Analyse the effects of culture, politics, and economic systems in the context of international business
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National Differences in Political, Economic, and Legal SystemsLEARNING OBJECTIVESAfter reading this chapter, you will be able to:LO2-1 Understand how the political systems of countries differ.LO2-2 Understand how the economic systems of countries differ.LO2-3 Understand how the legal systems of countries differ.LO2-4 Explain the implications for management practice of national differences in political economy.part two National Differences2Bartosz Hadyniak/E+/Getty Images
Kenya: An African Lionlong-standing problems. The constitution placed limits on the power of the central government, devolved political power into 47 semi-autonomous regions, and helped cre-ate an electoral framework capable of facilitating regular, free, and fair elections. These political reforms have allowed for more democracy, increased business confi-dence, and helped drive great economic growth in this nation of 50 million people.Looking forward, one of KenyaÕs great strengths is the relative youth of its population and an educated work-force. Kenya has universal primary education and a respectable secondary and higher-education system. The country also has a growing urban middle class, which will likely drive the demand for goods and services going forward. That being said, the country still faces some sig-nificant headwinds. On the economic front, property rights are not strong, with legal title over land often poorly es-tablished. This makes it difficult for Kenyans to raise money for business ventures using their land as collateral. More generally, according to the World Bank, Kenyans face multiple problems starting a business due to bureaucratic procedures and corruption. On average, starting a busi-ness in Kenya can take 126 days and involves seven sepa-rate procedures. By comparison, in South Korea it takes 11 days and involves two procedures. The World Bank ranks Kenya 61 out of 190 nations on the ease of doing business. Corruption and ethnic conflict remain persistent problems. Transparency International ranked Kenya 144 out of 180 nations on its 2018 corruption index. Terrorism is also a problem with Al-Shabab (a militant group based in neighboring Somalia that has links to Al-Qaeda), which launched violent attacks in the capital of Nairobi in 2013 and 2019. Al-ShababÕs goal is to avenge Kenyan interven-tions in Somalia against Al-Shabab. Despite these problems, however, Kenya shows promise in emerging from its post-colonial past and in becoming a dynamic multi-ethnic state with a thriving economy and a more stable democracy. Sources: Leighann Spencer, ÒKenyaÕs History of Political Violence: Colonialism, Vigilantes and Militias,Ó The Conversation, September 28, 2017; Amy Copley, ÒFigures of the Week: KenyaÕs Growth Trends and Prospects in AfricaÕs Lions,Ó Brookings, November 2, 2016; ÒAnother Terrorist Outrage in Nairobi,Ó The Economist, January 16, 2019; X. N. Iraki, ÒWhy KenyaÕs Economic Prospects Look Promising,Ó Standard Digital, January 1, 2019. OPENING CASEThe East African nation of Kenya has emerged as one of the economic growth stories of sub-Saharan Africa. Real Gross Domestic Product grew at 4.9 percent in 2017 and 5.9 percent in 2018. Growth for 2019 and 2020 is expected to be in the 6 percent range. Kenya is East AfricaÕs eco-nomic, financial, and transportation hub. Major industries include agriculture, mining, manufacturing, tourism, com-munications, and financial services. When Kenya won its independence from Britain in 1963, the country embraced what was known at the time as ÒAfrican Socialism.Ó The principles of African Socialism in-cluded social development guided by a large public sector, emphasis on the African identity and what it means to be African, and the avoidance of social classes within society. Practically, this meant significant public investment in infrastructure by state-owned companies, coupled with the encouragement of smallholder agricultural production. The country also embraced a policy of import substitution, applying high tariffs to foreign manufactured goods in an attempt to foster domestic production. While these policies initially produced some gains, par-ticularly in the agricultural sector, by the early 1990s the economy was stagnating. In 1993, Kenya embarked on a program of economic reform and liberalization that in-cluded removing price controls, lowering barriers to cross-border trade, privatizing state-owned enterprises, and the adoption of conservative fiscal and monetary macro- economic policies. Today, the economy of the country is primarily market-based, with relatively low barriers to cross-border trade and investment, and a vibrant private sector. Paralleling economic reforms there have been political reforms. Like many sub-Saharan Africa nations whose boundaries were drawn by colonial powers, the country was left divided between multiple ethnic groups. Political parties reflected these ethnic divides. Tension between ethnic groups often marred Kenyan politics. The largest ethnic group is the Kikuyu, who, while only comprising 22 percent of the population, have held a disproportionate influence over Kenyan politics since independence. Kenya was effectively a one-party state until the early 1990s. Ethnic conflict has continued since then, often spilling over into the political arena. A new constitution introduced in 2010 has offered the promise of solving some of these 39
National Differences in Political, Economic, and Legal Systems Chapter 2 43(1711Ð1776), Adam Smith (1723Ð1790), and John Stuart Mill (1806Ð1873). Individualism exercised a profound influence on those in the American colonies that sought indepen-dence from Great Britain. Indeed, the concept underlies the ideas expressed in the Declaration of Independence. In the twentieth century, several Nobel PrizeÐwinning economistsÑincluding Milton Friedman, Friedrich von Hayek, and James BuchananÑchampioned the philosophy.Individualism is built on two central tenets. The first is an emphasis on the importance of guaranteeing individual freedom and self-expression. The second tenet of individualism is that the welfare of society is best served by letting people pursue their own economic self-interest, as opposed to some collective body (such as government) dictating what is in societyÕs best interest. Or, as Adam Smith put it in a famous passage from The Wealth of Nations, Òan individual who intends his own gain is led by an invisible hand to promote an end that was no part of his intention. Nor is it always worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. This author has never known much good done by those who effect to trade for the public good.