Global Business Exam Revision
Lobbying activities of organizations aiming to influence policies of legislators and government office holders o Lobbying is a huge business o Lobbyists have grown in number in Washington, DC, the UK and the EU o In theory, lobbying is regulated, but in practice, much of it is outside regulatory regimes o 'Revolving door' between political leaders and lobby organizations can lead to corruption
Lobbying
Direct impacts in production and environment.
Local Community
Clear and direct communication.
Low Context Culture
MNE's ability to serve customers with their products around the world. Ability to adapt to differing needs in differing countries. MNC, Toyota Motor Corporation: Produce and sell where customers exist. 127 countries/ regions, HQ's in Japan, 48 subsidiaries incl 8 R&D sites.
MNC, Toyota Motor Corporation
Civil society private sphere in which people can pursue their own goals, including freedom to join groups such as political parties, trade unions
Private political sphere
Amazon's software calculates the most efficient walking route to collect all items to fill a trolley, then directs worker from one shelf space to next via instructions of the handset satnav device. Even with these efficient routes, there is still a lot of walking. 'You're sort of like a robot, but in human form' - Amazon Manager.
CASE STUDY: Amazon
'Golden arches lose their shine'. -Changing global consumer taste. -More awareness of ethical practices. -Changing employee practices and activism. -Culture of ethics and fairness.
CASE STUDY: McDonalds
1. Concentration of inward FDI in developing countries. 2. Increasing share of developing economies in world trade. 3. The rise of China as a world 'Megatrader'.
Changing Patterns of Trade and Investment
Codes are a set of best practices designed to address deficiencies in formal contracts and institutions suggesting prescription on the suggested role and composition of stakeholders.
Codes
Impacts of laws, regulations. political policies and national culture.
Country
A countries increase in national income over time. Affected by capital investment and technological innovation. High growth rates are associated with rapid industrialisation e.g. China.
Economic Growth
MNE's ability to locate different stages of production in a variety of locations globally. Based on the Value Chain, which envisages successive stages of production, each adding value to the finished product.
Increasing Fragmentation of Production
Institutions : as typified patterns of behaviour, with a weaker or stronger normative foundation humans conceive these as external aspects.
Institutions
Movement of people from one place to another due to: - Push factors: Escape from poverty, natural disasters, religious persecution. -Pull factors: Prospect of work and economic betterment. Migration can occur within a country or between countries. Oil-rich countries composed of migrants in construction industries mainly from Pakistan, India and Bangladesh.
Migration
A fundamental aspect of democracy relevant to the effective conduct of global business is an individual's right to freedom of expression and organization. In most modern democracies, the right to organize economically is extended not only to domestic individuals and firms, but also to foreign individuals and firms. There are four major types of totalitarianism: Communist - centers on a communist party. Right-wing - characterized by intense hatred of communism. One party, typically backed by the military, restricts freedoms in order to prevent the growth of communism. Theocratic - control of political power by one religious party. Tribal - control of political power by one tribal or ethnic party.
Totalitarianism
Apple (US) Basic and Applied R&D, Product Design. Commercialisation Chip Design. ARM Holdings (UK) Parts Touchscreen. Balda (Germany) Parts- Chips. Samsung (Korea) NXP Semiconductor (Netherlands) Assembly. Inventec (Taiwan) Hon Hai Precision Industry (Taiwan) Advertising. TBWA/ Chia and Day (US) Apple Marketing, Brand Management After-Sales Services.
iPhone Value Creation/ Value Chain
Culture: A shared way of life of a group of socially interacting people. It is what human actors have in mind and share in a specific society (Hofstede's "the mental programming") o A cohesive social group o Can be a whole society or a smaller group
Culture
Individual freedom to carry out enterprise activities with minimum of state interference. Notion of the 'inviable hand' guiding the economy but a need for regulation e.g. to curb monopolists.
Dimensions that differ each capitalist system Role of Government
The institution-based view claims that company behaviour is the outcome of a dynamic interaction between institutions and companies. This means that company behaviour is "a reflection of the formal and informal constraints of a particular institutional framework" (Peng, 2015, p. 22). According to the institution-based view, the impact of formal and informal institutions on company behaviour can be summarized in two propositions: (1) Managers and companies rationally pursue their interests and make choices within institutional constraints. (2) In the absence of effective formal institutions—for example when they are unclear or fail— informal constraints reduce uncertainty and provide orientation and constancy for managers and companies. The relationship between formal and informal institutions deserves further investigation. Informal institutions are relevant in the absence of formal institutions, for example in emerging economies. Peng (2015, p. 23) argues as follows: "Even in developed economies, formal rules make up only a small (though important) part of institutional constraints, and informal constraints are pervasive. Just as firms compete in product markets, firms also fiercely compete in the political marketplace characterized by informal relationships. Basically, if a firm cannot be a market leader, it may still beat the competition on other grounds—namely, the nonmarket, political environment." With respect to MNE strategies, one implication of the institution-based view is to use a country's institutional framework to acquire a competitive advantage.
