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Global Business Environment

Global Business Environment. Political, Economic and Legal Environment Political systems: individualism vs. collectivism; democratic vs. totalitarian Legal system: property rights, protection of intellectual property rights, product safety requirements

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Global Business Environment

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  1. Global Business Environment • Political, Economic and Legal Environment • Political systems: individualism vs. collectivism; • democratic vs. totalitarian • Legal system: property rights, protection of intellectual • property rights, product safety requirements • Economic environment: market economy, command • economy & mixed economy • Interconnection of political, legal and economic system • followed by a country • Impact of differences in system on international business

  2. Global Business Environment • Cultural Environment • Meaning of culture, values and norms • Determinants of culture: social structure, religion, • education, language, aesthetics, history and • geography • Impact of differences in culture on international • business • Multinational Companies • Concept and characteristics of MNCs and their impact on host countries (political, economic and cultural)

  3. Political System • Economic & Legal system shaped by political • system • Political system means system of government in • nation • Political system can be assessed in two related • dimensions • Degree of emphasis on collectivism vs. • individualism • Degree to which they are democratic or • totalitarian

  4. Political system and functions

  5. Political system and functions • The inputs are aggregated through a process “interest aggregation” • The alternatives are debated, discussed, agreed, and policies are made • Policy makers: political parties, government bureaucrats, state and federal legislatures, courts • During policy implementation, any controversial features are adjusted through the court process to determine if they’re legal

  6. Political system: Individualism Vs. Collectivism • Collectivism • Primacy of collective goals over individual goals • Philosophy dates back to Plato argues that ‘ Individual rights should be sacrificed for the good of majority and property should be owned in common’ • In modern time it has been picked up by socialist

  7. Political system: Individualism Vs. Collectivism • Collectivism • Socialism intellectual roots back to Karl Marx • advocates for ‘State ownership of basic means of production, distribution and exchange’ • Logic for this is in case of state owned mean of production, the state could ensure that workers were fully compensated for their labour • Two camps in socialism: communists (USSR (former), Hungary, Cambodia, Laos and still in N. Korea, Cuba) & Social democrats ( influence on Scandinavian countries Sweden, Denmark, France)

  8. Political system: Individualism Vs. Collectivism • Collectivism • Social democracy have good impact although ideology proved more enduring than communism • Consistent with Marxist roots, many social democrats governments nationalized certain industries e.g. • gas companies in Bolivia • Experience has shown that state ownership of the means • of production can run counter to the public interest • Many social democratic party have been voted out in 70/80s in UK, Germany while in UK in 97 Labour Party (Socialist) came into power committed private ownership and was in power till last election (2010) where Conservative Party formed government in coalition with third largest party • At present lots of socialist movement is ongoing in South America (Venezuela, Bolivia)

  9. Political system: Individualism Vs. Collectivism • Collectivism • Nationalization drive of Venezuela • 2007: Venezuela stripped the world's biggest oil companies of operational control over massive Orinoco • Belt crude projects (one of the world`s richest oil deposits) • Oil companies like Chevron, Total (France), BP (Britain), Statoil Hydro (Norway) negotiated deals with Venezuela to continue as minority partners in projects • ConocoPhillips and Exxon Mobil refuses to agree to terms of being junior partners of project • Exxon Mobil went into international courts and British Court in January 2008 issued injunction freezing up $ 12 billion assets of PDVSA (Venezuela state owned oil company)

  10. Collectivism • Nationalization drive of Venezuela • In response Venezuela`s state owned • company stopped selling crude oil • to Exxon Mobil • State run televisions started airing • anti-Exxon statements “ Exxon Mobil • turns oil into blood.” • Venezuela aims to increase oil sales to China by 50% and also started working jointly for oil with Russia • April 2008: nationalization of the cement industry , • Venezuelan steel mill Sidor , take-over of a cement plant • owned and operated by Cemex, an international cement • producer Political system: Individualism Vs. Collectivism

  11. Collectivism • Nationalization drive of Venezuela • February 2009: Hugo Chavez (President of Venezuela) ordered the • army to take over all rice processing and packaging plants • October 2009: Venezuelan President Hugo Chavez has ordered the • obligatory acquisition of a Hilton-run hotel on the resort island of • Margarita • January 2010: ordinance to nationalize six supermarkets in Venezuela • because of increasing price and speculation hoarding illicit • June 2010: President Chavez orders the expropriation of textile industries. President Chavez seizes the Venezuelan operations of U.S. Oil Company Helmerich and Payne. • August 2011: The Chavez government announces plans to nationalize entire gold mining industry in Venezuela with the exception of Rusoro, a Russian-Canadian mining company • January 2012: Exxon Mobil was awarded nearly $908m in a dispute with Venezuela over compensation for the nationalization of its assets Political system: Individualism Vs. Collectivism