Ó4The central message of individualism, therefore, is that individual economic and political freedoms are the ground rules on which a society should be based. This puts individualism in conflict with collectivism. Collectivism asserts the primacy of the col-lective over the individual; individualism asserts the opposite. This underlying ideologi-cal conflict shaped much of the recent history of the world. The Cold War, for example, was in many respects a war between collectivism, championed by the former Soviet Union, and individualism, championed by the United States. From the late 1980s until about 2005, the waning of collectivism was matched by the ascendancy of individual-ism. Democratic ideals and market economics replaced socialism and communism in many states. Since 2005, there have been some signs of a swing back toward left-leaning socialist ideas in several countries, including several Latin America nations such as Venezuela, Bolivia, and Paraguay, along with Russia (see the Country Focus for details). Also, the global financial crisis of 2008Ð2009 caused some reevaluation of the trends toward individualism, and it remains possible that the pendulum might tilt back the other way.DEMOCRACY AND TOTALITARIANISMDemocracy and totalitarianism are at different ends of a political dimension. Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives. Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and pro-hibits opposing political parties. The democraticÐtotalitarian dimension is not indepen-dent of the individualismÐcollectivism dimension. Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism. However, gray areas exist; it is possible to have a democratic state in which collective values predominate, and it is possible to have a totalitarian state that is hostile to collectivism and in which some degree of individualismÑparticularly in the economic sphereÑis encouraged. For example, China and Vietnam have seen a move toward greater individual freedom in the economic sphere, but those countries are stilled ruled by parties that have a monopoly on political power and constrain political freedom.DemocracyThe pure form of democracy, as originally practiced by several city-states in ancient Greece, is based on a belief that citizens should be directly involved in decision making. In complex, advanced societies with populations in the tens or hundreds of millions, this is impractical. Most modern democratic states practice representative democracy. The United States, for example, is a constitutional republic that operates as a representative democracy. In a representative democracy, citizens periodically elect individuals to represent them. These elected representatives then form a government whose function is to make decisions on
COUNTRY FOCUS44PutinÕs RussiaThe modern Russian state was born in 1991 after the dra-matic collapse of the Soviet Union. Early in the post-Soviet era, Russia embraced ambitious policies designed to trans-form a communist dictatorship with a centrally planned economy into a democratic state with a market-based economic system. The policies, however, were imperfectly implemented. Political reform left Russia with a strong presi-dency thatÑin hindsightÑhad the ability to subvert the democratic process. On the economic front, the privatiza-tion of many state-owned enterprises was done in such a way as to leave large shareholdings in the hands of the politically connected, many of whom were party officials and factory managers under the old Soviet system. Corrup-tion was also endemic, and organized crime was able to seize control of some newly privatized enterprises. In 1998, the poorly managed Russian economy went through a financial crisis that nearly bought the country to its knees.Fast-forward to 2020, and Russia still is a long way from being a modern democracy with a functioning free mar-ketÐbased economic system. On the positive side, the economy grew at a healthy clip during the early 2000s, helped in large part by high prices for oil and gas, RussiaÕs largest exports (in 2013 oil and gas accounted for 75 per-cent of all Russian exports). Between 2000 and 2013, RussiaÕs gross domestic product (GDP) per capita more than doubled when measured by purchasing power parity. As of 2018, the country boasts the worldÕs 12th-largest economy, just behind that of South Korea and ahead of Spain. Thanks to government oil revenues, public debt is also low by international standardsÑat just 16 percent of GDP in 2018 (in the United States, by comparison, public debt amounts to 80 percent of GDP). Indeed, Russia has run a healthy trade surplus on the back of strong oil and gas exports for the last decade.The Russian economy is overly dependent on com-modities, particularly oil and gas. This was exposed in mid-2014 when the price of oil started to tumble as a result of rapidly increasing supply from the United States. Between mid-2014 and early 2016, the price of oil fell from $110 a barrel to a low of around $27 before rebounding to $50. This drove a freight train through RussiaÕs public finances. Much of RussiaÕs oil and gas production remains in the hands of enterprises in which the state still has a signifi-cant ownership stake. The government has a controlling ownership position in Gazprom and Rosneft, two of the countryÕs largest oil and gas companies. The government used the rise in oil and gas revenues between 2004 and 2014 to increase public spending through state-led invest-ment projects and increases in wages and pensions for government workers. While this boosted private consump-tion, there has been a dearth of private investment, and productivity growth remains low. This is particularly true among many state-owned enterprises that collectively still account for about half of the Russian economy. Now with behalf of the electorate. In a representative democracy, elected representatives who fail to perform this job adequately will be voted out of office at the next election.To guarantee that elected representatives can be held accountable for their actions by the electorate, an ideal representative democracy has a number of safeguards that are typically enshrined in constitutional law. These include (1) an individualÕs right to free-dom of expression, opinion, and organization; (2) a free media; (3) regular elections in which all eligible citizens are allowed to vote; (4) universal adult suffrage; (5) limited terms for elected representatives; (6) a fair court system that is independent from the political system; (7) a nonpolitical state bureaucracy; (8) a nonpolitical police force and armed service; and (9) relatively free access to state information.5TotalitarianismIn a totalitarian country, all the constitutional guarantees on which representative demo-cracies are builtÑan individualÕs right to freedom of expression and organization, a free media, and regular electionsÑare denied to the citizens. In most totalitarian states, politi-cal repression is widespread, free and fair elections are lacking, media are heavily censored, basic civil liberties are denied, and those who question the right of the rulers to rule find themselves imprisoned or worse.
