Chapter 6 international business

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1. Political system is a set of formal institution that constitute a government It includes legislative body, political parties, lobbying group, trade unions Legal system is a system for interpreting and enforcing law A legal system include institution and procedure for ensuring order and resolving dispute in commercial activities, as well as protecting IP and taxing economic output Country risk can be resulted from installation of new government, shifting value and priorities of political party
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  1. Political system is a set of formal institution that constitute a governmentIt includes legislative body, political parties, lobbying group, trade unions Legal system is a system for interpreting and enforcing lawA legal system include institution and procedure for ensuring order and resolvingdispute in commercial activities, as well as protecting IP and taxing economicoutputCountry risk can be resulted from installation of new government, shifting valueand priorities of political party, new directions or initiative of special interestgroup, and the creation of new law or regulation2. Totalitarianism : state regulate most aspect of public and privatebehavior(economic, political matter, attitude, value, belief of citizenry)Power is maintained by mean of secret police, propaganda disseminated throughstate-controlled mass media, regulation of free discussion and criticism, do not tolerate activities that are not directed toward the state’s goal.  Totalitarianism is associated with command economy Socialism : based on the collectivist ideology that collective welfare of people isbelieved to outweigh the welfare of individual. Government control basic mean of production, distribution and commercial activitiesSocialism is associated with mixed economy Democracy : Private property right : people and firm can acquire property, utilize it, buy or sellit to whoever they want. Private property right is protected by law  Limited government intervention : government perform only essential functionthat serve all citizen such as national defense, maintain law and order, diplomaticrelation and construction of infrastructureDemocracy is associated with market economy.3. Democracy:   Private property rights : The ability to own property and assets and to increase one’s asse t base by accumulating private wealth.Tangibles: land and buildings, and intangibles: stocks, contracts, and patent rights.Democratic governments protect property rights. These rights encourageindividual initiative, ambition, and innovation Limited government intervention : government perform only essential functionthat serve all citizen such as national defense, maintain law and order, diplomaticrelation and construction of infrastructure4.   Economic freedom : the extent of government interference in business, thestrictness of the regulatory environment, and the ease with which commercialactivity is carried out according to market forces (www.freedomhouse.org)The more political freedom in a nation, the more its citizens enjoy economicfreedom.5. Major types of legal system Common law : Common law (case law) srcinated in England and spread toAustralia, Canada, the United States -British Commonwealth. ã The basis is tradition, past practices, and legal precedents   set by the nation’s courts through interpretation of statutes legislation, and past rulings. ã O pen to interpretation by courts- it is more flexible ã Judges have substantial power to interpret laws based on the uniquecircumstances of individual cases.  Civil law is found in France, Germany, Italy, Japan, Turkey, Mexico, and in LatinAmerica. ã back to Roman law and the Napoleonic Code - all-inclusive system of laws that have been “codified”— clearly written and accessible. ã T hree separate codes: commercial, civil, and criminal. ã Rules and principles form the starting point - produced by a legislative body ã Both common law and c ivil law systems srcinated in Western Europe andrepresent the common values of western Europeans. Religious Law influenced by religious beliefs, ethical codes, and moral values,mandated by a supreme being. ã Hindu, Jewish, and Islamic law - the most widespread is Islamic law, in theMiddle East, North Africa, and Indonesia. ã Islamic law (shariah law) - interpretations of the Qur’an, a nd the teachings of theProphet Mohammed. ã N orms of behavior regarding politics, economics, banking, contracts,marriage,...Most Muslim countries maintain both religious and secular courts. Indonesia,Bangladesh, Turkey and Pakistan have secular constitutions and laws. SaudiArabia and Iran use religious courts as authority over all aspects of jurisprudence. Socialist Law mainly in the independent states of the former Soviet Union, China,and a few states in Africa. ã based on civil l aw, with elements of socialist principles - state rights takeprecedence over individuals’.ã tend to view property and IP rights more loosely.ã As China and Russia adopt free -market principles, their legal systemsincreasingly incorporate civil law  Mixed Systems variation of two or more legal systems operating together. ã Legal systems in Eastern Eu rope mix elements of civil law and socialist law. ã Legal systems in Lebanon, Morocco, and Tunisia share elements of civil law and Islamic law. ã Socialism may include elemen ts of common law and civil law. ã Totalitarianism associated with religious law and socialist law.   ã Democracy is associated wit h common law, civil law, mixed systems, and,occasionally, socialist law.6.   Actors in Political and Legal Systems ã Government : The government is the most important actor, operating atnational, state, and local levels. It has the power to enact and enforce laws.influential in how firms enter host countries and how they conduct businessthere. Regulate IB activity through institutions, agencies, and public officials. ã International organization : Supranational agencies such as the World TradeOrganization , United Nations and the World Bank - strong influence on IBactivities by providing administrative guidance, governing frameworks, and,occasionally, financial support. ã Regional economic bloc : Regional trade organizations, the European Union(EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN) ã Special interest groups -to serve the interests of particular countries, industries ã The Organization of Petroleum Exporting Countries (OPEC) controls global oil prices, which, in turn, affect the cost of doing business and consumer prices.(Saudi Arabia, Kuwait, Iran, Venezuela, Nigeria, and Indonesia). ã Other special interest groups control sugar, coffee, and iron ore.  
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