of the economy.
labor is given a greater voice both at the workplace and in the management of the economy, capitalist control persists over the large majority of workplaces.
the state-owned enterprises (SOEs) in Norway account for nearly 60 percent of GDP
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Economic Systems
Political ideology and economic systems are connected
There are three types of economic systems: the market economy, the command economy, and the mixed economy
A market-based economic system is likely in countries where individual goals are given primacy over collective goals
State-owned enterprises and restricted markets are common in countries where collective goals are dominant
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LO 2-2 Understand how the economic systems of countries differ.
Economic Systems 2 of 4
Market Economy
In a pure market economy the goods and services that a country produces, and the quantity in which they are produced is determined by supply and demand
Supply must not be restricted by monopolies
The role of government is to encourage free and fair competition between private producers
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Economic Systems 3 of 4
Command Economy
In a pure command economy the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold are all planned by the government
All businesses are state-owned, and have little incentive to control costs and be efficient
Because there is no private ownership, there is little incentive to better serve consumer needs
Dynamism and innovation are absent
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North Korea’s Command Economy
Kim Jong-un, the leader of the Democratic People's Republic of Korea, inspecting a factory. North Korea functions as a centralized, single party, and tightly controlled dictatorial command economy.
Source: © AFP/Getty Images
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Economic Systems 4 of 4
Mixed Economy
A mixed economy includes some elements of a market economy and some elements of a command economy
Governments take over troubled firms considered vital to national interests
The number of mixed economies in the world today is falling
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Economic Systems 4 of 4
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Focus on Managerial Implications
THE MACRO ENVIRONMENT INFLUENCES MARKET ATTRACTIVENESS
The political, economic of a country clearly influence the attractiveness of that country as a market and/or investment site
A democratic country with a market-based economy, protection of property rights, and limited corruption is a more attractive place to do business. Do you agree?
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LO 2-4 Explain the implications for management practice of national differences in political economy.
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Focus on Managerial Implications
How do you assess political risk?
Make use of political indicators
Stability of government (is the current government stable or not)
Level of corruption
Level of government repression
Level of nationalism
Is the country a member of trade agreements?
Civil war
Large and unpredictable changes in government policies
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LO 2-4 Explain the implications for management practice of national differences in political economy.
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Focus on Managerial Implications
How do you assess economic risk?
Make use of economic indicators
GDP growth (growth vs recession)
Currency stability
Inflation rates
Unemployement
Balance of payment (high deficit)
High Government debts (government spending > Tax revenue) – leading to high borrowings
Quality of the financial systems (banks etc)
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LO 2-4 Explain the implications for management practice of national differences in political economy.
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Summary
In this chapter we have
Explored how the political systems of countries differ.
Explored how the economic systems of countries differ.
Explained the implications for management practice of national differences in political economy.
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Lecture Script 6-23
