WEEK 1:

Country Factor: Political Economy

Intl Business
Berkeley City College
Spring 2007
Marino
 I. Political Systems

CCo
olllel c
ectiv
tivis
ismm
vvs.
s.I nInd
divivid
iduua
alilsism
m

Democracy
Democracyvs.
vs.Totalitarianism
Totalitarianism

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 Collectivism vs. Individualism

Collectivism
State manages economic activities if they are to benefit
society
Social Democrats (vs. Liberals)
Communists

Individualism
Individual freedom and self-expression
Self-interest = public interest

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 Democracy vs. Totalitarianism

Democracy
Government by the people, exercised either directly or
through elected representatives

Totalitarianism
Government in which one person or political party
exercises absolute control over all spheres of human
life and opposing political parties are prohibited.

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 Types of Totalitarianism
1. Communism - Collectivism is achieved
through total dictatorship.
2. Theocratic - Political power is influenced by
religious principles.
3. Tribal - A political party representing the
interests of a particular tribe monopolizes
power.
4. Right-wing - Generally permits individual
economic freedom, but restricts political
freedom to prevent the rise of communism.
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 II. Economic Systems
1. Market Economy
2. Command Economy
3. Mixed Economy
4. State-Directed Economy

Market –
Centrally
Planned Shift Based
Economies
Economies

The shift to market-based economies entails:

Deregulation - removal of legal restrictions to free markets.
Privatization - transfer of state ownership of property into private
hands.

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Determinants of Economic Development
Geography
Education
Government Policies

“..that throughout history, coastal states, with their long

engagements in international trade, have been more
supportive of market institutions than landlocked states,
which have tended to organize themselves as hierarchical
(and often military) societies. Mountainous states, as a
result of physical isolation, have often neglected market-
based trade. Temperate climes have generally supported
higher densities of population and thus more extensive
division of labor than tropical regions.”
Jeffrey Sachs
Harvard University
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Measures of Economic Development

GDP - Gross Domestic Product

GNP - Gross National Product
PPP - Purchasing Power Parity
HDI - U.N.’s Human Development Index

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 III. Legal Systems
Rules, or laws, that regulate behavior and the
processes by which laws are enforced and
grievances redressed.

1. Property Rights
Intellectual Property
2. Type of Legal System
3. Product Safety and Liability

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 Protection of Intellectual Property

Property that is the product of intellectual activity.

1. Patent: through exclusive use rights, it protects the inventor
of a product for a certain period of time.
2. Copyright: Gives exclusive rights to authors, composers,
playwrights and artists to publish and dispense their work.
3. Trademark: Officially registered designs and names that
protect owners product designations.

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 Type of Law

1. Common Law
Based on:
Tradition
Precedent
Custom
2. Civil Law
Detailed set of laws organized into ‘Codes’.

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What Does This Means for Business?
More lucrative opportunities
Facing risks
Political
Economic
Legal
Confronting ethical issues
Human rights
Regulations
Corruption
Foreign Corrupt Practices Act

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Country Factor: Culture
What is Culture?

A system of values
and norms shared
among a group of
people and, when
taken together,
constitute a design
for living.

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 Norms and Values

Norms:
Social rules and guidelines Values:
that prescribe appropriate Abstract ideas about
behavior in particular what a group believes to
situations. be good, right, and
Folkways: desirable.
Routine conventions of Have emotional
everyday life. significance.
Mores: Freedom.
Central to functioning of
society and its social life.

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 Determinants of Culture
Economic
Philosophy

Political
Education
Philosophy
Culture:
Norms and
Value
Systems
Language Social
Structure

Religion

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 Social Structure Hard to
Build
Individual
Teams

Western Mobile
Managers
Entrepreneurship
Group Lack
two or more individuals of
with a shared sense Loyalty
of identity

Group
Nonmobile
Managers Lack of
Eastern
Entrepreneurship
Identity Lifetime
Employment

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 Social Stratification
Typically defined by family
background, occupation,
and income.
Class:
some social
Caste: mobility
Virtually no mobility
Class Consciousness:
May play a role in
a firm’s operations

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 Religion
Shared beliefs and rituals concerned with the
realm of the sacred.
Ethical Systems:
Moral principles or values used to guide and
shape behavior.
Shapes attitudes toward work and
entrepreneurship.
Affects the cost of doing business.

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 World’s Religions

Christian
20% Islam
43%
Hindu
18%
Buddhist
4% 10% Confucian
5%
Other/Nonreligious

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 Religion and Economic Implications
Christianity
“Protestant Work Ethic” and “The Spirit of
Capitalism”.
Islam
Favors market-based systems.
No payment or receipt of interest.
Hinduism
Asceticism may have an impact.
Caste system plays a role.
Buddhism
Little emphasis on entrepreneurial behavior.
Confucianism
Loyalty, reciprocal obligations, and honesty in dealings.

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Spoken and Non-Verbal Language

Allows people to communicate.

Structures the way the world is perceived.
Directs attention to certain features of the
world rather than others.
Helps define culture. Berkeley City College
 Education

Formal education For int’l business, it is a

supplements family role determinant of national
in teaching values competitive advantage
and norms Medium to learn
language, conceptual,
and math skills
Cultural norms such as
respect, obedience, honesty

Focus on facts of social

Value of personal and political nature
achievement and of society
competition
Obligations of
citizenship

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Culture is Dynamic

Cultural Change

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 Culture and Ethics
Do the “right” thing.
Suggested Principles:
Respect for core human values (human
rights), which determine the absolute moral
threshold for all business activities.
Respect for local tradition.
The belief that context matters when
deciding what is right and what is wrong.

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 Strategies for Conflict Resolution

Q: Is conflict accepted in a culture?

1. Determine the source of conflict

2. Consider the context (history)
3. Determine the balance of power
a. Objective power issues
b. Subjective power issues

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 Hofstede
Study (IBM) is a general way to look at differences
between cultures.
4 dimensions:
Power distance.
Individualism versus collectivism.
Uncertainty avoidance.
Masculinity versus femininity.
But:
Assumption of one-to-one relationship between culture
and nation-state.
Research may be culturally bound.
Respondents worked within a single company.
Work is beginning to look dated (1967-1973).

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