© 2013 cengage learning. all rights reserved. chapter 2 global2 peng © altrendo images/getty...

© 2013 Cengage Learning. All rights reserved.

CHAPTER 2

GLOBAL2 PENG

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CHAPTER 2 LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Identify two types of institutions. 2. Explain how institutions reduce uncertainty. 3. Identify the two core propositions underpinning

an institution-based view of global business. 4. List the differences between democracy and

totalitarianism.


CHAPTER 2 LEARNING OBJECTIVES

After studying this chapter, you should be able to:

5. List the differences among civil law, common law, and theocratic law.

6. Articulate the importance of property rights and intellectual property rights.

7. List the differences among market economy, command economy, and mixed economy.

8. Explain why it is important to understand the different institutions when doing business abroad.


LO1: INSTITUTIONS

Formal and informal policies popularly known as “the rules of the game.”

Institution-based view on global business - leading perspective in which firms’ success is correlated to monitoring, decoding, and adapting to

changing the rules of the game.


LO1: TWO TYPES OF INSTITUTIONS



Formal institutions:laws, regulations, and rules.

Regulatory pillar:coercive power of governments

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Informal institutions:norms, culture, and ethics.

Normative pillar - how the values, beliefs, and actions of other relevant players influence the behavior of focal individuals and firms.

Cognitive pillar – internalized values and beliefs that guide individual and firm behavior.

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LO2: WHAT DO INSTITUTIONS DO?

The key role of institutions is toreduce uncertainty by constrainingthe range of acceptable actions.


LO3: INSTITUTION-BASED VIEW OF GLOBAL BUSINESS


LO3: TWO PROPOSITIONS

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LO4: POLITICAL SYSTEMS

A political system refers to the rules of the game on how a country is

governed politically.


LO4: POLITICAL SYSTEMS - DEMOCRACY

Democracy - political system in which citizens elect representatives to govern the country on their behalf.

Supports global business by preserving individual’s right to freedom of expression and organization.


LO4: POLITICAL SYSTEMS - TOTALITARIANISM

Totalitarianism (or dictatorship) - system in which one person or party exercises absolute political control.

Communist totalitarianism Right-wing totalitarianism Theocratic totalitarianism Tribal totalitarianism


LO4: POLITICAL SYSTEMS AND BUSINESS

In general, totalitarianism is not as good for business as democracy.

Totalitarian nations often entail higher political risk due to wars, riots, protests, chaos, and breakdowns, which can negatively impact firms.


LO5: LEGAL SYSTEMS

A legal system refers to the rules of the game on how a country’s laws are enacted and enforced. The first, regulatory pillar that supports institutions.

Civil Law

CommonLaw

TheocraticLaw


LO6: INTELLECTUAL PROPERTY RIGHTS

Rights associated with the ownership of intellectual property, intangible property

that results from intellectual activity, such as books, videos, and websites.

Patents

Copyrights

Trademarks


LO7: ECONOMIC SYSTEMS

Rules of the game on how a country is governed economically.

MarketEconomy

Command Economy

Mixed Economy


LO7: WHAT DRIVES ECONOMIC DEVELOPMENT

Why are some countries highly developed while others are so underdeveloped? There are three major positions: 1.Rich countries tend to have a smarter, harder working population.2.Rich countries have abundant natural resources.3.Rich countries have developed better market-supporting institutional frameworks.


LO8: UNDERSTANDING DIFFERENT INSTITUTIONS


DEBATE: PRIVATE OWNERSHIP VS. STATE OWNERSHIP

Developed in response to failure of private firms during Great Depression.

Lack of accountability Lack of concern for economic efficiency

PRO CONState Owned Businesses

Performance incentives for workers (the better you work, the better your pay).

Risky business practices lead to financial crisis and recession.

PRO CONPrivately Owned Businesses

© 2013 cengage learning. all rights reserved. chapter 2 global2 peng © altrendo images/getty...

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