lower oil prices, Russia is having to issue more debt to finance public spending.Russian private enterprises are also hamstrung by bureaucratic red tape and endemic corruption. Transpar-ency International, which ranks countries by the extent of corruption, ranked Russia 138 out of 180 nations in 2018. The state and state-owned enterprises are famous for pushing work to private enterprises that are owned by political allies, which further subverts market-based processes.On the political front, Russia is becoming less demo-cratic with every passing year. Since 1999, Vladimir Putin has exerted increasingly tight control over Russian poli-tics, either as president or as prime minister. Under Putin, potential opponents have been sidelined, civil liberties have been progressively reduced, and the freedom of the press has been diminished. For example, in response to opposition protests in 2011 and 2012, the Russian govern-ment passed laws increasing its control over the Internet, dramatically raising fines for participating in Òunsanc-tionedÓ street protests, and expanded the definition of treason to further limit opposition activities. Vocal oppo-nents of the rŽgimeÑfrom business executives who do not toe the state line to protest groups such as the punk rock protest band Pussy RiotÑhave found themselves jailed on dubious charges. To make matters worse, Putin has tightened his grip on the legal system. In late 2013, RussiaÕs parliament, which is dominated by Putin support-ers, gave the president more power to appoint and fire prosecutors, thereby diminishing the independence of the legal system.Freedom House, which produces an annual ranking tracking freedom in the world, classifies Russia as Ònot freeÓ and gives it very low scores for political and civil liberties. Freedom House notes that in the March 2012 presidential elections, Putin benefited from preferential treatment by state-owned media, numerous abuses of in-cumbency, and procedural ÒirregularitiesÓ during the vote count. Putin won 63.6 percent of the vote against a field of weak, hand-chosen opponents, led by Communist Party leader Gennadiy Zyuganove, with 17.2 percent of the vote. Under a Putin-inspired 2008 constitutional amendment, the term of the presidency was expanded from four years to six. Putin was elected to another six-year term in 2018 in an election that many observers thought was a sham.In 2014, Putin burnished his growing reputation for authoritarianism when he took advantage of unrest in the neighboring country of Ukraine to annex the Crimea region and to support armed revolt by Russian-speaking separatists in eastern Ukraine. Western powers responded to this aggression by imposing economic sanctions on Russia. Taken together with the rapid fall in oil prices, this pushed the once-booming Russian economy into a reces-sion. Despite economic weaknesses, there is no sign that PutinÕs hold on power has been diminished; in fact, quite the opposite seems to have occurred.Sources: ÒPutinÕs Russia: Sochi or Bust,Ó The Economist, February 1, 2014; ÒRussiaÕs Economy: The S Word,Ó The Economist, November 9, 2013; Freedom House, ÒFreedom in the World 2019: Russia,Ó www.freedomhouse.org; K. Hille, ÒPutin Tightens Grip on Legal System,Ó Financial Times, November 27, 2013; ÒA Fourth Term for RussiaÕs Perpetual President,Ó The Economist, March 19, 2018. 45Four major forms of totalitarianism exist in the world today. Until recently, the most widespread was communist totalitarianism. Communism, however, is in decline world-wide, and most of the Communist Party dictatorships have collapsed since 1989. Excep-tions to this trend (so far) are China, Vietnam, Laos, North Korea, and Cuba, although most of these states exhibit clear signs that the Communist PartyÕs monopoly on political power is eroding. In many respects, the governments of China, Vietnam, and Laos are com-munist in name only because those nations have adopted wide-ranging, market-based eco-nomic reforms. They remain, however, totalitarian states that deny many basic civil liberties to their populations. On the other hand, there are signs of a swing back toward communist totalitarian ideas in some states, such as Venezuela, where the government of the late Hugo Ch‡vez displayed totalitarian tendencies. The same is true in Russia, where the government of Vladimir Putin has become increasingly totalitarian over time (see the Country Focus).A second form of totalitarianism might be labeled theocratic totalitarianism. Theo-cratic totalitarianism is found in states where political power is monopolized by a party, group, or individual that governs according to religious principles. The most common form of theocratic totalitarianism is based on Islam and is exemplified by states such as Iran and Saudi Arabia. These states limit freedom of political and religious expression with laws based on Islamic principles.
National Differences in Political, Economic, and Legal Systems Chapter 2 47produces are not planned by anyone. Production is determined by the interaction of supply and demand and signaled to producers through the price system. If demand for a product exceeds supply, prices will rise, signaling producers to produce more. If sup-ply exceeds demand, prices will fall, signaling producers to produce less. In this system, consumers are sovereign. The purchasing patterns of consumers, as signaled to produc-ers through the mechanism of the price system, determine what is produced and in what quantity.For a market to work in this manner, supply must not be restricted. A supply restriction occurs when a single firm monopolizes a market. In such circumstances, rather than in-crease output in response to increased demand, a monopolist might restrict output and let prices rise. This allows the monopolist to take a greater profit margin on each unit it sells. Although this is good for the monopolist, it is bad for the consumer, who has to pay higher prices. It also is probably bad for the welfare of society. Because a monopolist has no com-petitors, it has no incentive to search for ways to lower production costs. Rather, it can simply pass on cost increases to consumers in the form of higher prices. The net result is that the monopolist is likely to become increasingly inefficient, producing high-priced, low-quality goods, and society suffers as a consequence.Given the dangers inherent in monopoly, one role of government in a market economy is to encourage vigorous free and fair competition between private producers. Governments do this by banning restrictive business practices designed to monopolize a market (antitrust laws serve this function in the United States and European Union). Private ownership also encourages vigorous competition and economic efficiency. Private ownership ensures that entrepreneurs have a right to the profits generated by their own efforts. This gives entrepreneurs an incentive to search for better ways of serving consumer needs. That may be through introducing new products, by developing more efficient production processes, by pursuing better marketing and after-sale ser-vice, or simply through managing their businesses more efficiently than their competi-tors. In turn, the constant improvement in product and process that results from such an incentive has been argued to have a major positive impact on economic growth and development.6COMMAND ECONOMYIn a pure command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. Consistent with the collectivist ideology, the objective of a command economy is for government to allocate resources for Òthe good of society.Ó In addition, in a pure command economy, all businesses are state owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals. Historically, command economies were found in communist countries where collectivist goals were given priority over individual goals. Since the demise of communism in the late 1980s, the number of command economies has fallen dramatically. Some elements of a com-mand economy were also evident in a number of democratic nations led by socialist-inclined governments. France and India both experimented with extensive government planning and state ownership, although government planning has fallen into disfavor in both countries.While the objective of a command economy is to mobilize economic resources for the public good, the opposite often seems to have occurred. In a command economy, state-owned enterprises have little incentive to control costs and be efficient because they can-not go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and in-novation are absent from command economies. Instead of growing and becoming more prosperous, such economies tend to stagnate.
