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CHAPTER 2

GLOBAL PENG

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Chapter 2 LEARNING OBJECTIVESAfter studying this chapter, you should

be able to:

1. Identify two types of institutions. 2. Explain how institutions reduce

uncertainty. 3. Identify the two core propositions

underpinning an institution-based view of global business.

4. List the differences between democracy and totalitarianism.

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Chapter 2 LEARNING OBJECTIVES

After studying this chapter, you should be able to:

5. List the differences among civil law, common law, theocratic law.

6. Articulate the importance of property rights and intellectual property rights.

7. List the differences among market economy, command economy and mixed economy.

8. Explain why it is important to understand the different institutions, both formal and informal, when doing business around the world.

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LO1: TWO TYPES OF INSTITUTIONS

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LO2: HOW DO INSTITUTIONS REDUCE UNCERTAINTY?

…institutions constrain the range

of acceptable actions and provide certainty by spelling out the rules of the

game.

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LO3: INSTITUTION-BASED VIEW OF GLOBAL BUSINESS

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LO3: TWO PROPOSITIONS

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LO4: POLITICAL SYSTEMS

Democracy - citizens elect representatives to govern the country on their behalf.

Totalitarianism - one person or party exercises absolute political control over the population.

Communist Totalitarianism

Theocractic Totalitarianism

Right-wing Totalitarianism

Tribal Totalitarianism

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LO5: LEGAL SYSTEMS

The rules of the game on how a country’s laws are enacted and enforced. The first,

regulatory pillar that supports institutions.

Civil Law Common Law Theocratic Law

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LO6: PROPERTY RIGHTS

Legal rights to use an economic property (resource) and to derive benefit from it.

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LO6: INTELLECTUAL PROPERTY RIGHTS

Rights associated with the ownership of intellectual

property, intangible property that results from intellectual activity,

such as books, videos and websites.

Patents Copyrights Trademarks

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LO7: ECONOMIC SYSTEMS

Rules of the game on how a country is governed economically.

MarketEconomy

Command Economy

Mixed Economy

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DEBATE: WHAT DRIVES ECONOMIC DEVELOPMENT?

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DEBATE: WHAT DRIVES ECONOMIC DEVELOPMENT? Culture?

Geography?

According to institution-based view… Formal institutions encourage firms to grow

and specialize. Absence of formal institutions forces firms

to remain small. Protection of property rights fuel innovation,

entrepreneurship and thus economic growth.

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LO8: UNDERSTANDING DIFFERENT INSTITUTIONS