Essay of international business including the following topics: Globalization, cross culture business, political economy and ethics, economy devolpment of nation, and international trade theory. 8 pages single spaced. book used as a refrence : internatio

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Home >Business & Finance homework help >Economics homework help >Essay of international business including the following topics: Globalization, cross culture business, political economy and ethics, economy devolpment of nation, and international trade theory. 8 pages single spaced. book used as a refrence : internatio

Chapter Three Political Economy and Ethics

Chapter 3-1

This chapter first explores the political economy of nations. We examine the main types of political, economic, and legal systems in practice around the world. We then examine key legal issues for international firms and explore the importance of ethical behavior and social responsibility.

Learning Objectives

Describe the key features of each form of political system.

Explain how the three types of economic systems differ.

Summarize the main elements of each type of legal system.

Outline the global legal issues facing international firms.

Describe the main issues of global ethics and social responsibility.

Chapter 3-2

PepsiCo’s Global Challenge

Targeting international sales

Pepsico’s international sales comprise 40 percent of total revenue

Investing aggressively in India

Moving the company’s product line in healthier directions

Decreasing the company impact on the environment

Taking care of the company’s workforce

Chapter 3-3

Like all companies operating internationally, PepsiCo must carefully navigate unfamiliar political, economic, and legal systems.

PepsiCo’s CEO, Indra Nooyi, is moving the company’s product line in healthier directions. She introduced the motto “Performance with Purpose” to reflect how the company is transforming its global businesses. She wants the company to balance its drive for profits with making healthier snacks, decreasing its impact on the environment, and taking care of its workforce. Born and raised in India, Nooyi believes it is essential that “we use corporations as a productive player in addressing some of the big issues facing the world.”

Nooyi also helped spark “green” initiatives at PepsiCo. She has proved that investments in water- and heat-related conservation projects can be worthy endeavors. In addition to their environmental benefits, those projects now save the company $55 million annually. Nooyi says, “Companies today are bigger than many economies. We are little republics. We are engines of efficiency. If companies don’t do [responsible] things, who is going to?” As you read this chapter, consider how companies adapt to political, economic, and legal systems worldwide while fulfilling their ethical and social responsibilities.

Political Systems

Political System: Structures, processes, and activities by which a nation governs itself

Both private and public

groups need to balance

each other’s power

Every aspect of

people’s lives must be

controlled to preserve order

Only individuals and

private groups can

preserve personal liberties

Totalitarianism

Anarchism

Pluralism

Chapter 3-4

A political system includes the structures, processes, and activities by which a nation governs itself.

A country’s political system is rooted in the history and culture of its people. Factors such as population, age and race composition, and per capita income influence a country’s political system.

We can arrange the world’s three political ideologies on a horizontal scale, with one on either end and one in the middle. At the one extreme lies anarchism—the belief that only individuals and private groups should control a nation’s political activities. An anarchist views public government as unnecessary and unwanted because it tramples personal liberties.

At the other extreme lies totalitarianism—the belief that every aspect of people’s lives must be controlled for a nation’s political system to be effective. Totalitarianism disregards individual liberties and treats people as slaves of the political system. The state reigns supreme over institutions such as family, religion, business, and labor. Totalitarian political systems include authoritarian regimes such as communism and fascism.

Between those two extremes lies pluralism—the belief that both private and public groups play important roles in a nation’s political activities. Each group (consisting of people with different ethnic, racial, class, and lifestyle backgrounds) serves to balance the power that can be gained by the others. Pluralistic political systems include democracies, constitutional monarchies, and some aristocracies.

Political Systems Totalitarianism

Chapter 3-5

In a totalitarian system, individuals govern without the support of the people, tightly control people’s lives, and do not tolerate opposing viewpoints.

Totalitarian governments tend to share three features:

Imposed Authority: An individual or group forms the political system without the explicit or implicit approval of the people. Leaders often acquire and retain power through military force or fraudulent elections. In some cases, they come to power through legitimate means but then remain in office after their terms expire.

