THE POLITICAL, ECONOMIC AND LEGAL ENVIRONMENTS OF INTERNATIONAL TRADE

1. THE POLITICAL, ECONOMIC AND LEGAL ENVIRONMENTS OF INTERNATIONAL TRADE

2. Political Systems • What are they? • The means by which people in any society make the rules by which they live

3. How are political systems classified? • Who makes decisions in the system? • The number of personal freedoms and rights individuals have

4. TYPES OF POLITICAL SYSTEMS • Democracy • Totalitarianism • Mixed • Representative Republic

5. DEMOCRACY • The people make the decisions • Equal Rights • Many Freedoms • Representative Democracies • Elect citizens to represent them

6. TOTALITARIANISM • Limited rights and freedoms • Government (one or few) makes decisions • People have no say in the laws

7. MIXED • Characteristics of both systems • Almost all political systems are mixed

8. ECONOMIC SYSTEMS • What are they? • The way a society decides to use and distribute its resources

9. Questions of Economic Systems • Who can own property in this system? • Who controls and distributes the resources in this system?

10. BASIC ECONOMIC SYSTEMS • Capitalism • Communism • Mixed Economy

11. Capitalism/Free Enterprise/Free Market • Private Ownership • Profit Motive • Competition • Who can own property? ANYONE • Who controls and distributes the resources? • BUSINESSES

12. Communism/Command Economy • Public Ownership • Government Control • Who can own property? GOVERNMENT • Who controls and distributes the resources? • GOVERNMENT

13. The Father of Communism • Karl Marx • “Das Kapital” • Middle class revolt

14. Mixed Economy • Between capitalism and communism • U.S. • Socialism • Basic industries are owned & operated by the government or groups of people • Both public and private ownership • Regulation of production

15. How Do Political & Economic Systems Relate? • Democracy = Capitalism (Usually!) • Totalitarianism = Communism (Usually!) • Socialism in varying degrees equals mixed political system to one side or other

16. Can they change? • The type of government and economic system in a country may change over time • Has the U.S. changed? • How? • What will happen if we become socialists? • Are we socialists?

17. POLITICAL PARTIES • What do they stand for? • Democrats • Bigger government/fewer freedoms • Republicans • Smaller government/more freedoms • Libertarians • Republic – Very small government/lots of freedom

18. What is necessary to have big government? • High taxes • Limited freedoms • More laws • More government spending (big budgets)

19. What are advantages of big government? • Everyone is taken care of • Socialized medicine • Socialized education • Fewer individual expenses

20. What are disadvantages of big government? • Very high taxes • Fewer freedoms • More laws • Large budgets – government is large percentage of GDP • Lower productivity

21. What are advantages of smaller government? • Lower taxes • Smaller budges (less government spending) • More productivity • Fewer laws • More freedoms • Individual responsibility

22. What are disadvantages of smaller government? • Unproductive people are poor – maybe in poverty • Individuals may not be able to afford healthcare or higher education • Fewer government programs • Individual responsibility

23. How has changes in governments affected International Business? • USSR --- Russia • Reunification of Germany • European Union Russia

24. Fall of Communism? • What countries are communist? • Move toward free market economies • Privatization • Selling government-owned companies to private citizens

25. A DEVELOPING WORLD • 3 Different levels of economic development • Developed Nations • Newly Industrialized Countries (NICs) • Less Developed Countries (LDCs)

26. Developed Nations • High-income economies – industrialized nations • Europe • Japan • Australia • New Zealand • United States • Canada

27. Rapid industrial growth in last 30 years Sizable exports of manufactured goods Heavy concentrations of foreign direct investment Per Capita GNP as low as $2,000. Per Capita GNP usually not more than $6,000. Newly Industrialized Countries

28. Per capita GNP less than $6,000 Not necessarily industrializing rapidly High illiteracy rates, lower life expectancy, little manufacturing capacity African countries Asian countries Eastern Europe Latin America Less Developed Countries