An Institution-based View of Global Business
US company inquired about Chinese company, the production facilities, product quality and production costs, knew exact information they needed to make a mutually satisfactory proposal. Whereas, China did research on US company but more on the business philosophy, corporate culture, people running the company and the sophisticated production technology, hoping to enter a long-term partnership build on mutual trust. When US got there, China welcomed them with feasts and welcome signs etc to show their respect, but when the US wanted to talk about the contract, the Chinese would avoid it for days on end as it needed to be confirmed by their bosses. The Chinese suggested that the US took one of the leaders for an expensive dinner to speed up the process, but the US saw this as corruption and saw it as against company rules. The Chinese were confused as to why the US did not take their advice. Also, US did not send the CEO of the company which was seen as disrespect towards the Chinese. However,
CASE STUDY: Americans negotiating a contract in China
Start-up in Australia to World Markets. Uniqueness of the tea and it is pure and natural tea infused with alcohol/ vodka, Milestones: Owning IP for such unique vodka. Use natural black tea for vodka. Difference lets them dominate the world. Public find it versatile and delicious. Raise a significant amount of funding. Setbacks: Hard to manage everything that goes on - tend to allocate resources in the best way. Lack of experience - Didn't know where to spend resources, over time learned how to resource allocation. Resource Allocation - Be careful with spending and not to waste resources in one particular area. Competitive Advantage: People are drinking more premium spirits- can take advantage of this. Alcohol consumption per person decreased but paying more for better quality. Mixing tea with their alcoholic beverages. Future Plans? Stay premium. Range of products to take advantage of premiumisation. Make pre-mixed cocktails. Challenges on Longleaf? Vodka has been heavily taxed, especially in Australia. 80-85% of manufacturers are taxed, try to reduce this by changing location where taxation is cheaper. Due to high taxation, they are unable to spend more on Marketing.
CASE STUDY: Longleaf
Challenging norms through adaptation, involving more women in engineering when it is more a male career. 'We must make space for women, take into account their unique needs, which will often balance childbirth with a long-term successful career' (Economist).
CASE STUDY: Renault-Nissan
-As global business and economic development reach more societies, MNE's must address impacts on societies. -Responsibilities of business for changes taking place in societies, employment, urbanisation, the use of migrant workers. -Governments and businesses alike hear responsibilities and serve human needs in sustainable ways.
Challenges and Responsibilities
Economies look to international as well as domestic firms to propel economic growth. MNE's global strategies seek location advantages in developing economies profit, seeking but what are the impacts on the host economies? Challenge of promoting inclusive growth, benefitting all in society. MNE's are challenged to look to the broader picture of stakeholders when taking investment decision.
Challenges and Responsibilities
Processes of governance involve governments, businesses and civil society organizations o As businesses reach more deeply into political life, potential for positive contributions or negative, in the form of corruption o Companies involved in delivering public services: who are they serving? o Transparency and ethics are increasingly expected of companies in the public spotlight
Challenges and Responsibilities
-Adapting English in international is: -Recruit global stars including board members. -Reach global markets, assemble global production teams. -Integrate foreign acquisitions. -Such steps are important to companies in Japan, where population is shrinking. Contradiction to existing cultures in Japan, English promotes free-thinking because it is free from the status distinctions which characterise Japanese and other Asian languages. A growing number of firms worldwide are adopting English as their official language.
Change in National Language
Increase in the significance of capital markets in social market. The point is that the reform effort was motivated much more by corporate scandals rather than slower growth in mature economies. Economic growth vs economic development.
Changes in Liberal Market and Social Market Model
Increase in the significance of capital markets in social market • The first significant point is that the reform effort was motivated much more by corporate scandals rather than the desire to adopt Anglo American corporate principles.
Changes in Liberal market and social market model
Elements of Human Well-Being: -Living in a safe and social environment. -Living in a healthy natural environment. -Ability to satisfy basic needs such as food, security and durable housing. -Sustainable livelihood. -Practicing one's religion. -Mobility- living and working where one wishes. -Educational opportunities. -Participating in cultural life. -Access to healthcare.