Lack of Constitutional Guarantees: Totalitarian systems deny citizens the constitutional guarantees woven into the fabric of democratic practice. They limit, abuse, or reject concepts such as freedom of expression, periodically held elections, guaranteed civil and property rights, and minority rights.

Restricted Participation: Political representation is limited to parties sympathetic to the government or to those who pose no credible threat. In most cases, political opposition is completely banned, and political dissidents are severely punished.

Totalitarian Governments

Imposed Authority

Lack of Constitutional Guarantees

Restricted Participation

Political Systems Totalitarianism (Cont.)

Chapter 3-6

Theocratic Totalitarianism: A political system in which a country’s religious leaders are also its political leaders is called a theocracy. The religious leaders enforce a set of laws and regulations based on religious beliefs. A political system under the control of totalitarian religious leaders is called theocratic totalitarianism.

Secular Totalitarianism: A political system in which political leaders rely on military and bureaucratic power is called secular totalitarianism. It takes three forms: communist, tribal, and right-wing.

Communist totalitarianism (or simply communism) argues that social and economic equality can be obtained only by establishing an all-powerful Communist party and by granting the government ownership and control over all types of economic activity.

Tribal totalitarianism is a system whereby one ethnic group imposes its will on other ethnic groups within a nation.

Right-wing totalitarianism is a system whereby government endorses private ownership of property and a market-based economy, but grants few (if any) political freedoms.

Totalitarianism

Secular Totalitarianism

Communist Totalitarianism

Theocratic Totalitarianism

Tribal Totalitarianism

Right-Wing Totalitarianism

Political Systems Democracy

Democracy: Political system in which government leaders are elected directly by the wide participation of the people or by their representatives

Representative Democracy: Democracy in which citizens elect individuals from their groups to represent their political views

Chapter 3-7

A democracy is a political system in which government leaders are elected directly by the wide participation of the people or by their representatives. Democracy differs from totalitarianism in nearly every respect.

Representative Democracy: For practical reasons most nations resort to a representative democracy in which citizens elect individuals from their groups to represent their political views. These representatives then help govern the people and pass laws. The people reelect representatives they approve of and replace those they no longer want representing them.

Political Systems Democracy (Cont.)

Chapter 3-8

Freedom of Expression: A constitutional right in most democracies, freedom of expression ideally grants the right to voice opinions freely and without fear of punishment.

Periodic Elections: Each elected representative serves for a period of time, after which the people (or electorate) decide whether to retain that representative. Two examples of periodic elections include the U.S. presidential elections (held every four years) and the French presidential elections (held every five years).

Full Civil and Property Rights: Civil rights include freedom of speech, freedom to organize political parties, and the right to a fair trial. Property rights are the privileges and responsibilities of owners of property (homes, cars, businesses, and so forth).

Minority Rights: In theory, democracies try to preserve peaceful coexistence among groups of people with diverse cultural, ethnic, and racial backgrounds. Ideally, the same rights and privileges extend legally to each group, no matter how few its members.

Nonpolitical Bureaucracies: The bureaucracy is the part of government that implements the rules and laws passed by elected representatives. In politicized bureaucracies, bureaucrats tend to implement decisions according to their own political views rather than those of the people’s representatives. This clearly contradicts the purpose of the democratic process.

Freedom of Expression

Full Civil and Property Rights

Nonpolitical Bureaucracies

Periodic Elections

Minority Rights

Representative Democracy

Quick Study 1

What features characterize the political ideology called pluralism?

Communists believe that a violent revolution is needed to seize control over resources, wish to eliminate political opposition, and do what else?

What does a representative democracy strive to provide for its people?

By what other name is capitalism often referred?

Chapter 3-9

Economic Systems

Figure 3.1

Range of Economic Systems

Chapter 3-10

A country’s economic system consists of the structure and processes that it uses to allocate its resources and conduct its commercial activities. Every economy displays a tendency toward individualist or collectivist economic values that reflects the nation’s culture.

We can arrange national economies on a horizontal scale that is anchored by two extremes. At one end of the scale is a theoretical pure centrally planned economy, at the other end is a theoretical pure market economy, and in between is a mixed economy (see Figure 3.1).

