Chapter 2 National Differences In Political Systems Legal Environment Economic Development Cultural Environment Learning Objectives Deregulation, Privatization Country Attractiveness Benefits Costs First Mover vs. Last Mover Advantages Learning Objectives Business Environment Political Economic Legal Cultural Chapter Focus The term Political Economy is used to stress that the political, economic, and legal systems of a country are not independent of each other. This chapter will review these systems and explore how differences in political economy influence the benefits, costs, and risks associated with doing business in different countries. Political Systems Collectivism vs Individualism Totalitarianism vs Democracy Economic/Political Systems Market Economy Command Economy Mixed Economy State Directed Economy Command Economy Mixed Economy Market Economy Market economy encourages innovation and economic growth. Current trend is toward marketization. Legal Environment Provides a structure for laws and regulations for business transactions. Private Actions: bribes, piracy Public Actions: taxes, incentives, licensing, permits, fees, protection of intellectual property rights, product safety, product liability Intellectual Property Rights Patents, Trademarks, Copyrights New products, new ideas, new process or technology. Original works: music, plays, books Software Paris Convention for the Protection of Industrial Property Weak implementation is costly Pirated copies of software, Rolex watches, Levi Blue Jeans, etc. China, Thailand Violations cost computer software industry $11.2 billion in 1996, 43% of the software applications are pirated. China’s piracy rate is 96% and cost the industry $704 million in lost sales (1996) GATT, WTO enforce stricter regulations. Implications for Business National differences can affect the attractiveness of the country as an investment site. The overall attractiveness is determined by the benefits, costs, and risks of doing business. National differences also raise some ethical issues.