Changing Societies
In the world of international business, we can distinguish between different legal traditions (or legal families) and their implications: (1) Civil law, which is derived from Roman law, is globally the most widely-distributed legal system and involves comprehensive statutes and codes as a primary means to form legal judgments. (2) Common law, which is English in origin and dominates the English-speaking countries, is shaped by precedents and traditions from previous judicial decisions. Common law is relatively flexible (but potentially more conflictual), as judges have to resolve conflicts based on their interpretation of both statute law and precedent, which then constitutes a case and maybe even a new precedent, and which influences the legal interpretation of future cases. In civil law systems, judges apply the law only as stipulated by comprehensive statutes and codes. (3) Theocratic law, a legal system based on religious teachings, e.g. Jewish and Islamic laws. Legal systems form the regulatory pillar of institutional systems and have a direct impact on the available options for business decision-making around the globe. While this section has introduced only the most basic elements, it is important to recognise that legal systems are complex arrangements with various components, two of which—property rights and intellectual property — are discussed in the next section
Civil Law, Common Law and Theocratic Law
Led by stakeholder view. Society's best interest is in contributing towards all of its stakeholders including employees, consumers, broader environment. Human development rankings high.
Concern for social and economic sustainability
Led by shareholder view. Society's best interest is in contributing towards its shareholders.
Concern for social and environmental sustainability
For international business, political risk can arise from internal factors in a country or external forces. o Businesses desire a stable political environment, and they are active in interacting with governments, both authoritarian and democratic. o Democratic political systems, which are accountable to the populace, rest on free and fair elections, freedom of expression and the right to form groups in civil society.
Conclusion of Political Risks
A growing cosmopolitan culture and lifestyle perceived as an aspect of globalisation. Divergence is the tendency of group members to become less like other group members over time. Convergence is useful if you consciously choose to spend time with people you'd like to become more like.
Cultural Convergence
Formal institutions such as elections constitute a minimal approach, but can lack the pluralism and freedoms of genuine democracy o Basic principles of democracy: • Rule of law • Free and fair elections, for representatives with law making authority • Universal right to vote • Freedom of expression, speech and association • Majority rule and minority rights
Democracy
Artifacts: Aspects of a culture that you see, hear and feel. They are visible; they can be seen, heard and felt. For example, what the dress code is; what kind of offices and layout is used; how employees address each other and how they communicate internally and externally. These include the architecture, beautification of workplace, careful design, layout, fitting and maintenance, built-in space for movement (space, sound, and acoustics), functionality, attractive visuals, elegance, furniture etc. Artifacts include dress codes; explicit dress codes speak a lot about workplace culture. They are varied as workplaces are. It differs as per the nature of the workplace, it is the starting point of defining and determining a dress code. Wearing I-Card and clean dress, well-groomed employees speaks a lot about organizations. Beliefs: The understandings of how objects and ideas relate to each other. Values: The stable, long-lasting beliefs about what is important. These are the public statements about what the organisational values are about. Many organisations now communicate what their "core values" are - the espoused values by which the organisation conducts its business. Assumptions: The taken-for-granted notions of how something should be.
Different Layers of Culture
Liberal market economies e.g. UK and US. Social market economies e.g. Germany. Asian Capitalist Systems e.g. Japan and South Korea. Mixed market economies e.g. India and China.
Different types of capitalist economies
Led by stakeholder view. Society's best interest is in contributing towards all of its stakeholders including employees, consumers, broader environment • Human development rankings high
Dimensions that differ each capitalist system Concern for social and environmental sustainability
Reliant on vocational and practical education. • Educational culture encourages applied skills in different areas
Dimensions that differ each capitalist system Education System
• Led by relationships, employee voice, strong unions • mid term to long term relations
Dimensions that differ each capitalist system Employer-Employee Relations
Reliant on stock-market, encourage start-up and entrepreneurship. Venture capitalists.