National Differences in Political, Economic, and Legal Systems Chapter 2 51When firms do not wish to accept the CISG, they often opt for arbitration by a recog-nized arbitration court to settle contract disputes. The most well known of these courts is the International Court of Arbitration of the International Chamber of Commerce in Paris, which handles more than 500 requests per year from more than 100 countries.11PROPERTY RIGHTS AND CORRUPTIONIn a legal sense, the term property refers to a resource over which an individual or business holds a legal title, that is, a resource that it owns. Resources include land, buildings, equip-ment, capital, mineral rights, businesses, and intellectual property (ideas, which are pro-tected by patents, copyrights, and trademarks). Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource.12 Countries differ in the extent to which their legal systems define and protect property rights. Almost all countries now have laws on their books that protect property rights. Even China, still nominally a communist state despite its booming market economy, finally enacted a law to protect the rights of private property holders in 2007 (the law gives individuals the same legal protection for their property as the state has).13 However, in many countries these laws are not enforced by the authorities, and property rights are violated. Property rights can be violated in two ways: through private action and through public action.Private ActionIn terms of violating property rights, private action refers to theft, piracy, blackmail, and the like by private individuals or groups. Although theft occurs in all countries, a weak legal system allows a much higher level of criminal action. For example, in the chaotic period following the collapse of communism in Russia, an outdated legal system, coupled with a weak police force and judicial system, offered both domestic and foreign businesses scant protection from blackmail by the ÒRussian Mafia.Ó Successful business owners in Russia often had to pay Òprotection moneyÓ to the Mafia or face violent retribution, in-cluding bombings and assassinations (about 500 contract killings of businessmen occurred per year in the 1990s).14Russia is not alone in having organized crime problems (and the situation in Russia has improved since the 1990s). The Mafia has a long history in the United States (Chicago in the 1930s was similar to Moscow in the 1990s). In Japan, the local version of the Mafia, known as the yakuza, runs protection rackets, particularly in the food and entertainment industries.15 However, there was a big difference between the magnitude of such activity in Russia in the 1990s and its limited impact in Japan and the United States. The difference arose because the legal enforcement apparatus, such as the police and court system, was weak in Russia following the collapse of communism. Many other countries from time to time have had problems similar to or even greater than those experienced by Russia.Public Action and CorruptionPublic action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from prop-erty holders. This can be done through legal mechanisms such as levying excessive taxa-tion, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating the owners, or redistributing assets without com-pensating the prior owners. It can also be done through illegal means, or corruption, by demanding bribes from businesses in return for the rights to operate in a country, indus-try, or location.16Corruption has been well documented in every society, from the banks of the Congo River to the palace of the Dutch royal family, from Japanese politicians to Brazilian bankers, and from government officials in Zimbabwe to the New York City Police Department. The government of the late Ferdinand Marcos in the Philippines was famous for demanding bribes from foreign businesses wishing to set up operations in that country. The same was
COUNTRY FOCUS53Corruption in BrazilBrazil is the seventh-largest economy in the world with a gross domestic product of $2 trillion. The country has a democratic government and an economy characterized by moderately free markets, although the countryÕs larg-est oil producer (Petrobras) and one of its top banks (Banco do Brazil) are both state owned. Many econo-mists, however, have long felt that the country has never quite lived up to its considerable economic potential. A major reason for this has been an endemically high level of corruption that favors those with political con-nections and discourages investment by more ethical businesses.Transparency International, a nongovernmental organi-zation that evaluates countries based on perceptions of how corrupt they are, ranked Brazil 105th out of the 180 countries it looked at in its 2018 report. The problems it identifies in Brazil include public officials who demand bribes in return for awarding government contracts and Òinfluence peddling,Ó in which elected officials use their position in government to obtain favors or preferential treatment. Consistent with this, according to a study by the World Economic Forum, Brazil ranks 135th out of 144 coun-tries in the proper use of public funds.Over the last decade, several corruption scandals have come to light that serve to emphasize BrazilÕs corruption problem. In 2005, a scandal known as the mensalao (the monthly payoff scandal) broke. The scan-dal started when a midlevel postal official was caught on film pocketing a modest bribe in exchange for promises to favor certain businesses in landing government con-tracts. Further investigation uncovered a web of influence peddling in which fat monthly payments were given to lawmakers willing to back government initiatives in National Congress. After a lengthy investigation, in late 2012 some 25 politicians and business executives were found guilty of crimes that included bribery, money laun-dering, and corruption.The public uproar surrounding the mensalao scandal was just starting to die down when in March 2014 another corruption scandal captured the attention of Brazilians. This time it involved the state-owned oil company, Petrobras. Under a scheme that seems to have been operating since 1997, construction firms wanting to do busi-ness with Petrobras agreed to pay bribes to the companyÕs executives. Many of these executives were themselves political appointees. The executives would inflate the value of contracts they awarded, adding a 3 percent Òfee,Ó which was effectively a kickback. The 3 percent fee was shared among Petrobras executives, construction industry executives, and politicians. The construction companies established shell companies to make pay-ments and launder the money. According to prosecutors investigating the case, the total value of bribes may have exceeded $3.7 billion.Four former Petrobras officials and at least 23 construc-tion company executives have been charged with crimes that include corruption and money laundering. In addition, BrazilÕs Supreme Court has given prosecutors the go-ahead to investigate 48 current or former members of Congress, including the former Brazilian President Fernando Collor de Mello. The Brazilian president, Dilma Rousseff, was also tainted by the scandal. In June 2016, she was suspended from the presidency pending an impeachment trial. She was chair of Petrobras during the time this was occurring. She is also a member of the gov-erning WorkersÕ Party, several members of which seem to have been among the major beneficiaries of the kickback scandal. Although there is no evidence that Rousseff knew of the bribes or profited from them, her ability to govern effectively was severely damaged by association. The scandal so rocked Brazil that it pushed the country close to a recession. In August 2016, Rousseff was impeached and removed from the presidency. Then in 2018 the for-mer Brazilian President, Lula da Silva, was found guilty of corruption. Among the charges against Lula were that, when President, he was given a beach-front apartment by an engineering firm in return for his help in winning lucra-tive contracts for Petrobras. Lula was sentenced to 12 years in prison. If there is a bright spot in all of this, it is that the scandals are coming to light. Backed by Supreme Court rulings and public outrage, corrupted politicians, government officials, and business executives are being prosecuted. In the past, that was far less likely to occur.Sources: Will Conners and Luciana Magalhaes, ÒBrazil Cracks Open Vast Bribery Scandal,Ó The Wall Street Journal, April 7, 2015; Marc Margolis, ÒIn BrazilÕs Trial of the Century, LulaÕs Reputation Is at Stake,Ó Newsweek, July 27, 2012; ÒThe Big Oily,Ó The Economist, January 3, 2015; Donna Bowater, ÒBrazilÕs Continuing Corruption Problem,Ó BBC News, September 18, 2015; Simon Romero, ÒDilma Rousseff Is Ousted as BrazilÕs President in Impeachment Vote,Ó The New York Times, August 31, 2016; ÒBrazilian Corruption Scandals: All You Need to Know,Ó BBC News, April 8, 2018.
