2-national differences in jgkhj;j'l;k'pkjkjlpolitical economy

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1 - 1 © Copyright Prof. Dr. Aziz Ezzat ElSayed – IM 535 International Operations Management - Lecture Handouts

Prof. Aziz Ezzat ElSayed, Ph.D.

Professor of Industrial Engineering

College of Engineering and Technology

Arab Academy for Science and Technology

Abu-Kir Campus, Alexandria, Egypt

Main reference: International Business: Competing in the Global Market Place, Charles W. L.

Hill, Global Edition (9th Ed) © 2013 , McGraw-Hill Higher Education

IM 535 International Operations Management

NC 373 Global Business

2 National Differences

in Political Economy


1 - 2 © Copyright Prof. Dr. Aziz Ezzat ElSayed – IM 535 International Operations Management - Lecture Handouts 1 - 2 © Copyright Prof. Dr. Aziz Ezzat ElSayed – IM 535 International Operations Management - Lecture Handouts

Learning Objectives

1. Understand how the political systems of countries differ.

2. Understand how the economic systems of countries differ.

3. Understand how the legal systems of countries differ.

4. Explain the implications for management practice of national differences in political economy

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What is a Political Economy?

The political economy of a nation refers to how the political, economic, and legal systems of a country are interdependent

They interact and influence each other

They affect the level of economic well-being in the nation

Well-being = Welfare

How important is the relationship between the

Political and Economic Status of a country ?


Economic Performance of EU Baltic States

The Baltic states are three

countries east of the Baltic

Sea: Estonia, Latvia and

Lithuania, which gained

independence from

the Russian Empire in the

wake of World War I.

The 3 countries became

parts of the former USSR in

1940, and regained their

independence in 1991.

Estonia Latvia Lithuania

Estonia

Latvia

Lithuania

Opening Case:

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Economic Performance of EU Baltic States After Joining the EU in

2011, Estonia received

an A+ credit rating with

remarkable economic

achievements after the

2008 crisis.

How did Estonia

achieved such a high

rating ?

What measures taken

by its government ? Review the case in

your Text Book

Opening Case:

Estonia

Latvia

Lithuania


What is a Political System?

Political System refers to the system of government in a nation

Assessed according to

the degree to which the country emphasizes collectivism (more totalitarian) as opposed to individualism (more democratic)

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What is Collectivism?

Collectivism stresses the dominance of collective goals over individual goals

Today, collectivism is equated with socialists (Karl Marx 1818-1883)

State ownership of the basic means of production, distribution, and exchange

Manage to benefit society as a whole, rather than individual capitalists


Collectivism

(Karl Marx 1818-1883)

“ The history of all previous societies

has been the history of class struggles “

Source: http://www.brainyquote.com/quotes/

Socialism Plato (427-347 BC)

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Modern-Day Socialism

In the early 20th century, socialism split into

1. Communism – socialism can only be achieved through violent revolution and totalitarian dictatorship Before 1989 (USSR-Poland-Hungary-Bulgaria-..)

in retreat worldwide by mid-1990s

China-Vietnam-North Korea–Cuba (still in power)

2. Social democrats – socialism is achieved through democratic means retreating as many countries move toward free

market economies

state-owned enterprises have been privatized


Retreat of Communism

Tearing Down the Berlin Wall

November 9, 1989

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What is Individualism?

Individualism refers to philosophy that individual economic and political freedoms are the ground rules on which a society should be based

Implies democratic political systems and

free market economies


Individualism

Greek philosopher, Aristotle (384-322 BC),

who argued that individual diversity and

private ownership are desirable

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What is Democracy?

Democracy is a political system in which government is by the people, exercised either directly or through elected representatives where citizens periodically elect individuals to represent them

Usually associated with individualism

Pure democracy is based on the belief that citizens should be directly involved in decision making


What is Totalitarianism?

A form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties

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Types of Totalitarianism 1.Communist totalitarianism :

communist party monopolizes power

2.Theocratic totalitarianism : A party, or individual that governs according to

religious principles

3.Tribal totalitarianism : political party that represents the interests of a

particular tribe monopolizes power (e.g. African Countries : Zimbabwe-Tanzania-Uganda-Kenya)

4.Right-wing totalitarianism: permits some individual economic freedom, but

restricts individual political freedom.

(e.g. Dictatorship: in Asia and Latin America – Retreat since 1980’s)


Types of Economic Systems

1. Market Economies:

All productive activities are determined by supply and demand.

Businesses are private owned

Government encourages free and fair competition

2. Mixed Economies:

Certain sectors of the economy are left to private sector and free market mechanisms

3. Command Economy:

Government plans what to produce, quantities and prices.

All businesses are state (public) owned.

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Types of Economic Systems

Source: ecommunity.pwsd76.ab.ca (accessed: 5-03-12)

North Korea

Cuba

China

Russia

India

Germany

Brazil

Canada

UK

USA

Hong

Kong

Collectivism Individualism Totalitarianism Democracy


What is A Legal System?

The legal system of a country refers to the rules that regulate behavior along with the processes by which the laws are enforced.

There are 3 types of legal systems

1. Common law - based on tradition, precedent, and custom

2. Civic law - based on detailed set of laws organized into codes

3. Theocratic law - law is based on religious teachings

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Differences in Contract law

A Contract is a document that specifies the rights and obligations of the parties involved in a business activity Contract law is the body of law that governs contract enforcement Under a common law system:

contracts tend to be very detailed with all contingencies mentioned

Under a civil law system, contracts tend to be much shorter and less specific because many issues are already covered in the civil code

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Property Rights and Corruption

Property rights: The legal rights over the use of a resource is and

over any income that may be derived from that resource

Can be violated through Corruption due to:

1.Private action Theft – Piracy - Blackmail

2.Public action legally (Excessive taxation)

Illegally (Bribes – blackmailing)

high levels of corruption reduce foreign direct investment, the level

of international trade, and the economic growth rate in a country

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Rankings of Corruption by Country

The Foreign Corrupt Practice Act

makes it illegal for US Companies

to bribe foreign government officials

to obtain or maintain business over

which that foreign official has

authority


Intellectual Property Rights (IPR)

Intellectual property: property that is the product of intellectual activity

Can be protected using:

1. Patents – exclusive rights for a defined period to the manufacture, use, or sale of that invention

2. Copyrights – the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit

3. Trademarks – design and names by which merchants or manufacturers designate and differentiate their products

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Starbucks Trademark Case in China

Shangahi Xing Ba Ke Coffee

Xing = Star in Chinese

Case:


How Can IPR Be Protected?

Protection of intellectual property rights differs from country to country

To avoid piracy, firms can

1. Stay away from countries where intellectual property laws are relaxed

2. file Lawsuits

3. Lobby governments for international property rights agreements and enforcement

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Software Piracy Rate


Global Software Piracy Rate

Year Piracy Rate Losses

2007 38% $47,809

2008 41% $52,998

2009 43% $51,443

2010 42% $58,754

Source: http://globalstudy.bsa.org/2010/

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What is Product Safety and Liability?

Product safety laws

Set certain standards to which a product must adhere

Product liability

involves holding a firm and its officers responsible when a product causes injury, death, or damage

liability laws tend to be less

extensive in less developed

nations


Important Considerations

Question 1: Does the high cost of liability

insurance in the U.S. make American companies less competitive?

Question 2: Is it ethical to follow host country

standards when product safety laws are stricter in a firm’s home country than in a foreign country?

Question 3: Is it ethical to follow host country

standards when liability laws are more soft in the host country?

2-national differences in jgkhj;j'l;k'pkjkjlpolitical economy

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