Dimensions that differ each capitalist system Financial System
We now turn to another institutional arrangement, and one that is most important when doing business, namely the economic system. The term 'economic system' refers to how the economy is governed, i.e. the fundamental principles and rules governing economic transactions. • KEY TERM: The economic system is the rules of the game on how a country is governed economically. There are various ways in which economic activity (transactions) can be organized. As with political and legal systems, there is a vast body of descriptive, analytical and empirical literature on comparative economics and comparative economic systems, e.g. Gardner (2014). MARKET, COMMAND, AND MIXED ECONOMIES At a basic level, we introduce you to three different categories: (1) Market economy: According to neo-classical economics, in a pure market economy the "invisible hand" coordinates supply and demand and - under certain conditions - ensures the efficient allocation and use of resources, so that economic wealth is maximized. The government plays a liberal laissez-faire role and (largely) abstains from interventions into the market system. Ideally, all aspects of production should be privately owned, and the government intervenes only where markets fail, i.e. in roles that the private sector cannot efficiently perform, such as providing roads and defence against invasion. (2) Command economy: In a pure command (or planned) economy, all factors of production are owned and controlled by the (central) government. All economic decisions—for example about production, consumption, and resource allocation—are taken by the government, which performs the role of a central planner. (3) Mixed economy: By definition, this form of economic organization has elements of both a market economy and a command economy. It boils down to the distribution of market forces in relation to command forces. While the market economy and the planned economy are ideal cases, most economic systems actually fall into the category of a mixed economy. The specific mix of market allocation and government regulation of (and intervention into) the economy then determines how close the economy approaches either of the ideal cases.
Economic Systems
Rules of game on how a country is governed economically. Market vs mixed vs command economy. Private vs public ownership.
Economic Systems (Formal Institution)
Reliant on generalist degree programmes and broader academic skills. Financial and educational culture encourages technological innovation.
Education System
Reliant on vocational and practice education. Educational culture encourages applied skills in different areas.
Education System
Led by contracts, agreements, terms and conditions, short-term relations.
Employer-Employee Relations
Led by relationship, employee voice, strong unions. Mid-term to long-term relations.
Employer-Employee Relations
Zappos.com is an online shoe and clothing shop currently based in Las Vegas, Nevada. In July 2009, the company announced it would be acquired by Amazon.com in an all-stock deal worth about $1.2 billion. Since its founding in 1999, it has become one of the world's largest online shoe stores. Zappos has become almost as well known for its culture as it is for the shoes that it sells online. How does Zappos culture look like? It believes in delivering an experience of 'WOW' through service. The company believes in embracing change constantly. It believes in creating fun and weirdness among the employees. Weirdness is necessary for creating innovation. It encourages its employees to be adventurous, creative and open-minded and pursue learning. The organizations believes in building honest relationship with its employees with transparent communication. In true sense Zappos behaves like a close-knit family. When it comes to hiring employees, it starts with a cultural fit interview, which carries half the weight of hiring the candidate. New employees are offered $2,000 to quit after the first week of training if they decide the job isn't for them. Ten core values of the company are instilled in every team member. Employee raises come from workers who pass skills tests and exhibit increased capability, not from office politics. Portions of the budget are dedicated to employee team building and culture promotion. The organization passes on great benefits and a workplace that is fun and dedicated to making customers happy all fit in with the Zappos approach to company culture, where one gets the company culture right, great customer service and a great brand will happen on its own. Zappos has established what the company culture is, and fitting into that culture is the most important thing managers look before hiring.
Example of Company using Layers of Culture
Values and beliefs of moral values and aesthetic values. Religion organised religions, religious practices. Societal characteristics, family roles, attitudes to education. Geographic homeland. National symbols and myths. Customs, festival, national celebrations. Language written, spoken gestures.
Facets of Culture
In a federal system, authority is shared between the centre and local or regional units. Powers are often divided, with the states having certain responsibilities and the central government others. The division of powers is generally set constitutionally and is not easily changed. Generally, the federal government has overall authority to conduct foreign policy, negotiate treaties and provide for the defence of the country. State powers often include local law enforcement, education and social services. Examples of nations with Federal systems of government are India, Germany, and the United States. Seen as suitable for countries where regional units have strong loyalties and identities • Seen as advantageous to balance the power of central government
Federal System and Pros
The political party organization of people who come together voluntarily to participate in political activities, e.g. by submitting candidates for election o Each party has its own perspective and policy agenda: • Parties to the left tend towards socialism, trade union values, government spending on social priorities • Parties to the right , generally conceived as conservative, tend towards enterprise values and minimal government intervention • Parties may also be religious in perspective, or focused on a range of issues, such as green parties o If there are numerous parties which obtain electoral support, a coalition government is a likely outcome
Political Party
Reliant on banks. Banks have large stakes on large organisations and terms led by relationships between banks and organisations.
