International Politics Lecturer: Paul Sorensen

1. International PoliticsLecturer: Paul Sorensen Part 2 The Environment of International Business Chapter 4

2. Objectives • Compare and contrast major political and economic systems and note the linkage among them. • Examine the primary reasons for the current privatization movement and the economic impact that this movement is having on selected countries. • Describe the five major levels of economic integration and how each works. • Discuss how MNEs are using strategic planning to benefit from current worldwide economic integration efforts. • Discuss the impact of non-governmental organizations (NGOs) on international business.

3. Lecture outline • Introduction • Political ideologies and economics • Government control of assets • Government–business cooperation • Economic integration • Economic integration and strategic management.

4. Introduction Over the last two decades, there has been a dramatic change in the political systems of many countries. In particular, there has been a move toward market-driven economies in Eastern Europe and China.

5. Political ideologies and economics

6. Political ideologies and economics An ideology is a set of integrated beliefs, theories and doctrines that helps direct the actions of a society. Political ideology is almost always intertwined with economic philosophy. Political systems Democracy: A system of government in which the people, either directly or through their elected officials, decide what is to be done. Totalitarianism: A system of government in which one individual or political party maintains complete control and either refuses to recognize other parties or suppresses them.

7. Economic systems Market-driven economy: An economy in which goods and services are allocated on the basis of consumer demand. Centrally determined economy: An economy in which goods and services are allocated based on a plan formulated by a committee that decides what is to be offered. Mixed economies: Economic systems characterized by a combination of market-driven and centrally driven planning. Political ideologies andeconomics (Continued)

8. Government control of assets

9. Government control of assets Privatization: The process of selling government assets to private buyers. Divestiture: A process by which a government or business sells assets. Contract management: A process by which an organization (such as the government) transfers operating responsibility of an industry without transferring the legal title and ownership. Nationalization: A process by which the government takes control of business assets, with or without remuneration to the owners.

10. Government–business cooperation

11. Government–business cooperation Although governments are privatizing assets, this does not mean that they are not involved in business. Business–government cooperation continues to be beneficial, particularly in the EU and Japan.

12. Economic integration

13. Economic integration The establishment of transnational rules and regulations that enhance economic trade and cooperation among countries.

14. Trade creation and trade diversion Trade creation: A process in which members of an economic integration group begin to focus their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other. Trade diversion: A process in which members of an economic integration group decreases trade with non-member countries in favor of trade with each other.

15. Levels of economic integration Free Trade Area: Barriers to trade (such as tariffs) among member countries are removed (e.g. NAFTA). Customs Union: Tariff between member countries are eliminated and a common trade policy toward non-member countries is established. Common Market: Elimination of trade barriers among member countries, a common external trade policy and mobility of factors of production among member countries.

16. Economic union: A deep form of integration characterized by free movement of goods, services, and factors of production among member countries and full integration of economic policies. Political union: An economic union in which there is full economic integration, unification of economic policies and a single government. Levels of economic integration (Continued)

17. Ethics, environment, MNEs and the civil society The civil society is a group of individuals, organizations, and institutions that act outside the government and the market to advance a diverse set of interests, including opposition to global business. Non-governmental organizations (NGOs) are private sector groups that act to advance diverse social interests.

18. The European Union: formation European Coal and Steel Community (ECSC): A community formed in 1952 by Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. European Union (EU): A treaty-based institutional framework that manages economic and political cooperation among its 28 member countries. European Free Trade Association (EFTA): A free trade area currently consisting of Iceland, Liechtenstein, Norway, and Switzerland.

19. The European Union: organization European Council Council of the European Union European Commission European Parliament Court of Justice Court of Auditors.

20. The European Union: organization(Continued) Figure 4.1 The European Union’s institutions

21. Other examples of economic integration Andean Community: An economic union that consists of Bolivia, Colombia, Ecuador, Peru, and Venezuela. Mercosur: A free trade group that consists of Argentina, Brazil, Paraguay, and Uruguay. Asean:Founded by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. FTAA:A free trade agreement of the Americas that has not yet been implemented.

22. Localization of business operations MNEs must adapt their offering, their expectations and the way in which they do business to each market in which they operate. These efforts result in the localization of business operations and typically focus on four areas: Products Profits Production Management.

23. Economic integration and strategic management

24. Economic integration and strategic management Astrategic alliance is a business relationship in which two or more companies work together to achieve a collective advantage. These alliances can take a number of forms: research cooperation marketing cooperation licensing of a product or technology for a specific market region.