THE POLITICAL, ECONOMIC AND LEGAL ENVIRONMENTS OF INTERNATIONAL TRADE

Political SystemsWhat are they?The means by which people in any society make the rules by which they live

How are political systems classified?Who makes decisions in the system?The number of personal freedoms and rights individuals have

TYPES OF POLITICAL SYSTEMSDemocracyTotalitarianismMixedRepresentative Republic

DEMOCRACYThe people make the decisionsEqual RightsMany Freedoms

Representative DemocraciesElect citizens to represent them

TOTALITARIANISMLimited rights and freedomsGovernment (one or few) makes decisionsPeople have no say in the laws

MIXEDCharacteristics of both systemsAlmost all political systems are mixed

ECONOMIC SYSTEMSWhat are they?The way a society decides to use and distribute its resources

Questions of Economic SystemsWho can own property in this system?

Who controls and distributes the resources in this system?

BASIC ECONOMIC SYSTEMSCapitalism

Communism

Mixed Economy

Capitalism/Free Enterprise/Free MarketPrivate OwnershipProfit MotiveCompetition

Who can own property? ANYONEWho controls and distributes the resources?BUSINESSES

Communism/Command EconomyPublic OwnershipGovernment Control

Who can own property? GOVERNMENTWho controls and distributes the resources?GOVERNMENT

The Father of CommunismKarl MarxDas KapitalMiddle class revolt

Mixed EconomyBetween capitalism and communismU.S.SocialismBasic industries are owned & operated by the government or groups of peopleBoth public and private ownershipRegulation of production

How Do Political & Economic Systems Relate?Democracy = Capitalism (Usually!)Totalitarianism = Communism (Usually!)

Socialism in varying degrees equals mixed political system to one side or other

Can they change?The type of government and economic system in a country may change over time

Has the U.S. changed?How?What will happen if we become socialists?Are we socialists?

POLITICAL PARTIESWhat do they stand for?DemocratsBigger government/fewer freedomsRepublicansSmaller government/more freedomsLibertariansRepublic Very small government/lots of freedom

What is necessary to have big government?High taxesLimited freedomsMore lawsMore government spending (big budgets)

What are advantages of big government?Everyone is taken care ofSocialized medicineSocialized educationFewer individual expenses

What are disadvantages of big government?Very high taxesFewer freedomsMore lawsLarge budgets government is large percentage of GDPLower productivity

What are advantages of smaller government?Lower taxesSmaller budges (less government spending)More productivityFewer lawsMore freedomsIndividual responsibility

What are disadvantages of smaller government?Unproductive people are poor maybe in povertyIndividuals may not be able to afford healthcare or higher educationFewer government programsIndividual responsibility

How has changes in governments affected International Business?USSR --- RussiaReunification of GermanyEuropean UnionRussia

Fall of Communism?What countries are communist?Move toward free market economiesPrivatizationSelling government-owned companies to private citizens

A DEVELOPING WORLD3 Different levels of economic development

Developed NationsNewly Industrialized Countries (NICs)Less Developed Countries (LDCs)

Developed NationsHigh-income economies industrialized nationsEuropeJapanAustraliaNew ZealandUnited StatesCanada

Newly Industrialized CountriesRapid industrial growth in last 30 yearsSizable exports of manufactured goodsHeavy concentrations of foreign direct investmentPer Capita GNP as low as $2,000.Per Capita GNP usually not more than $6,000.

Less Developed CountriesPer capita GNP less than $6,000Not necessarily industrializing rapidlyHigh illiteracy rates, lower life expectancy, little manufacturing capacityAfrican countriesAsian countriesEastern EuropeLatin America

LDCs ContinuedProduce raw materials, such as copper, sugar or coffee to be exportedUntil recently had neither technology nor resources to manufacture finished productsImport manufactured goods from other countriesSome now exporting manufactured products.Incomes range from $400 to over $2000 per personGoal- Increase the amount of industry

South KoreaNIC that was a LDCSouth Korea after Korean War built up using new technology. Exported clothing, shoes and textilesNow exports steel, machinery, ships & automobiles