Financial System
Gazprom gas ministry privitised in 1990s , restored to state control during Putin's government and his associates
Gazprom CASE STUDY
World Orientation Global culture; global products with local variations Example: Gayle works as a human resource specialist for a large multinational conglomerate that employs thousands of people in facilities on every continent except Antarctica. She's part of a team of staffing specialists that helps recruit employees for the company's overseas operations. Gayle and her team may fill some positions with people that are not citizens of the country where they will be employed. Let's take a quick look at the types of employees working on the international stage. You can generally break employees working in a foreign facility or office of an international company into three categories. Let's take a look. Ken works in France but is a citizen of the United States, where his company is organized and headquartered. Ken is an expatriate, which is a citizen of the company's home country working in a foreign country. Antoinette is Ken's executive secretary in France, but unlike Ken, she's a citizen of France and is considered a host-country national. She is an employee hired by a foreign company to work in her own country. Hans works for the same company as Ken and Antoinette in France, but he's German. An employee like Hans that is a citizen of one country but is working in another country for a company that is headquartered in a third country is called a third-country national.
Geocentric
Movement of products, people, money, companies and information across national boundaries.
Globalisation
Communication relies heavily on relationships and behaviour. Majority and minority languages exist in states, due to immigration and colonisation where indigenous cultures already existed. Linguistic family of Chinese is spoken by the largest number of people globally.
High Context Culture
Formal institutions, which include laws, regulations, and rules, are supported by a regulative pillar, the coercive power of governments. Informal institutions, which include norms, cultures, and ethics, are supported by the normative pillar and the cognitive pillar. The normative pillar refers to how the values, beliefs, and actions (collectively known as norms) of other relevant players influence the behaviour of focal individuals and firms. The cognitive pillar refers to the internalized, taken-for-granted values and beliefs that guide individual and firm behaviour.
Institution Conclusion
Basic means of communication, which facilitates social interaction.
Languages
Basic underlying assumptions These are the foundations on which culture is based. Handy described this as "the ways things get done around here". The underlying assumptions are often difficult to describe, are intangible and are often only really understood by people who've become accustomed to the way the organisation works. Imagine you are new to an organisation and you find it is taking time to "fit in". That's because you haven't yet got to grips with these underlying assumptions that those in the organisation who've been there a while seem to take for granted. Underlying assumptions are usually invisible. You won't find them written down anywhere. People may not want to talk about them. But they exist and are often powerful.
Layers of Culture (Schein 2010)
Rules of the game on how a country's laws are enacted and enforced through civil laws, common law and theocratic systems.
Legal System (Formal Institution)
Political risk the uncertainties associated with the exercise of governmental power both within a country and from external forces o Internal factors: • Arbitrary government action, especially where the rule of law is weak • Social unrest • Corruption o External factors: • Wars and conflicts with other states • Terrorism
Political Risk
Home country orientation: Home country is superior; home country needs are most relevant Example: Gayle can rely upon ethnocentric staffing, which involves staffing the most important positions in foreign subsidiaries with expatriates from the company's home country. Expatriates are often believed to better represent the interests of the home office and ensure that the foreign offices are aligned with home headquarters. In fact, many expatriates are selected from the company's current employees and are simply transferred to a foreign subsidiary. Ethnocentric staffing presents advantages and disadvantages. The obvious advantage to ethnocentric staffing is the alignment of interests and perspective of the home office with all foreign subsidiaries abroad. Communication is also easier because there should be no language and cultural barriers. The company may also be able to transfer employees with a clear performance record that will provide some level of predictability. On the other hand, you can lose local perspective and insights that local employees can provide that may help overcome unique hurdles in each foreign office. Moreover, hiring expatriates tends to be expensive compared to hiring locally. Additionally, a high ratio of expatriates may create local resentment at foreign subsidiaries, which may hurt morale
Management Orientation and Globalization Chakravarthy , Perlmutter 1985 = Ethnocentric
-Muslim Countries: Impact of religion are business practices. -Interest-free banking encouraged. -Prohibition of investment and business practices in alcohol and gambling.
Multi-Layers of Religion
International business covers business which straddles one or more countries. Made up of a parent company which aims or controls other businesses. both subsidiaries and affiliate businesses in different countries. Parent Company (Home Country) Country A Country B Country C 60% Owned 30% Owned 100% Owned
Multinational Enterprise (MNE)
The nation state (or just state ) is the basic unit into which the world's peoples are divided; its characteristics: • Territory control • Conflict of boundaries and who controls the resources within the territory • E.g. natural resources • E.g. Africa inheriting historical colonial borders leading to ethnic conflicts
Nation States
the distinctive values and norms which distinguish one nation from another Most states contain multiple cultural and national identities • Can lead to social tensions between majority and minority groups • Subcultures distinguish minority groups • Discrimination against minority groups has a long history
National Culture
Group-level principal of fairness and ethics differs among groups more oriented towards religion and link religion with ethics.
