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Political and Economic Environment
Transcript of Political and Economic Environment
Political and Economic
Public and private spheres -
Public institutions of state, government structures
Civil society - political part, trade union
The political sphere
High growth rates are associated with rapid industrialization, e.g. China
Slower growth in mature economies
Non-western legal systems – include religious law systems
Both authoritarian and democratic systems – and many in between – offer opportunities for international business,
Political and legal risks arise in countries with authoritarian regimes and weak rule of law.
Achieving corporate goals depends on managing these risks.
National economic systems
Politics is about the processes by which power is exercised in a social group
Sovereignty - supreme law-making authority
Monopoly over legitimate use of force
Institutions by which laws are made and implemented in the state
Internationally, states recognize the sovereignty of each other
Sovereignty vs actual exercise of power – The military regime exercises power, but without legitimacy
Sources of authority in the state
Religion, as in a theocracy
Ideology – an all-encompassing set of beliefs, such as communism
Constitutionalism – set of rules recognized as authoritative in the society
The rule of law – principle of the supremacy of the law over both governments and individuals
Wars and conflicts with other states
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
UN’s membership, was 45 states, now nearly 200, most of the new members are developing economies
Formal institutions are the ‘face’ of global politics, but beneath the institutions, economic and military power remain important
Economic growth = country’s increase in national income over time
Affected by capital investment and technological innovation
Recession – negative economic growth
Depression – contraction of economy by one-tenth
Impact of high inflation
Goods are less competitive in global markets
The country looks unattractive to investors
Resulting high interest rates can depress demand
Factors affecting unemployment
Globalization, which can see low-skilled jobs move from high-cost to low-cost economies
Government policies which can encourage (or discourage) innovation and start-ups
The European Union (EU) was a political union, but…
The EU has grown from 6 to 27 member states
Diversity among member states has persisted
Strong attachment to sovereignty and national identity has caused tensions in EU institutions
Strong growth in emerging markets makes them attractive:
lower costs benefit producers and strong growth makes these attractive markets
Market institutions in mixed economies are subordinate to the state...
carries risks of government action
Industrialization is driving growth in emerging and developing economies
Governments are responsible for
managing the national economy,
balancing the national budget,
fostering a health trade balance
Business focuses on fast-growing developing economies
Risks are political risks, weak market institutions and issues of sustainability.
laissez-faire or competitive managerial capitalism
Social Market model
managerial capitalism plus concern for social welfare
community based capitalism – modified as necessary
move away from state ownership & command economy
To establish a legal framework
To develop economic practices
To build basic services and infrastructure
To protect the vulnerable
To protect the environment
Free trade area: removing national barriers to trades
Customs unions: involving en bloc negotiations with non-members
Common market: involving free trade/people movement between members
Economic union: affecting tax rates and currency
Political union: involving integration of economic AND political systems
Civil law tradition - based on comprehensive legal codes
Common law tradition – based on a body of judge-made law through decided cases
EU law is recognized in all EU member states
Types of EU law
Regulations are directly applicable in member states
Directives require member states to implement their provisions
the consumer will benefit from competition
in price, value for money and innovation
Restrict anti-competitive activity:
Prohibition of agreements on restrictive practices
Oversight of mergers and takeovers, to prevent a monopoly arising
Prohibition of behaviour which is abuse of a dominant market position
can be advantageous for businesses, as in government small-business initiatives,
but is generally perceived as burdensome and costly.
Recent trend to reduce national regulation.
may initially attract businesses
may be weak environmental and safety regimes, as well as weak protection of property.
Regional frameworks and international law may overlap with national law e.g. environmental protection.
Inter-governmental co-operation has led to a growing body of international law, in the form of conventions and treaties.
A growing number of countries are experiencing economic growth and development, creating opportunities for international business.
Despite growing economic integration globally
Diverse national economic systems persist
Regional integration is growing.
The least-developed countries are attracting international business, but poverty and weak governance persist.
For international business, political risk can arise from internal factors in a country or external forces.