Global business environment

GLOBAL BUSINESS ENVIRONMENT Political, Economic and Legal Environment Presented by Pradeep Mahato Oxford College of Engineering & Management

GLOBAL BUSINESS ENVIRONMENT Introduction :- The issues that face global businesss are entirely different from those that face domestic firms. Whether the subject is political differences, cultural differences, trade and tariff issues. Today we disscuss about the political, economic, and legal infrastructures of different countries.

Political Systems Definition : Political system refers to the system of Government in a nation. The economic and legal systems of the country are often shaped by its political system.

Political Systems Polarities: Political Systems Collectivism Vs Individualism Democracy Vs Totalitarianism

Collectivism Vs Individualism Collectivism Political system that stresses the primary of collective goals over individual goals. The general premise of collectivism is that the state must manage enterprise if they are to benefit society. Social-democratic governments have nationalized private companies to certain industries, transforming them into state owned enterprises to be run for ”public good rather than private profit.” For example, In Britain by 1970's state owned companies had a monopoly in industries like telecommunications, electricity, gas coal, railway, & shipbuilding etc. Individualism Political system that an individual should have the freedom in his or her economic and political pursuits. Individualism focuses on (1) Guaranting individual freedom & self expression, and (2) Letting people pursue their own economic self-interest in order to the best overall good for society. Individualism translates into an advocacy for democratic political systems and free market economies. Soviet Union, Eastern Europe etc have moved toward a greater idividualism.

Democracy Vs. Totalitarianism Democracy Democracy refers to a political system in which the government is by the people, exercised either directly or through elected representatives. Democracy in its pure state, with each individual voting on every issue, has generally been replaced by representative democracy, where elected representatives vote on behalf of constituents. Totalitarianism Totalitarianism is a form of Government in which one person or political party exercises absolute control over all spheres of human life, and opposing political parties are prohibited. Under totalitarianism, a single political party, individual, or group of individual monopolize the political power and do not permit opposition.

Economic System Types: 1. Market Economy : 2. Command Economy : 3. Mixed Economy : 4. State – directed Economy :

Market Economy In a pure market economy, the goods and services that a country produces, as well as the quantity in which they are produced, is not by anyone rather price and quantity are determined by supply and demand.

Command Economy In a pure command economy, the government plans what goods and services a country produces, the quantity in which they are produced, and the price at which they are sold.

Mixed Economy A mixed economy includes some elements of each. In Canada, for example, while most business is privately owned and operated under market principles, health care, electrical power, and liquor distribution are run by state owned enterprises in most provinces.

State-directed Economy In a state-directed economy, the government plays a significant role in directing the investment activities of private enterprises through ”industry policy.”

Legal Systems The legal systems of a country refers to the rules, or laws that regulate behaviour, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained.

Legal Systems Legal systems and property rights: 1. Laws of property rights : is the bundle of rights addressing the use to which a resource is put and the use made of any income that may be derived from that service. 2. Intellectual property rights : property such as computer software, screenplays, musical scores, or chemical formulas for new drugs that is the product of intellectual activity. (Patent, copyrights, trademarks) are important for businesses if they are to capitalize on what they have developed. 3. Product safety and product liability : Product safety laws set certain safety standard to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death or damage.

The Determinations of Economic Development Major meaures of economic development : 1. GDP : GDP measures the total value of goods and services produced annually. GDP/capita measures average value of the goods and services produced by an individual. 2. PPP : PPP index shows GDP per head for the cost of living. 3. HDI : HDI developed by UN. This is based on life expectancy, literacy rates, and whether incomes are sufficient to meet the basic needs of individuals.

Culture Environment What is Culture? Culture has been defined a number of different ways. Culture is a system of values and norms that are shared among a group of people and that when taken together constitute a design for living. Cultural values and norms: Values are abstract ideas about what a society believes to be good, right and desirable. Norms are social rules and guidelines. Folkways are the routine conventions of everday life.

Social Structure Individualism Vs Group : Individual : A focus on the individual achievement is common in many Western societies. The Group : In many Asian societies the group is the primary unit of social organization. Degree of stratification into classes or castes : The social mobility refers to the extent to which individuals varies significantly from society to society. A caste system is closed system of stratification in which social position is usually is not possible during an individual's lifetime.(i.e., social mobility is very limited)

Social Structure Religion: Religion can be defined as a system beliefs and rituals that are concerned with the realm of the sacred. Christianity, Islam, Hinduism, Buddism, Confucianism, Language : The language of a society allows it to communicate but also directs the attention of people towards certain features of the world and human interactions. Education : Schools, as a part of social structure of a society and one that individuals are exposed to their formative years, convey many cultural values and norms. Culture and the Wrokplace : For an internaitonal business with operations in different countries, it is important to understand how a society's culture impacts on the values found in the workplace.

Multinaitional Companies Concept : Multinaltional companies are giant enterprise. They operate across boundaries. They have headquarters in home country with business in several countries. The home country is mostly a developed country and host countries are generally developing countries anywhere in the world.

Characteristics of MNC 1. Big Size Business 2. Multicontry Opeartions 3. Various Environments 4. Centralized Ownership and Control 5. Multiple Currencies 6. Common Strategic Vision

Advantages of MNCs 1. Foreign Direct Investment 2. Employment Generation 3. Product Improvement 4. Increased Revenue 5. Balance of Payment 6. Industrial Development

Problems of MNCs 1. Loss of Sovereignty 2. Intense Completion 3. High dependency 4. Resource Outflows 5. Socio-Cultural Disruptions 6. Outdated Technology

MNCs' Impact on Host Societies Weaknesses and Strengths of Host Societies The positive Impact : 1. Good Business Practices 2. Comforts of life 3. Infrastucture Improvement 4. Pluralism

The Challenges posed by MNCs 1. Conflicts of Interest 2. Increasing Materialism and Consumerism 3. Corruption and Crime 4. Healthcare Attitudes 5. Brain Drain 6. Cultural Changes 7. Negative marketing 8. Violation of Human Rights

Global business environment

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Global business environment