National-Level Differences in Business Practices e.g. Pakistan and Saudi-Arabia.
Inequality: The difference in wealth and income between the richest and poorest. Unemployment: The percentage of people in the country willing to work but without jobs. Inflation: The continuing general rise in prices in the economy. Balance of Payments: The credit and debit of transactions between a country's residents & other countries. Gov seek economic growth, low unemployment and low inflation.
Other indicators of macroeconomic conditions:
Political Economic Socio-Cultural Technological Legal Ethical
PESTLE
National differences persist despite globalisation. Cultural leaning leads to cross-vergence or gradual process of cultural integration.
Persisting Divergence
Classical pluralism is the view that politics and decision making are located mostly in the framework of government, but that many non-governmental groups use their resources to exert influence. Pluralism existence in society of a multiplicity of groups and interests
Pluralism
With respect to the implications of the political system for business, Peng (2015) argues that totalitarian countries are more likely to experience wars, riots, protests, chaos, and breakdowns. They might be less stable than democratic countries and they are associated with higher levels of political risk, which may have a negative impact on domestic and foreign companies. He concludes (Peng, 2015, p. 25) that "totalitarianism in general is not as good for business as democracy". Furthermore, the degree of hostility towards private business varies among different types of totalitarianism, as totalitarian governments may try to instrumentalize (foreign) business, and likewise (both domestic and foreign) business may liaise with totalitarian governments to increase profits. This discussion quickly involves both a normative and an ethical dimension. • KEY TERM: Political risk is a risk associated with political changes that might negatively impact on domestic and foreign companies. In (liberal) democracies, the political risk faced by companies is qualitatively different, in that political changes induced by democratic decisions can affect business interests, but the system does not formally question or threaten the very existence of domestic and/or foreign business Political risks Example: page 45-46, conflict between Japan and China and their inter-dependence Example from IT industry of Pakistan and clients in US
Political Risk
Internal factors • Government's control over regional and city wide politics is low • Political parties with the strong hold engage in corruptive practices • Often asking for bribes and encouraging corruptions • Internal security and conflicts whereby problems among different ethnic groups (often Pashtun and M ahajir ) breaks out into violence • Military overtaking democratic government three times in country's history • External factors • Taliban, Alqaida influence from Aghan territories • FATA in Pashtun but also some level influence in other cities and regions
Political Risks in Pakistan
A political system is a "set of formal legal institutions that constitute a 'government' or a 'state'" (Heslop, 2014, 1). A political system represents a specific political order and includes legal or constitutional arrangements (formal institutions), political actors and the processes of interaction between these actors, as well as the actual and prescribed norms and forms of political behaviour (informal institutions). KEY TERM: the political system refers to the rules of the game on how a country is governed politically. Political systems are highly complex phenomena and vary significantly between countries. In addition to the political systems associated with nation-states, there may be sub-national, regional, supranational and/or international political systems, such as the European Union, or the organizations of the United Nations. Extensive information on the comparative analysis of political systems can be found in the comparative politics literature, e.g. Boix and Stokes (2009), or Landman and Robinson (2009). For this course, we will distinguish two primary political systems, democracy and totalitarianism.
Political Systems
Rules of the game on how a country is governed politically e.g. democracy, totalitarianism (dictatorship).
Political Systems (Formal Institution)
Politics is about the processes by which power is exercised in a social group
Politics
Host Country Orientation Each host country is unique; local product development E.g. Companies attempt to spread out the appeal of their products or services among multiple countries.
Polycentric
Legal rights to an economic property and to derive benefit from it. Intellectual property rights: Rights associated with the ownership of intellectual property, resulting from intellectual activity.
Property Law (Formal Institution)
Societies : collectivities of people o instil in members basic orientations and social patterns of interaction o to develop an identity and a view of the world which is shared by fellow members o provide for, and interrelate, all the aspects of living and working together that. we can unravel and explain differences between management across different societies in two ways which are connected but different: Culture and Institutions
Societies
Supreme law making authority over inhabitants of its territory. Sovereignty is the full right and power of a governing body over itself, without any interference from outside sources or bodies.