MANAGEMENT FOCUSDid Walmart Violate the Foreign Corrupt Practices Act?In the early 2000s, Walmart wanted to build a new store in San Juan Teotihuacan, Mexico, barely a mile from ancient pyramids that drew tourists from around the world. The owner of the land was happy to sell to Walmart, but one thing stood in the way of a deal: the cityÕs new zoning laws. These prohibited commercial development in the historic area. Not to be denied, executives at the headquarters of Walmart de Mexico found a way around the problem: They paid a $52,000 bribe to a local official to redraw the zon-ing area so that the property Walmart wanted to purchase was placed outside the commercial-free zone. Walmart then went ahead and built the store, despite vigorous local opposition, opening it in late 2004.A former lawyer for Walmart de Mexico subsequently contacted Walmart executives at the companyÕs corporate headquarters in Bentonville, Arkansas. He told them that Walmart de Mexico routinely resorted to bribery, citing the altered zoning map as just one example. Alarmed, execu-tives at Walmart started their own investigation. Faced with growing evidence of corruption in Mexico, top Walmart executives decided to engage in damage con-trol, rather than coming clean. WalmartÕs top lawyer shipped the case files back to Mexico and handed over responsibility for the investigation to the general council of Walmart de Mexico. This was an interesting choice as the very same general council was alleged to have autho-rized bribes. The general council quickly exonerated fellow Mexican executives, and the internal investigation was closed in 2006.For several years nothing more happened; then, in April 2012, The New York Times published an article detailing bribery by Walmart. The Times cited the changed zoning map and several other examples of bribery by Walmart: for example, eight bribes totaling $341,000 enabled Walmart to build a SamÕs Club in one of Mexico CityÕs most densely populated neighborhoods without a construction license, an environmental permit, an urban impact assessment, or even a traffic permit. Similarly, thanks to nine bribe pay-ments totaling $765,000, Walmart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away.Walmart responded to The New York Times article by ramping up a second internal investigation into bribery that it had initiated in 2011. By mid-2015, there were report-edly more than 300 outside lawyers working on the inves-tigation, and it had cost more than $612 million in fees. In addition, the U.S. Department of Justice and the Securities and Exchange Commission both announced that they had started investigations into WalmartÕs practices. In November 2012, Walmart reported that its own investiga-tion into violations had extended beyond Mexico to in-clude China and India. Among other things, it was looking into the allegations by the Times that top executives at Walmart, including former CEO Lee Scott Jr., had deliber-ately squashed earlier investigations. In late 2016 people familiar with the matter stated that the federal investigation had not uncovered evidence of widespread bribery. In November 2017 it was reported that Walmart had settled with the Justice Department and paid a $283 million fine, significantly less than had been expected.Sources: David Barstow, ÒVast Mexican Bribery Case Hushed Up by Wal-Mart after Top Level Struggle,Ó The New York Times, April 21, 2012; Stephanie Clifford and David Barstow, ÒWal-Mart Inquiry Reflects Alarm on Corruption,Ó The New York Times, November 15, 2012; Nathan Vardi, ÒWhy Justice Department Could Hit Wal-Mart Hard over Mexican Bribery Allegations,Ó Forbes, April 22, 2012; Phil Wahba,ÒWalmart Bribery Probe by Feds Finds No Major Misconduct in Mexico,Ó Fortune, October 18, 2015; T. Schoenberg and M. Robinson, ÒWal-Mart Balks at Paying $600 Million in Bribery Case,Ó Bloomberg, October 6, 2016; and Sue Reisinger, ÒWal-Mart Reserves $283 million to Settle Mexico FCPA Case,Ó Corporate Counsel, November 17, 2017. 54Foreign Corrupt Practices ActIn the 1970s, the United States passed the Foreign Corrupt Practices Act (FCPA) follow-ing revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts. This law makes it illegal to bribe a foreign govern-ment official to obtain or maintain business over which that foreign official has authority, and it requires all publicly traded companies (whether or not they are involved in interna-tional trade) to keep detailed records that would reveal whether a violation of the act has occurred. In 2012, evidence emerged that in its eagerness to expand in Mexico, Walmart may have run afoul of the FCPA (for details, see the Management Focus feature).
National Differences in Political, Economic, and Legal Systems Chapter 2 55In 1997, trade and finance ministers from the member states of the Organisation for Economic Co-operation and Development (OECD), an association of 34 major econo-mies including most Western economies (but not Russia, India or China), adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.20 The convention obliges member states to make the bribery of foreign public officials a criminal offense.Both the U.S. law and OECD convention include language that allows exceptions known as facilitating or expediting payments (also called grease payments or speed money), the purpose of which is to expedite or to secure the performance of a routine governmen-tal action.21 For example, they allow small payments made to speed up the issuance of permits or licenses, process paperwork, or just get vegetables off the dock and on their way to market. The explanation for this exception to general antibribery provisions is that while grease payments are, technically, bribes, they are distinguishable from (and, apparently, less offensive than) bribes used to obtain or maintain business because they merely facili-tate performance of duties that the recipients are already obligated to perform.THE PROTECTION OF INTELLECTUAL PROPERTYIntellectual property refers to property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula for a new drug. Patents, copyrights, and trademarks establish ownership rights over intellectual property. A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention. Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. Trademarks are designs and names, officially registered, by which merchants or manufacturers can differentiate their products (e.g., Christian Dior clothes). In the high-technology ÒknowledgeÓ economy of the twenty-first century, intellectual property has become an increasingly important source of economic value for businesses. Protecting intel-lectual property has also become increasingly problematic, particularly if it can be rendered in a digital form and then copied and distributed at very low cost via pirated DVDs or over the Internet (e.g., computer software, music, and video recordings).22The philosophy behind intellectual property laws is to reward the originator of a new invention, book, musical record, clothes design, restaurant chain, and the like for his or her idea and effort. Such laws stimulate innovation and creative work. They provide an in-centive for people to search for novel ways of doing things, and they reward creativity. For example, consider innovation in the pharmaceutical industry. A patent will grant the in-ventor of a new drug a 20-year monopoly in production of that drug. This gives pharma-ceutical firms an incentive to undertake the expensive, difficult, and time-consuming basic research required to generate new drugs (it can cost $1 billion in R&D and take 12 years to get a new drug on the market). Without the guarantees provided by patents, companies would be unlikely to commit themselves to extensive basic research.23The protection of intellectual property rights differs greatly from country to country. Although many countries have stringent intellectual property regulations on their books, the enforcement of these regulations has often been lax. This has been the case even among many of the 192 countries that are now members of the World Intellectual Property Organization, all of which have signed international treaties designed to protect intellectual property, including the oldest such treaty, the Paris Convention for the Protection of Industrial Property, which dates to 1883 and has been signed by more than 170 nations. Weak enforcement encourages the piracy (theft) of intellectual property. China and Thailand have often been among the worst offenders in Asia. Pirated computer software is widely available in China. Similarly, the streets of Bangkok, ThailandÕs capital, are lined with stands selling pirated copies of Rolex watches, LeviÕs jeans, DVDs, and computer software.The computer software industry is an example of an industry that suffers from lax enforcement of intellectual property rights. A study published in 2012 suggested that viola-tions of intellectual property rights cost personal computer software firms revenues equal to $63 billion a year.24 According to the studyÕs sponsor, the Business Software Alliance, a Did You Know?Did you know that Venezuela has dropped to one of the worst performing economies in the world?Visit your instructorÕs Connect¨ course and click on your eBook or SmartBook¨ to view a short video explanation from the author.