TaiwanFew natural resources (forests main resource)Only land can be farmedBuilt industrial economy by focusing on small manufactured goodsElectrical appliances, televisions, radios, calculators, toys and clothing

Cooperation Between NationsOrganization for Economic Cooperation and Development (OECD)G7 Canada, France, Germany, Great Britain, Italy, Japan and U.S.G13 Algeria, Argentina, Egypt, India, Indonesia, Jamaica, Malaysia, Nigeria, Peru, Senegal, Venezuela, Yugoslavia and Zimbabwe

AdaptabilityWorld trade environment constantly changesPolicies and plans must be designed to fit into another countrys level of economic developmentKnowledge and flexibility important in the international marketplace

Layers of Political InfluenceFirst Layer: The Home Environment

Second Layer: The Host Environment

Third Layer: The Global Environment

The Home EnvironmentDomestic Market (the country in which the business is owned)Political systems strongly affect the way business functions

The Host EnvironmentThe host environment exists in the country where a business exports products, sets up factories, or opens its storesPolicy and economic changes affect the foreign business in the host environment much the same as in the home environmentInternational businessperson carefully examines host environment before deciding to do business there

Three Indicators of InstabilityEvidence of social disorder.Evidence of extreme income unevenness, with a few very rich people and a massive number of poor people.Evidence of frequent changes in the structure and activity of political parties.

The Global EnvironmentThe interaction of businesses in the international marketplaceGeneral Agreement on Tariffs and Trade (GATT)Ground rules for international tradePromote world trade through negotiation and to make world trade secureIncrease global economic growth and development

LEGAL SYSTEMSEach nation develops and adapts a legal system that fits its own economic, political and social goalsTwo basic types of legal systems in global communityCommon LawCode Law

Common LawJudges decide current cases based on how judges have decided cases in the pastPrecedents

Code LawBased on statutes (rules) passed by legislative bodiesSet specific penalties for disobeying the lawBased on Roman model of the 6th centuryMore than 70 countries use code law systemJudges dont interpret law

Intellectual Property RightsCertain laws have a direct impact on a companys interests and profitsIntellectual property rightsThe rights of an individual to own his or her ideasImportant because they stimulate technological growth

Intellectual Property RightsThe U.S. Constitution states:The Congress shall have the powerto promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive rights to their respective writings and discoveriesGiving inventors these rights is an incentive for continued inventingPatent and trademarks are two types

PatentsPatents give inventor sole rights to the use and production of an invention for a certain period of timeIn U.S. the right goes to first inventorIn other countries the right goes to first to apply for a patent

TrademarksA trademark is a word or words, name, design, picture or other symbol that identifies a product of a company.Laws vary from country to country

Layers of the Legal EnvironmentThe First Layer: The Home Environment

The Second Layer: The Host Environment

The Third Layer: The Global Environment

The Home EnvironmentA company must follow the laws in its home countryThe company must follow laws regarding exportation of products including those forbidding certain goods to certain countries

The Host EnvironmentThe company must also abide by the laws governing business in the host countryIncluding employment practices, taxation and environmental protection

The Global EnvironmentGoverned by agreements that countries make to regulate the flow of goods and services across national bordersInvestment Treaty Regulate direct investments across bordersTrade Agreements Rules of trade between countries (NAFTA)Multilateral Trade Agreements Several countries (EU)

Settling International DisputesDespite trade agreements, there are still problems and legal disputes among companies and governmentsThree ways to settle differences:NegotiationArbitrationLitigation

NegotiationNegotiation is solving a problem through discussion (least formal)Usually first step companies try to negotiate and solve problems by themselves

ArbitrationArbitration is the judgment of a dispute by a third party who has no direct interest in the disputeGovernments with trade disputes usually agree to use specific bodies to arbitrate such as GATT or FTA commissions

LitigationLitigation is the process that uses a nations legal system to file lawsuits.Both parties use attorneys to represent their interests in courtChoosing which country to try the case is a major problemMajor disadvantages time & acceptance

The End!