Sovereignty
A legal system - no matter to what tradition it is linked - has the economic function of defining and protecting property rights, i.e. "the legal rights to use an economic property (resource) and to derive income and benefits from it" (Peng, 2015, p. 26). Property may include offices and factories, financial assets, and even ideas. The latter is called intellectual property, which is discussed at the end of this section. • KEY TERM: Property rights are the legal rights to use an economic property (resource) and to derive income and benefits from it. The effective protection of property rights, supported by a functioning legal system, has an important role for economic development and growth, and also for doing business. In developed economies, property rights concerning land, buildings and trademarks are usually clearly defined and identifiable through legal instruments entitling owners to derive income and benefits from them, and serving as a basis for protection against violators. Interestingly, in stable and predictable legal systems, tangible property supports less tangible economic activities. For example, property can be used as collateral for credit, which can be an important source of funds for new start-ups. However, this only works if property rights exist and are properly documented. In contrast to tangible property, the results of intellectual activity are called intellectual property. • KEY TERM: Intellectual property refers to intangible property that results from intellectual activity (such as the content of books, videos, and websites). • KEY TERM: Intellectual property rights (IPRs) are legal rights associated with the ownership of intellectual property
Property Rights
In such systems there is both a directly elected president with substantial executive powers and a presidentially appointed prime minister, who must retain majority support in the legislature. Pros: Strong executive imparts unity; prime minister co-ordinates parliamentary programme. Cons: Conflict between president and prime minster. Stability: Fixed-term president impacts stability; but successive coalition governments can be unstable in multi-party systems. E.g. Central and Eastern Europe.
Pros and Cons of Hybrid System Government.
The most known example of a country with a parliamentary system is Great Britain. There, the head of government is the prime minister and the head of state is the British monarchy. Britain is also known as the origin of this system. Pros: Executive reflects electoral support in parliament. Cons: Thin majority may lead to breakdown of government. Stability: If prime minster has a large majority, coalition and minority governments can be unstable. E.g. UK and the recent resignation of Theresa May.
Pros and Cons of Parliamentary Government
A presidential system of government is a government in which a president leads an executive branch that is separate from the legislative branch. The United States is a good example of a presidential system of government. Pros: Strong executive based on popular mandate; fixed term of office. Cons: Possible disaffection among electorate. Stability: Stable executive, but legislative may be dominated by the opposing party, stifling law-making agenda. E.g. US
Pros and Cons of Presidential Government
Public: institutions of state, government structures and the individuals who play roles in political decision making
Public political sphere
Regional Orientation Regional Culture; standardise within regions but not across. The managers are selected from within the region of the world that closely resembles the host country
Regiocentric
Impacts of neighbouring countries, including economic and political ties.
Region
Social justice dimension, including social welfare programmes. Extensive state ownership. High cost of doing business.
Role of Government
Collectivist culture predominant in the society led by relationships. Social market economy. The social market economy supports planned efforts to influence the economy through the organic means of a comprehensive economic policy coupled with flexible adaptation to market studies.
Social Market Economies
Executive --> Legislative --> Judicial Separation of powers between the three branches of government. Checks and balances to ensure the accountability of each.
Systems of Government
In line with Peng (2015), we argue that an institutional framework is made up of both formal and informal institutions, which govern individual and company behaviour. Scott (2008) distinguishes different pillars which support the institutional framework: (1) The regulatory pillar refers to the coercive power of governments, which establishes formal institutions such as law, regulations and other (formalized) rules. (2) The normative pillar refers to how the values, beliefs, and actions—known as (social or collective) norms—of other relevant players influence the behaviour of individuals and companies. The normative pillar supports informal institutions, as does the third pillar. (3) The cognitive pillar includes those values and beliefs which have been internalized or are taken-for-granted, and which subsequently guide individual and company behaviour.
Types of Institutions
1. Formal Institutions: Laws, regulations and rules: Regulatory pillar: coercive power of governments. 2. Informal Institutions: Norms, culture and ethics: Normative pillar, how values, beliefs and actions of players influence the behaviour of individuals and firms. Cognitive pillar: internalised values and beliefs that guide individual and firm behaviour of individuals and firms.