MANAGEMENT FOCUS56Starbucks Wins Key Trademark Case in ChinaStarbucks has big plans for China. It believes the fast-growing nation will become the companyÕs second-largest market after the United States. Starbucks entered the country in 1999, and by the end of 2016 it had opened more than 1,300 stores. But in China, copycats of well- established Western brands are common. Starbucks faced competition from a look-alike, Shanghai Xing Ba Ke Coffee Shop, whose stores closely matched the Starbucks format, right down to a green-and-white Xing Ba Ke circular logo that mimics StarbucksÕ ubiquitous logo. The name also mimics the standard Chinese translation for Starbucks. Xing means Òstar,Ó and Ba Ke sounds like Òbucks.ÓIn 2003, Starbucks decided to sue Xing Ba Ke in Chinese court for trademark violations. Xing Ba KeÕs general manager responded by claiming it was just an accident that the logo and name were so similar to that of Starbucks. He claimed the right to use the logo and name because Xing Ba Ke had registered as a company in Shanghai in 1999, before Starbucks entered the city. ÒI hadnÕt heard of Starbucks at the time,Ó claimed the man-ager, Òso how could I imitate its brand and logo?ÓHowever, in January 2006, a Shanghai court ruled that Starbucks had precedence, in part because it had registered its Chinese name in 1998. The court stated that Xing Ba KeÕs use of the name and similar logo was Òclearly maliciousÓ and constituted improper competition. The court ordered Xing Ba Ke to stop using the name and to pay Starbucks $62,000 in compensation. While the money involved here may be small, the precedent is not. In a country where violation of trade-marks has been common, the courts seem to be signaling a shift toward greater protection of intellectual property rights. This is perhaps not surprising because foreign governments and the World Trade Organization have been pushing China hard recently to start respecting intellectual property rights.Sources: M. Dickie, ÒStarbucks Wins Case against Chinese Copycat,Ó Financial Times, January 3, 2006, p. 1; ÒStarbucks: Chinese Court Backs Company over Trademark Infringement,Ó The Wall Street Journal, January 2, 2006, p. A11; and ÒStarbucks Calls China Its Top Growth Focus,Ó The Wall Street Journal, February 14, 2006, p. 1.software industry association, some 42 percent of all software applications used in the world were pirated. One of the worst large countries was China, where the piracy rate ran at 77 percent and cost the industry more than $9.8 billion in lost sales, up from $444 mil-lion in 1995. The piracy rate in the United States was much lower at 19 percent; however, the value of sales lost was significant because of the size of the U.S. market.25International businesses have a number of possible responses to violations of their intel-lectual property. They can lobby their respective governments to push for international agree-ments to ensure that intellectual property rights are protected and that the law is enforced. Partly as a result of such actions, international laws are being strengthened. As we shall see in Chapter 7, the most recent world trade agreement, signed in 1994, for the first time extends the scope of the General Agreement on Tariffs and Trade to cover intellectual property. Under the new agreement, known as the Trade-Related Aspects of Intellectual Property Rights (TRIPS), as of 1995 a council of the World Trade Organization is overseeing enforcement of much stricter intellectual property regulations. These regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years after the death of the author. Rich countries had to comply with the rules within a year. Poor countries, in which such protection generally was much weaker, had five years of grace, and the very poorest have 10 years.26 (For further details of the TRIPS agreement, see Chapter 7.)In addition to lobbying governments, firms can file lawsuits on their own behalf. For example, Starbucks won a landmark trademark copyright case in China against a copycat that signaled a change in the approach in China (see the accompanying Management Focus for details). Firms may also choose to stay out of countries where intellectual property laws are lax, rather than risk having their ideas stolen by local entrepreneurs. Firms also need to be on the alert to ensure that pirated copies of their products produced in countries with weak intellectual property laws donÕt turn up in their home market or in third countries. U.S. computer software giant Microsoft, for example, discovered that pirated Microsoft software, produced illegally in Thailand, was being sold worldwide as the real thing.