Marked Economy: In a market economy, the majority of a nation’s land, factories, and other economic resources are privately owned, either by individuals or businesses. This means that who produces what and the prices of products, labor, and capital in a market economy are determined by the interplay of two forces:

Supply: the quantity of a good or service that producers are willing to provide at a specific selling price

Demand: the quantity of a good or service that buyers are willing to purchase at a specific selling price

Centrally Planned Economy Origin and Decline

Origin

Rooted in Collectivism

Popularized by Karl Marx in the nineteenth century

Implemented in the twentieth century by means of violent upheaval

Decline

Failure to create economic value

Failure to provide incentives

Failure to achieve rapid growth

Failure to satisfy consumer needs

Chapter 3-11

Centrally Planned Economy: Economic system in which a nation’s land, factories, and other economic resources are owned by the government, which plans nearly all economic activity.

Central planning is rooted in the ideology of collectivism. Just as collectivist cultures emphasize group over individual goals, a centrally planned economy strives to achieve economic and social equality for the sake of the collective, not the individual.

German philosopher Karl Marx popularized the idea of central economic planning in the nineteenth century.

Different versions of Marx’s ideas were implemented in the twentieth century by means of violent upheaval.

Nations that relied on central control of their economies failed to achieve their objectives. Specifically, they:

Failed to create economic value by failing to produce quality products efficiently.

Failed to provide incentives to maximize the benefits from resources, which slowed economic growth and lowered living standards.

Failed to achieve rapid economic growth and witnessed themselves falling quickly behind other nations.

And failed to satisfy consumer needs for even basic necessities.

Mixed Economy Origin and Decline

Goals

Low unemployment and poverty

Steady economic growth

Equitable distribution of wealth

Decline

Lack of accountability, rising costs, and slow economic growth

Move toward market-based systems

Move toward privatization

Chapter 3-12

Mixed Economy: Economic system in which land, factories, and other economic resources are rather equally split between private and government ownership.

In a mixed economy, ownership of economic resources is split rather evenly between private and government entities.

Government controls the economic sectors important to national security and stability and provides generous unemployment programs.

Mixed economies strive for low unemployment and poverty, steady economic growth, and an equitable distribution of wealth.

Many mixed economies are hampered by government ownership that is less efficient than private ownership, and hurt by higher prices and taxes that lower living standards.

Many mixed economies are remaking themselves to more closely resemble free markets. When assets are owned by the government, there seems to be less incentive to eliminate waste or to practice innovation. Extensive government ownership on a national level tends to result in a lack of accountability, rising costs, and slow economic growth.

Privatization: Policy of selling government-owned economic resources to private operators.

Market Economy Origin, Essence, and Features

Origin and Essence

Private ownership

Interplay of two forces: supply and demand

Emphasis on individualism

Laissez-faire economics

Economic freedom

Features

Free choice

Alternative purchase options

Free enterprise

Firms choose products and markets

Price flexibility

Prices follow supply and demand

Chapter 3-13

Supply: the quantity of a good or service that producers are willing to provide at a specific selling price

Demand: the quantity of a good or service that buyers are willing to purchase at a specific selling price

Market economics is rooted in the belief that individual concerns should be placed above group concerns.

To function smoothly and properly, a market economy requires three things: free choice, free enterprise, and price flexibility:

Free choice, which gives individuals access to alternative purchase options.

Free enterprise, which lets companies decide what to produce and which markets to compete in.

And price flexibility, which allows most prices to rise and fall according to the forces of supply and demand.

The essence of market economies is grounded in freedom: free choice, free enterprise, free prices, and freedom from direct intervention by government.

Market Economy Government’s Role

Chapter 3-14

In a market economy, government is to enforce antitrust (antimonopoly) laws. This encourages the development of industries with many competing businesses, and prevents trade-restraining monopolies that can raise prices and exploit consumers.

Governments in market economies also strive to preserve property rights.

Strong property rights protection ensures that people and businesses enjoy the fruits of their labor.

This encourages individuals and firms to create and to invest in new technologies because their efforts are rewarded by the income that these technologies generate.

