Political Environments & International Business Flashcards Preview

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

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


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


What is collectivism?

Primacy of the rights and role of the community


What is democracy?

Wide participation by citizens in the decision making process


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


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


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

* Commercial Risk
* Environmental Risk
* Legal-Political Risk


What is commercial risk?

Competitive pressures, technolgical change, market changes


What is environmental risk?

Culture, legal-political, general economic forces


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


What is political risk?

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


What kinds of political risk are there?

* Systemic
* Procedural
* Distributive
* Catastrophic


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


What is procedural risk?

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


What is distributive risk?

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


What is catastrophic risk?

- Affects all firms
- Civil disorder, coups, wars


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


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


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


What are examples of micro-macro political risk?

Expropriation, indigenisation laws


What is true of the risk and profit?

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


What is a risk premium?

cost of minimising risk


How can political risk be managed?

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


What kinds of legal systems are there?

* Common
* Civil law
* Theocratic
- Customary
- Mixed


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


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


What are the most important aspects of host country laws?

* Constraints on foreign ownership
* Property Rights


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


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


What is true of non-enforaceble property rights?

high transaction costs


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


What are the strategic concerns of host country laws?

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


What is governance?

traditions and institutions by which authority in a country is exercised


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