: National Differences in Political/Legal and Economic Systems

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BUSS2111
 -­‐
 Managing
 in
 a
 Global
  Environment
 
Lecture
 3:
 Na=onal
 Differences
 in
 Poli=cal/ Legal
 and
 Economic
 Systems
 

 
Dr
 
 Satomi
 Kimino
  e-­‐mail:
 satomi.kimino@durham.ac.uk
 
  Consulta9on
 hours
 at
 Queen:
 
  Room
 D335,
 Tuesdays
 16:00-­‐1700
 

 

 
 

1
 

Learning
 Objec=ves
 
•  Understand
 four
 major
 risks
 in
 interna9onal
  business
  •  Understand
 how
 the
 poli9cal
 economy
  (poli9cal,
 economics,
 and
 legal
 systems)
 of
  countries
 differ.
 
  •  Discuss
 the
 managerial
 implica9ons
 in
 terms
  of
 benefits,
 costs,
 and
 risks.
 
 

2
 

Interna=onal
 Business
 vs.
 Domes=c
 Business
 

 
  §  Maximizing
 returns
 
  §  Complexity-­‐
 Interrelated
  macro
 forces:
 differences
  §  AUaining
 global
 scale
  in
 economic
 condi9ons,
  economies
  na9onal
 culture,
 legal
 and
  §  Resource
 acquisi9on
 ease
  poli9cal
 systems.
  and
 cost
  §  Risk-­‐
 
  §  Enhanced
  Ø Cross
 cultural
 risk,
 
  compe99veness
  Ø Country
 risk
 (poli=cal/ §  Knowledge
 transfer
 
  legal/economic)
 
  Ø Currency/financial
 risk
 
 
Ø Commercial
 risk
 

Opportuni=es:
 

Threats:
 

3
 

The Four Risksof
 Interna=onal
 BBusiness The
 Four
 Risks
  of International usiness
 

4
 

Cross-Cultural Risk
•  Cultural differences: language, lifestyle, attitudes, customs, and religion, where a cultural miscommunication jeopardizes a culturally valued mindset or behavior. •  Negotiation patterns: Negotiations are required in many types of business transactions; e.g., Mexicans are friendly and emphasize social relations, whereas Americans are assertive and get down to business quickly. 5

  1-5

Cross-Cultural Risk (cont.)
•  Decision-making styles:
•  eg) Japanese take considerable time to make important decisions, whereas Canadians tend to be decisive and “shoot from the hip.”

•  Ethical practices: Standards of right and wrong vary considerably around the world. eg) bribery is relatively acceptable and common in some countries in Africa, but is generally unacceptable in Sweden. eg) violation of intellectual property rights

6
 

Currency Risk (Financial Risk)
•  •  •  Currency exposure: General risk of unfavorable exchange rate fluctuations. Asset valuation: Risk that exchange rate fluctuations will adversely affect the value of the firm’s assets and liabilities. Foreign taxation: Income, sales, and other taxes vary widely worldwide, with implications for company Examples   performance and profitability. –  The

 Vola9le
 
 fluctua9on
 of
  Indian
 rupee
 since
 1990.
 
 
  Inflation: High inflation, –  High
 
 corporate
 income
  common in many countries, taxes
 in
 the
 US.
 
  complicates business –  High
 infla9on
 in
 Brazil
 and
  planning and the pricing Russia.
  of inputs and finished goods.
7
  1-7

• 


 Commercial Risk
•  •  •  •  •  Weak partner Operational problems Timing of entry Competitive intensity Poor execution of strategy

General commercial risks such as these lead to sub-optimal formulation and implementation of the firm’s international value-chain activities. 8
 

Country Risk (Political Risk)
•  Government intervention, protectionism, and barriers to trade and investment •  Bureaucracy, red tape, administrative delays, corruption •  Lack of legal safeguards for intellectual property rights •  Legislation unfavorable to foreign firms  Examples

  •  Economic failures -­‐  The
 U.S.
 imposes
 high...
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