Strong property rights also encourage entrepreneurs to start new businesses because their claims to assets are secure.

The government in a market economy is to provide a stable fiscal and monetary environment.

This is achieved through effective management of fiscal and monetary policies.

Stability reduces overall risk in an economy, improves business forecasts, and helps control inflation and unemployment rates.

Finally, government in a market economy is to preserve political stability.

This encourages the smooth operation of a market economy.

Political stability promotes economic growth, reduces worries over political risk, and improves chances for business survival.

Enforce antitrust laws

Preserve property rights

Provide fiscal and monetary stability

Preserve political stability

Government’s Role

Quick Study 2

What factors contributed to the decline of centrally planned economies?

Which economic system strives toward low unemployment, low poverty, steady economic growth, and an equitable distribution of wealth?

Laissez-faire economics calls for less government interference in commerce and what else?

Countries with the greatest amount of economic freedom tend to have what?

Chapter 3-15

Legal Systems

Legal System: Set of laws and regulations, including the processes by which a country’s laws are enacted and enforced and the ways in which its courts hold parties accountable for their actions.

A country’s political system also influences its legal system.

Legal systems are frequently influenced by political moods and upsurges of nationalism.

Chapter 3-16

A country’s legal system is its set of laws and regulations, including the processes by which its laws are enacted and enforced and the ways in which its courts hold parties accountable for their actions. Many cultural factors—including ideas on social mobility, religion, and individualism— influence a nation’s legal system. Likewise, many laws and regulations are enacted to safeguard cultural values and beliefs.

A country’s political system also influences its legal system. Totalitarian governments tend to favor public ownership of economic resources and enact laws limiting entrepreneurial behavior. By contrast, democracies tend to encourage entrepreneurial activity and protect business with strong property-rights laws.

Legal systems are frequently influenced by political moods and upsurges of nationalism— the devotion of a people to their nation’s interests and advancement. Nationalism typically involves intense national loyalty and cultural pride and is often associated with drives toward national independence.

Legal Systems (Cont.)

Common Law

Tradition: A country’s legal history

Precedent: Past cases that have come before the courts

Usage: How laws are applied in specific situations

Civil Law

Legal code

Theocratic Law

Based on religious teachings

Chapter 3-17

The common law system originated in England ten centuries ago. Common law is flexible because it takes into account particular situations and circumstances. It is based on:

Tradition, or a nation’s legal history.

Precedent, or past cases that have come before the courts.

And usage, or how laws are applied in specific situations.

Civil law can be traced to Rome in the fifth century B.C. and is the most common legal tradition.

It is based on a detailed set of written rules and statutes that constitute a legal code.

It can be less adversarial than common law because the legal code defines all obligations, responsibilities, and privileges of the parties to a contract.

Firms operating in countries with theocratic legal systems must be sensitive to local values and beliefs.

They must evaluate their activities, including hiring practices and investment policies, to ensure compliance with the law, local values, and beliefs.

Islamic law is the most widely practiced theocratic legal system today.

Quick Study 3

Which legal system decides cases by interpreting the law on the basis of tradition, precedent, and usage?

Which legal system is based on a detailed set of written rules and statutes that constitute a legal code?

A legal tradition based on faithless teaching is called what?

Chapter 3-18

Global Legal Issues Intellectual Property

Intellectual Property

Property Rights

Industrial Property

Patents

Trademarks

Figure 3.2

Business Software Piracy

Chapter 3-19

Intellectual Property: Property that results from people’s intellectual talent and abilities is called intellectual property. It includes graphic designs, novels, computer software, machine-tool designs, and secret formulas, such as that for making Coca-Cola.

Most national legal systems protect property rights—the legal rights to resources and any income they generate.

Globally, business software piracy averages around 42 percent and costs business software makers nearly $59 billion annually. Figure 3.2 shows piracy rates for some nations.

Industrial property includes patents and trademarks, which are often a firm’s most valuable assets.

Patent: Property right granted to the inventor of a product or process that excludes others from making, using, or selling the invention.

Trademark: Property right in the form of words or symbols that distinguish a product and its manufacturer.