29. Produce raw materials, such as copper, sugar or coffee to be exported Until recently had neither technology nor resources to manufacture finished products Import manufactured goods from other countries Some now exporting manufactured products. Incomes range from $400 to over $2000 per person Goal- Increase the amount of industry LDCs Continued

30. South Korea • NIC that was a LDC • South Korea after Korean War built up using new technology. • Exported clothing, shoes and textiles • Now exports steel, machinery, ships & automobiles

31. Taiwan • Few natural resources (forests main resource) • Only ¼ land can be farmed • Built industrial economy by focusing on small manufactured goods • Electrical appliances, televisions, radios, calculators, toys and clothing

32. Cooperation Between Nations • Organization for Economic Cooperation and Development (OECD) • G7 – Canada, France, Germany, Great Britain, Italy, Japan and U.S. • G13 – Algeria, Argentina, Egypt, India, Indonesia, Jamaica, Malaysia, Nigeria, Peru, Senegal, Venezuela, Yugoslavia and Zimbabwe

33. Adaptability • World trade environment constantly changes • Policies and plans must be designed to fit into another country’s level of economic development • Knowledge and flexibility important in the international marketplace

34. Layers of Political Influence • First Layer: The Home Environment • Second Layer: The Host Environment • Third Layer: The Global Environment

35. The Home Environment • Domestic Market (the country in which the business is owned) • Political systems strongly affect the way business functions

36. The Host Environment • The host environment exists in the country where a business exports products, sets up factories, or opens its stores • Policy and economic changes affect the foreign business in the host environment much the same as in the home environment • International businessperson carefully examines host environment before deciding to do business there

37. Three Indicators of Instability • Evidence of social disorder. • Evidence of extreme income unevenness, with a few very rich people and a massive number of poor people. • Evidence of frequent changes in the structure and activity of political parties.

38. The Global Environment • The interaction of businesses in the international marketplace • General Agreement on Tariffs and Trade (GATT) • Ground rules for international trade • Promote world trade through negotiation and to make world trade secure • Increase global economic growth and development

39. LEGAL SYSTEMS • Each nation develops and adapts a legal system that fits its own economic, political and social goals • Two basic types of legal systems in global community • Common Law • Code Law

40. Common Law • Judges decide current cases based on how judges have decided cases in the past • Precedents

41. Code Law • Based on statutes (rules) passed by legislative bodies • Set specific penalties for disobeying the law • Based on Roman model of the 6th century • More than 70 countries use code law system • Judges don’t interpret law

42. Intellectual Property Rights • Certain laws have a direct impact on a company’s interests and profits • Intellectual property rights • The rights of an individual to own his or her ideas • Important because they stimulate technological growth

43. Intellectual Property Rights • The U.S. Constitution states: “The Congress shall have the power…to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive rights to their respective writings and discoveries” • Giving inventors these rights is an incentive for continued inventing • Patent and trademarks are two types

44. Patents • Patents give inventor sole rights to the use and production of an invention for a certain period of time • In U.S. the right goes to first inventor • In other countries the right goes to first to apply for a patent

45. Trademarks • A trademark is a word or words, name, design, picture or other symbol that identifies a product of a company. • Laws vary from country to country

46. Layers of the Legal Environment • The First Layer: The Home Environment • The Second Layer: The Host Environment • The Third Layer: The Global Environment

47. The Home Environment • A company must follow the laws in its home country • The company must follow laws regarding exportation of products – including those forbidding certain goods to certain countries

48. The Host Environment • The company must also abide by the laws governing business in the host country • Including employment practices, taxation and environmental protection

49. The Global Environment • Governed by agreements that countries make to regulate the flow of goods and services across national borders • Investment Treaty – Regulate direct investments across borders • Trade Agreements – Rules of trade between countries (NAFTA) • Multilateral Trade Agreements – Several countries (EU)

50. Settling International Disputes • Despite trade agreements, there are still problems and legal disputes among companies and governments • Three ways to settle differences: • Negotiation • Arbitration • Litigation