National Differences in Political, Economic, and Legal Systems Chapter 2 57PRODUCT SAFETY AND PRODUCT LIABILITYProduct safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. Product liability can be much greater if a product does not conform to required safety standards. Both civil and criminal product liability laws exist. Civil laws call for payment and monetary damages. Criminal liability laws result in fines or imprison-ment. Both civil and criminal liability laws are probably more extensive in the United States than in any other country, although many other Western nations also have compre-hensive liability laws. Liability laws are typically the least extensive in less developed na-tions. A boom in product liability suits and awards in the United States resulted in a dramatic increase in the cost of liability insurance. Many business executives argue that the high costs of liability insurance make American businesses less competitive in the global marketplace.In addition to the competitiveness issue, country differences in product safety and lia-bility laws raise an important ethical issue for firms doing business abroad. When product safety laws are tougher in a firmÕs home country than in a foreign country or when liability laws are more lax, should a firm doing business in that foreign country follow the more relaxed local standards or should it adhere to the standards of its home country? While the ethical thing to do is undoubtedly to adhere to home-country standards, firms have been known to take advantage of lax safety and liability laws to do business in a manner that would not be allowed at home.FOCUS ON MANAGERIAL IMPLICATIONSTHE MACRO ENVIRONMENT INFLUENCES MARKET ATTRACTIVENESSThe material discussed in this chapter has two broad implications for international busi-ness. First, the political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business. For example, what ethical implications are associated with doing business in totalitarian countries where citi-zens are denied basic human rights, corruption is rampant, and bribes are necessary to gain permission to do business? Is it right to operate in such a setting? A full discussion of the ethical implications of country differences in political economy is reserved for Chapter 5, where we explore ethics in international business in much greater depth.Second, the political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site. The benefits, costs, and risks associated with doing business in a country are a function of that countryÕs political, economic, and legal systems. The overall attractiveness of a country as a market or invest-ment site depends on balancing the likely long-term benefits of doing business in that country against the likely costs and risks. Because this chapter is the first of two dealing with issues of political economy, we will delay a detailed discussion of how political econ-omy impacts the benefits, costs, and risks of doing business in different nation-states until the end of the next chapter, when we have a full grasp of all the relevant variables that are important for assessing benefits, costs, and risks.For now, other things being equal, a nation with democratic political institutions, a mar-ket-based economic system, and strong legal system that protects property rights and limits corruption is clearly more attractive as a place in which to do business than a nation that lacks democratic institutions, where economic activity is heavily regulated by the state, and where corruption is rampant and the rule of law is not respected. On this basis, for example, a country like Canada is a better place in which to do business than the Russia of Vladimir Putin (see the Country Focus: PutinÕs Russia). That being said, the reality is often more nuanced and complex. For example, China lacks democratic institutions; corruption is widespread; property rights are not always respected; and even though the country has em-braced many market-based economic reforms, there are still large numbers of state-owned enterprisesÑyet many Western businesses feel that they must invest in China. They do so TEST PREPUse SmartBook to help retain what you have learned. Access your InstructorÕs Connect course to check out SmartBook or go to learnsmartadvantage.com for help.LO2-4Explain the implications for management practice of national differences in political economy.
National Differences in Political, Economic, and Legal Systems Chapter 2 59Critical Thinking and Discussion Questions1. Free market economies stimulate greater economic growth, whereas state-directed economies stifle growth. Discuss.2. A democratic political system is an essential con-dition for sustained economic progress. Discuss.3. What is the relationship between corruption in a country (i.e., government officials taking bribes) and economic growth? Is corruption always bad?4. You are the CEO of a company that has to choose between making a $100 million investment in Russia or Poland. Both investments promise the same long-run return, so your choice is driven by risk considerations. Assess the various risks of doing business in each of these nations. Which investment would you favor and why?5. Read the Management Focus ÒDid Walmart Violate the Foreign Corrupt Practices Act?Ó What is your opinion? If you think it did, what do you think the consequences will be for Walmart? research task globaledge.msu.eduUse the globalEDGEª website (globaledge.msu.edu) to complete the following exercises:1. The definition of words and political ideas can have different meanings in different contexts worldwide. In fact, the Freedom in the World sur-vey published by Freedom House evaluates the state of political rights and civil liberties around the world. Provide a description of this survey and a ranking (in terms of ÒfreedomÓ) of the worldÕs country leaders and laggards. What fac-tors are taken into consideration in this survey?2. As the chapter discusses, differences in political, economic, and legal systems have considerable impact on the benefits, costs, and risks of doing business in various countries. The World BankÕs ÒDoing Business IndicatorsÓ measure the extent of business regulations in countries around the world. Compare Brazil, Ghana, India, New Zealand, the United States, Sweden, and Turkey in terms of how easily contracts are enforced, how property can be registered, and how investors can be protected. Identify in which area you see the greatest variation from one country to the next.The desert kingdom of Saudi Arabia is a rarity in the modern world, an absolute monarchy whose laws are based upon interpretations of a religious text, the QurÕan, the holy book of Islam. Despite Saudi Arabia’s adherence to an archaic form of government, the Saudi economy has historically performed well, primarily due to the coun-tryÕs position as the worldÕs largest oil exporter. In 2017, the countryÕs GDP per capita on a purchasing power par-ity basis was $54,500, not far behind the $59,800 GDP per capita of the United States. The oil sector accounts for around 87 percent of government revenues, 42 percent of GDP, and 90 percent of export earnings. In times of high oil prices, the Saudi government has used oil revenues to finance a sprawling government apparatus and to subsidize energy prices, which are among the lowest in the world. In 2014, how-ever, oil prices collapsed, wiping out an annual government surplus. In 2014, the government deficit ballooned to 15 percent of GDP, and it hit 20 percent of GDP in 2016, forcing the country to issue more debt and draw down its foreign exchange reserves. Higher oil prices improved the situation in 2017 and 2018, but the crisis exposed the vul-nerability of Saudi Arabia to a fall in oil prices. To compound matters, Saudi Arabia has a young populationÑsome 70 percent of the population is under the age of 30Ñand unemployment is high at 12 percent, a combination of factors that many see as a recipe for social unrest. The high unemployment reflects the fact that while there are jobs available outside of the government sector, most of them are taken by low-paid foreign work-ers, who account for 80 percent of the labor force. Following the death of his brother, in January 2015 Salman bin Abd al-Aziz Al Saud became King. Breaking with tradition, the aging King quickly devolved substantial CLOSING CASETransformation in Saudi Arabia