Global Legal Issues (Cont.)

Product Safety and Liability

Responsibility for damage, injury, or death

Taxation

Income, sales, consumption, and VAT

Antitrust Regulations

Prevent market sharing, price fixing, and unfair advantage

Chapter 3-20

Product safety laws in most countries set standards that manufactured products must meet. Product liability holds manufacturers, sellers, individuals, and others responsible for damage, injury, or death caused by defective products. Injured parties can sue for monetary compensation through civil lawsuits and for fines or imprisonment through criminal lawsuits.

Many countries impose a value added tax (VAT)—a tax levied on each party that adds value to a product throughout its production and distribution.

Antitrust laws try to provide consumers with a wide variety of products at fair prices. The United States and the European Union are the world’s strictest antitrust regulators.

In the absence of a global antitrust enforcement agency, international companies must concern themselves with the antitrust laws of each nation where they do business.

Quick Study 4

What are some examples of intellectual property?

What are the different types of industrial property?

Laws that hold manufacturers, sellers, individuals, and others responsible for damage, injury, or death caused by defective products are called what?

Chapter 3-21

Ethics and Social Responsibility

Chapter 3-22

Businesses are expected to exercise corporate social responsibility—the practice of going beyond legal obligations to actively balance commitments to investors, customers, other companies, and communities.

Corporate social responsibility (CSR) includes a wide variety of activities, including giving to the poor, building schools in developing countries, and protecting the global environment.

We can think of CSR as consisting of three layers of activity. The first layer is traditional philanthropy, whereby a corporation donates money and, perhaps, employee time toward a specific social cause. The second layer is related to risk management, whereby a company develops a code of conduct that it will follow in its global operations and agrees to operate with greater transparency. The third layer is strategic CSR, in which a business builds social responsibility into its core operations to create value and build competitive advantage.

Corporate Social Responsibility (CSR)

Traditional Philanthropy

Risk Management

Strategic CSR

Ethics and Social Responsibility Philosophies of Ethics and Social Responsibility

Chapter 3-23

There are four philosophies of ethics and social responsibility.

The Friedman view argues that a company’s sole responsibility is to maximize profits for its owners (or shareholders) while operating within the law.

This view has lost popularity because it argues that companies do NOT have “social” obligations.

The cultural relativist view says that a company should adopt local ethics wherever it operates because right and wrong are determined within a cultural context.

“When in Rome, do as the Romans do” captures the essence of this view.

The righteous moralist view argues that a company should maintain its home-country ethics wherever it operates because its ethics are superior.

If headquarters instructs a subsidiary manager to refrain from bribing local officials, it imposes its righteous moralist view on the local manager.

The utilitarian view says that a company should behave in a way that maximizes “good” outcomes and minimizes “bad” outcomes wherever it operates.

A utilitarian manager will take the action that produces the best outcome for all affected parties.

Philosophies

Friedman View

Cultural Relativist View

Righteous Moralist View

Utilitarian View

Ethics and Social Responsibility Key Issues

Bribery and Corruption

Labor Conditions and Human Rights

Fair Trade Practices

Environment

Chapter 3-24

Although businesses can create policies regarding ethics and social responsibility, issues arise on a daily basis that can cause dilemmas for international managers.

Socially responsible businesses fight bribery and corruption because it misallocates resources, hurts economic development, and damages the integrity of free markets.

Responsible businesses monitor their own behavior and that of their employees and business partners to uphold good labor conditions and human rights.

They may also promote fair trade practices—which involve companies working with suppliers in more equitable, meaningful, and sustainable ways.

Finally, companies today pursue “green” initiatives to reduce their toll on the environment and to reduce operating costs and boost profit margins.

Quick Study 5

The essence of which philosophy is captured by the expression, “When in Rome, do as the Romans do”?

Possible consequences of corruption include what?

What are some criteria a product must meet in order to be Fair Trade certified?

The environmental impact of greenhouse gases that result from human activity is called what?

Chapter 3-25

Mamoun benmamoun Assistant Prof of International Business Boeing Institute of International Business John Cook School of Business Saint Louis University

Chapter 3-27