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Flashcards in Political Environments & International Business Deck (34):
1

What is a political system?

- The complete set of institutions, political organisations and interest groups
- The relationships among institutions and the political norms and rules that govern their functions

2

What is individualism?

- Primacy of the rights and role of the individual
- The welfare of society is best served by letting people pursue their own economic self interest
- Built on the importance of individual freedom and self-expression

3

What is collectivism?

Primacy of the rights and role of the community

4

What is democracy?

Wide participation by citizens in the decision making process

5

What are the key features of democracy?

- Freedom of opinion, expression, religion, media, association and access to information
- Exercise of citizen power through elected representatives
- Citizen equality in opportunity and treatment under law
- Free, fair and regular elections
- Protection of individual and property rights
- Fair and independent court system
- Subordination of government to the rule of law

6

What is totalitarianism?

- Subordinates the individual to the interest of the collective
- Dissent in eliminated through indoctrination, persecution, surveillance, propaganda, censorship and violence
- Authoritarianism, fascism, secular, theocratic

7

What are a business's risks in the broadest sense?

* Commercial Risk
* Environmental Risk
* Legal-Political Risk

8

What is commercial risk?

Competitive pressures, technolgical change, market changes

9

What is environmental risk?

Culture, legal-political, general economic forces

10

What is legal-political risk and how can it be divided?

- aka Country Risk
- Macro risk: affects all companies
- Micro risk: affects specific regions, sectors, industries, firms

11

What is political risk?

The risk that poetical decisions or events in a country negatively affect the profitability or sustainability of an investment

12

What kinds of political risk are there?

* Systemic
* Procedural
* Distributive
* Catastrophic

13

What is systemic risk?

- Affects all firms
- Changes to tax rates, weakened property rights, freedom restrictions
- Where foreign firms are not treated the same as local firms

14

What is procedural risk?

- Affects some firms
- Excessive red tape, corruption, breaches of contract

15

What is distributive risk?

- Foreign firms seen as agents of prosperity
- Tax discrimination, unilateral trade barriers, expropriation of assets

16

What is catastrophic risk?

- Affects all firms
- Civil disorder, coups, wars

17

What are the effects of political risk?

- Costs investors some or all of the value of their investments
- Forces them to accept lower-than projected rates of return
- Threatens the sustainability of local activities

18

What are examples of macro political risk?

- Political instability
- Corrupt or poor leadership
- Frequent change in government
- Racial, religious or ethnic conflicts
- Poor relations with other countries

19

What are examples of micro political risk?

- Government policies influencing chosen sectors of the economy or specific foreign firms
- Industry regulation, taxes on specific types of business activities, various restrictive local laws
- Reduced operating profitability due to regulations
- Requiring use of domestic suppliers
- Restricting repatriation of profits

20

What are examples of micro-macro political risk?

Expropriation, indigenisation laws

21

What is true of the risk and profit?

- Low risk environment = low profits
- High risk environment = high profits

22

What is a risk premium?

cost of minimising risk

23

How can political risk be managed?

- Diversification
- Risk insurance
- Joint Business Ventures
- Lobbying
- Community initiatives
- Fiancail hedging
- Supply chain resilience

24

What kinds of legal systems are there?

* Common
* Civil law
* Theocratic
- Customary
- Mixed

25

What is a common law system?

- Based on tradition, precedent and custom
- Degree of flexibility /interpretation
- Contracts tend to be very detailed with all contingencies accounted for

26

What is a civil law system?

- Based on detailed set of laws organised into codes
- Less adversarial than common as judges use less interpretation
- Contracts tend to be much shorter and less specific because many issues are already covered in civil law codes

27

What are the most important aspects of host country laws?

* Constraints on foreign ownership
* Property Rights

28

What is the purpose of contains on foreign ownership?

- Control of economy by foreigners
- Limit ability of foreign owned firms to undermine a nations
industrial policy

29

In what two ways can property rights be violated?

- Private Action
- Theft, piracy, balckmail
- Public Action
- Excessive taxation, requiring licenses, taking assets,
redistribution of assets

30

What is true of non-enforaceble property rights?

high transaction costs

31

What are the operational concerns of host country laws?

- Starting a business
- Entering and enforcing contracts
- Hiring and firing local workers
- Closing down the business

32

What are the strategic concerns of host country laws?

- Product safety and liability
- Marketplace behaviour
- Product origin and local content
- Legal juristiciton
- Arbitration

33

What is governance?

traditions and institutions by which authority in a country is exercised

34

What are the dimesnions of the world bank governance project?

- Voice and accountatblity
- Political stability and absence of violence
- Government effectiveness
- Regulatory quality
- Rule of law
- Control of corruption