LEC 2 Flashcards
(22 cards)
Economic environment: Economic system
Global economic systems: market-, command-, mixed- economy;
Mixed economy
mixed economy: visible hand (government, command economy) invisible hand (market, market economy)
- combination of market+command economy
- raises standard of living
- Aided by regulations concerning minimum wage standards, social security, environmental protection, and the advancement of civil rights
- Ownership of organizations that are critical to the nation may be transferred to the state
- Subsidizes( subventionieren)costs and allows the firms to flourish
market economy
-General balance between supply and demand sustains prices
-Management is effective
-Private ownership provides local evaluation and understanding
-Least restrictive form of economy
-Competition is encouraged. Helps promote innovation, economic growth, high quality, and efficiency
-Monopolies or restrictive business practices may be prohibited to maintain the integrity of the economy
=> rising supply+declining demand = falling prices
=> falling supply+increasing demand= rising prices
command economy
- Government holds explicit control over the price and supply of a good or service
- Businesses are owned by the state
- Ensures that investments and other business practices are done in the best interest of the nation
- Management ignores demographic information
- Creates an environment where little motivation exists: no interests in improving customer service or introduce innovative ideas.
How does economic environment make sense to International business? (Some examples)
demand conditions:
- Market potential: population, GDP, Growth in GDP per capita, income distribution, consumption patterns
=> quantity & quality of demand important for market-seeking investments.
factor conditions:
-Inputs to the production process:
Human capital (Education, Labour unit costs)
Physical resources (Raw materials, Geography)
Knowledge (Specialisation)
Capital availability and cost (Tax, Interest rates)
Infrastructure (Both physical and communication)
Factor conditions important for the production of goods.
political environment
Ideology underlies the actions of government
individualism or collectivism
Political system: Democracy vs. Totalitarianism
political ideology: individualism
- People should be free to pursue economic and political endeavors without constraint
- Similar to capitalism and connected to free-market society
- Private property is more successful, productive, and progressive than communal property
- Encourages betterment of society, which is related to level of freedom individuals have to pursue economic goals
political ideology: collectivism
- Views the needs or goals of society as a whole as more important than individual desires
- Individual rights should be sacrificed and property should be commonly owned
- In some cases socialism is seen as part of this collectivist ideal.
Political Systems
A set of formal institutions that constitute a government. It includes legislative bodies, political parties, lobbying groups, and trade unions. The system also defines how these groups interact with each other.
Political System: Totalitarianism
Only one representative party, which exhibits control over every facet of political and human life
Power maintained by suppression of opposition
Dominant ideals - Media censorship, political repression, and denial of rights and civil liberties
Common form - Communist totalitarianism
eg Laos, Cuba, China, North Korea
Political Systems: Democracy
Government is controlled by citizens either directly or through elections
Democratic society cannot exist without at least a two-party system
Once elected, representative is held accountable to the electorate for his or her actions
Private property rights: Individual can own property and assets
Limited government: only essential functions such defense, roads, schools etc.
=> indexes: eg. global peace index
Global Foundations of Law
Theocratic law
Socialist law
Common law
Civil or code law
Common law
Derives from English law, and followed in many commonwealth countries.
Based on the interpretation and application of law but also allows for precedence.
Foundation of legal system in United States, Canada, England, Australia, New Zealand etc.
Civil or Code Law
Derived from Roman law.
Strict interpretation of laws and statutes. Does not take into consideration unique circumstances.
Found in France, China
Theocratic Law
Laws based on religious beliefs and laws
The Islamic religious laws are found more commonly in commercial activities.
Found in many Islamic countries.
Usually applied in combination with other forms of law (common or civil).
What that means to multinational companies?
What are the relevant laws in the host country?
Adhering to disparate legal frameworks can prevent MNEs from capitalizing on manufacturing economies
MNCs must carefully evaluate legal framework in each market before doing business.
The notion of ”political distance” “Legal distance” “economic distance” is used to represent how similar or different countries are in terms
Respect and obey the local law. (Huawei case)–>nachlesen
How is the enforcement of the law ?
Example of laws
Consumer protection, labor, health and safety, antitrust, intellectual property, data protection, tax and discrimination, trade regulations, advertising standards, product labelling, and safety standards
Corruption
Difficult to define.
Certain acts/gestures/favours may be construed as bribery, nepotism or corrupt practices in some countries but not others.
Examples: Gift giving, use of networks (guanxi in China, wasta in the Arab countries
Corruption Perception Index
Technological environment: E-Business
Business to business (B2B)
Business to consumer (B2C)
E-retailing
Financial services (e-cash)
Measure of technology of a country
The use of mobile phones in many countries is used not only to communicate, but to also transfer money.
The number of internet users and number of mobile phone connections is used as a measure of technology in a country.
The higher the use of technology, the higher the level of innovation
OR!
Artifical intelligence
Technological Advancements, Outsourcing, and Offshoring
Technology has reduced and eliminated middle management and white-collar jobs.
Global competition has forced MNCs to outsource or offshore production.
Emerging technology has made work more mobile.
Advantage - Reduction in cost of doing business.
Disadvantage - Loss of jobs or reduction in salaries.
What these mean to multinational companies?
- Transformation matters !
- How to adapt their business model in new digital era?
- How to take advantage of technology for reducing their costs and increasing customer service?
- Talent management
- Technology application and development strategy around the world