National Differences in Political, Economic, and Legal Systems Chapter 2 61Endnotes1. As we shall see, there is not a strict one-to-one correspondence between political systems and economic systems. A. O. Hirschman, ÒThe On-and-Off Again Connection between Political and Economic Progress,Ó American Economic Review 84, no. 2 (1994), pp. 343Ð48. 2. For a discussion of the roots of collectivism and individualism, see H. W. Spiegel, The Growth of Economic Thought (Durham, NC: Duke University Press, 1991). A discussion of collectivism and individualism can be found in M. Friedman and R. Friedman, Free to Choose (London: Penguin Books, 1980). 3. For a classic summary of the tenets of Marxism, see A. Giddens, Capitalism and Modern Social Theory (Cambridge, UK: Cambridge University Press, 1971). 4. Smith, Adam. The Wealth of Nations. The Modern Library. Random House, Inc., 1937. 5. R. Wesson, Modern GovernmentÑDemocracy and Authoritarianism, 2nd ed. (Englewood Cliffs, NJ: Prentice Hall, 1990). 6. For a detailed but accessible elaboration of this argument, see Friedman and Friedman, Free to Choose. Also see P. M. Romer, ÒThe Origins of Endogenous Growth,Ó Journal of Economic Perspectives 8, no. 1 (1994), pp. 2Ð32. 7. T. W. Lippman, Understanding Islam (New York: Meridian Books, 1995). 8. ÒIslamÕs Interest,Ó The Economist, January 18, 1992, pp. 33Ð34. 9. M. El Qorchi, ÒIslamic Finance Gears Up,Ó Finance and Development, December 2005, pp. 46Ð50; S. Timewell, ÒIslamic FinanceÑVirtual Concept to Critical Mass,Ó The Banker, March 1, 2008, pp. 10Ð16; Lydia Yueh, ÒIslamic Finance Growing Fast, But Can It Be More Than a Niche Market?Ó BBC News, April 14, 2014. 10. This information can be found on the UNÕs treaty website at www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/ 1980CISG.html. 11. International Court of Arbitration, www.iccwbo.org/index_court.asp. 12. D. North, Institutions, Institutional Change, and Economic Performance (Cambridge, UK: Cambridge University Press, 1991). 13. ÒChinaÕs Next Revolution,Ó The Economist, March 10, 2007, p. 9. 14. P. Klebnikov, ÒRussiaÕs Robber Barons,Ó Forbes, November 21, 1994, pp. 74Ð84; C. Mellow, ÒRussia: Making Cash from Chaos,Ó Fortune, April 17, 1995, pp. 145Ð51; ÒMr. Tatum Checks Out,Ó The Economist, November 9, 1996, p. 78. 15. K. van Wolferen, The Enigma of Japanese Power (New York: Vintage Books, 1990), pp. 100Ð105. 16. P. Bardhan, ÒCorruption and Development: A Review of the Issues,Ó Journal of Economic Literature, September 1997, pp. 1320Ð46. 17. Transparency International, ÒGlobal Corruption Report, 2014,Ó www.transparency.org, 2014. 18. Transparency International, Corruption Perceptions Index 2016, www.transparency.org. 19. J. Coolidge and S. Rose Ackerman, ÒHigh Level Rent Seeking and Corruption in African Regimes,Ó World Bank policy re-search working paper no. 1780, June 1997; K. Murphy, A. Shleifer, and R. Vishny, ÒWhy Is Rent-Seeking So Costly to Growth?Ó AEA Papers and Proceedings, May 1993, pp. 409Ð14; M. Habib and L. Zurawicki, ÒCorruption and Foreign Direct Investment,Ó Journal of International Business Studies 33 (2002), pp. 291Ð307; J. E. Anderson and D. Marcouiller, ÒInsecurity and the Pattern of International Trade,Ó Review of Economics and Statistics 84 (2002), pp. 342Ð52; T. S. Aidt, ÒEconomic Analysis of Corruption: A Survey,Ó The Economic Journal 113 (November 2003), pp. 632Ð53; D. A. Houston, ÒCan Corruption Ever Improve an Economy?Ó Cato Institute 27 (2007), pp. 325Ð43; S. Rose Ackerman and B.J. Palifka, Corruption and Government, 2nd ed. (Cambridge, UK: Cambridge University Press, 2016). 20. Details can be found at www.oecd.org/corruption/ oecdantibriberyconvention.htm. 21. D. Stackhouse and K. Ungar, ÒThe Foreign Corrupt Practices Act: Bribery, Corruption, Record Keeping and More,Ó Indiana Lawyer, April 21, 1993. 22. For an interesting discussion of strategies for dealing with the low cost of copying and distributing digital information, see the chapter on rights management in C. Shapiro and H. R. Varian, Information Rules (Boston: Harvard Business School Press, 1999). Also see C. W. L. Hill, ÒDigital Piracy,Ó Asian Pacific Journal of Management, 2007, pp. 9Ð25. 23. Douglass North has argued that the correct specification of intellectual property rights is one factor that lowers the cost of doing business and, thereby, stimulates economic growth and development. See North, Institutions, Institutional Change, and Economic Performance. 24. Business Software Alliance, ÒNinth Annual BSA Global Software Piracy Study,Ó May 2012, www.bsa.org. 25. Business Software Alliance, ÒNinth Annual BSA Global Software Piracy Study,Ó May 2012, www.bsa.org. 26. ÒTrade Tripwires,Ó The Economist, August 27, 1994, p. 61.
Learning Outcomes:
Knowledge:
1.3 Explain the forces driving and evaluating the impact of globalization:
Skills:
2.1 Analyse the effects of culture, politics, and economic systems in the context of international business
2.2 Identify the major components of international business management:
Values:
3.1 Carry out effective self-evaluation through discussing economic systems in the international business context
Report Writing
In this assignment, you will conduct an in-depth analysis of a selected multinational company (MCN) that operates in two distinct countries. Your aim is to investigate how the selected MCN deals with the challenges and opportunities it is facing due to cultural, political, and economic differences of the two countries. To complete this assignment, follow the tasks highlighted below:
Country Selection: Choose two countries with different political and economic systems. Perform a comparative analysis of the political and economic systems of your selected countries, drawing on Chapter 2 (“National differences in political economy”).
Company Selection: Research a specific multinational corporation (MNC) that has done business in both countries you selected. Briefly introduce the company, its industry, and its operations in these countries. The use of American companies is not recommended and will receive significantly lower marks.
Cultural Impact: Examine how your selected MNC has adopted and dealt with the differences in cultural norms, and consumers’ taste and preferences. Provide examples showcasing this adaption. Use chapter 4 (Differences in Culture) as a guide in this section.
Political Economy: Evaluate how the differences in political and economic systems between the two countries affect the MNC’s business strategies and operations. Provide examples of how the MNC has adapted to these differences.
References: Your paper must include at least five (5) external sources such as academic papers, reputable business databases, company websites, or government websites.
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