  12. Individualism • Refers to philosophy that ‘Individual should have freedom in his or her economic & political pursuits’ • Philosophy dates back to Atistotle argues that ‘ Individual diversity & private ownership are desirable’ • Built in two central tenets • Emphasis on the importance of guaranteeing individual freedom • Welfare of society is best served by letting people pursue their own economic self interest as opposed to some collective body (government) dictating what is in society`s best interest • Conflict between individualism & collectivism has recently shaped history of the world • Individualism championed by USA and Collectivism by former USSR Political system: Individualism Vs. Collectivism

  13. Political system: Individualism Vs. Collectivism • Individualism • Individualism translates into an advocacy for democratic political systems and free market • At current stage individualism has been on ascending as political philosophy • Pro business and pro free trade values of individualism create a favourable environment in which International Business can thrive

  14. Democracy • Political system in which government is by the people, exercised directly or through the elected representative • Democracy & individualism go hand in hand • Number of safeguards that are typically enshrined in constitutional law are • Individual's right to freedom of expression, opinion & organisation • A free media • Regular election in which all eligible citizens are allowed to vote Political system: Democracy Vs. Totalitarianism

  15. Democracy • Limited terms for elected representatives • Fair court system independent from the political system • A nonpolitical bureaucracy • A nonpolitical police force and armed service • Relatively free access to state information • Totalitarianism (4 major forms of totalitarianism) • Communist: version of collectivism that advocates that socialism can only be achieved through totalitarian dictatorship • Theocratic : political power is monopolised by a party, group or individual that governs according to religious principle as in Iran, Saudi Arabia Political system: Democracy Vs. Totalitarianism

  16. Political system: Democracy Vs. Totalitarianism • Tribal: Has arisen from time to time in African countries as Zimbawawe, Kenya , it occurs when a political party that represents the interests of particular tribe (not always the majority tribe) monopolizes power • Right Wing: generally permits some individual freedom but restricts political freedom on the grounds that it would lead to the rise of communism • Right wing government backed by military • Fascists regime in Germany 1930s and 40s • Military dictatorship in Latin America in 1980s and also in Asian countries like S. Korea, Indonesia, the Philippines

  17. Political systems: democratic vs. totalitarian

  18. Economic System: Market Economy • In pure market economy all productive activities are privately owned • Goods and services produced in country is determined by conditions of supply and demand • For market to work in this system, no restriction on supply • Monopoly of firm restricts supply • (Risk) dangers inherent in monopoly, role of government in market economy is to encourage vigorous competition between private producers

  19. Economic System: Market Economy • Government outlaws monopoly & restrictive business practices aimed for monopoly in market • Private ownership also encourages vigorous competition & economic efficiency • Private ownership ensures entrepreneurs have right to the profits generate by their own effort

  20. Economic System: Command Economy • In pure command economy government plans quantity of goods and services that country produces and price at which they are sold • Objective of command economy is for government to allocate resources for ‘the good of society’ • Found in communist countries where collectivist goals were given priority over individual goals • Socialist inclined government have number of democratic nations some components of command economy • In command economy, state ownership have little incentive to control costs and be efficient, because they cannot go out of business

  21. Economic System: Mixed Economy • Between market economy & command economy • Certain sectors are left to private ownership and free market mechanism & while others have significant state ownership & government planning • India is example of mixed economy, Great Britain, France & Sweden were also mixed economy not too long age but privatization have reduced it • Government also tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interest e.g. Renault of France

  22. Economic System • Market economy: Consumer rules • Command economy: Govt. rules • Mixed: mixed …. • Private: individual ownership • Public: government ownership • Mixed: mixed

  23. A (Individually owned property) B (Private & state owned property) C (Communal society) Common property ownership D (Private : Democratic, majority rule) E (Capitalist, Socialist) F G (Laissez-Fiare , Cooperative) H (Theocracy, Dictatorship) I (Communism) Economic System Control Ownership Private Public Mixed Market Mixed (Socialist: with minimal private property ) Command • In practice, countries do not fall under the extremes A and I…are generally of mixed nature • But they tend to lean towards one or the other direction

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