Types of Institutions: 1. Formal 2. Informal
Democracy is a form of government in which citizens elect representatives to govern the country on their behalf. In a democratic political system, the political party with the majority of votes in an election wins and forms the government. Liberal democracies are characterized by fair, free, and competitive elections, a separation of powers into different branches of government, the rule of law, and the equal protection of human rights, civil rights, civil liberties, and political freedoms for all individuals. As far as business is concerned, democracies usually include the right to freedom of expression and organization, which includes the right to establish a private company. Totalitarianism is located at the opposite end of the political spectrum and is closely linked to authoritarianism. It involves a dictatorial form of centralised government that regulates and controls every aspect of state and private behaviour. Its authoritarian dimension requires the citizens in a totalitarian state to submit to central authority, denying them individual freedom of thought and action. Power is concentrated in the hands of a leader, a small group of rulers, or a political party and is neither responsible to nor replaceable by the citizens. The freedom of individual expression and organization - for example to form opposition parties - is usually limited or not-existent. Peng (2015) distinguishes four major types of totalitarianism: (1) Communist (or left-wing) totalitarianism centred on a communist party. (2) Right-wing (or fascist) totalitarianism, characterized by intense hatred of communism, democracy and liberalism. (3) Theocratic (or religious) totalitarianism, or the centralization and monopolization of political power in the hands of one religious party or group. (4) Tribal totalitarianism, in which one tribe or ethnic group (which might or might not be the majority of the population) monopolizes political power and oppresses other tribes or ethnic groups.
Types of Political Systems
A unitary state is a state governed as a single power in which the central government is ultimately supreme. The central government may create (or abolish) administrative divisions (sub-national units). Such units exercise only the powers that the central government chooses to delegate. Although political power may be delegated through devolution to local governments by statute, the central government may abrogate the acts of devolved governments or curtail (or expand) their powers. A large majority of the world's states (165 of the 193 UN member states) have a unitary system of government. In a unitary system, all authority radiates out from the centre
Unitary System
VW scandal exposed failure by European commission and several of the EU's national regulations to enforce legislation outlawing the defeat devices used by the German carmaker to cheat in diesel vehicle emissions tests (FT). The scandal has raised broader issues about how regulators in the EU ensure compliance with legal limits on such emissions (FT).
Volkswagen Case Study
While institutions have many purposes, their most important purpose in relation to international business strategy is to reduce uncertainty in decision-making. Institutions constrain the range of available and/or acceptable actions, but they also signal the range of options available to decision-makers - and indicate what conduct is legitimate and acceptable and what is not. For example, political institutions reduce political uncertainty, such as that caused by an uprising, which is relevant to long-range planning. In addition, economic uncertainty such as failure to carry out contractual obligations as a result of opportunistic behaviour may result in economic loss. • KEY TERM: Opportunism refers to the act of pursuing self-interest with guile. Institutions affect economic efficiency in several ways. First, they improve the level of information and reduce the extent of asymmetric information. Second, uncertainty surrounding economic transactions can lead to transaction costs, which are the costs associated with economic transactions or, more broadly, the costs of doing business. The more uncertainty is reduced, the lower the risk of misunderstandings, and thus the less conflictual and the more harmonious the economic exchange will be. And, from a strategic perspective, institutions can even add or open up opportunities, that would otherwise - in an institution-free environment or in the absence of institutional regulation - not be available. This idea of enabling, or 'beneficial' constraints (Streeck 1997), applies especially to the public or collective-goods aspect of certain institutional regulations. • KEY TERM: Transaction costs are defined as the costs associated with economic transactions or, more broadly, the costs of doing business. In the absence of stable institutional frameworks, transaction costs may become prohibitively high, to the extent that certain economic exchange activities and business transactions would not take place—for example, during civil wars. Thus, Institutional frameworks increase certainty by providing and enforcing effective rules of the game. Institutions are dynamic entities. This means that they may evolve and change over time. In the form of economic transition process from planned to market economies, or political transitions from totalitarian to democratic systems, institutional changes create both challenges and opportunities for companies operating in such countries
What do Institutions do?
Business covers any economic activity which provides goods/services in exchange for payments. Mission Objectives --> Environmental and Organisational Analysis --> Strategy Formulation --> Planning --> Operations
What is Business?
(1) Coercive isomorphism - includes pressures from other organizations upon which they are dependent. For example, there may be legal requirements or financial reporting requirements, which force (coerce) companies to act in a similar way. (2) Mimetic isomorphism - is a response on the part of actors to uncertainty and refers to the imitation or copying of other successful organizations. Related to this phenomenon are management fashions and fads, or organizational models diffused by consultancies. (3) Normative isomorphism - resulting from professional organizations. These disseminate organizational patterns which put pressure on companies and are then adopted by them, as they feel obliged to conform to those patterns. Examples include the licensing and crediting of educational achievement.
What types of pressures do companies respond to?
Global Issues such as climate change, human rights and global finance.
World
