Political Economy

1. Business and Economics
INTERNATIONAL
BUSINESS MGF2351

2. Objectives
 Group allocations: Get Excited!!!
 Tutorial Program Week 2
 Any Questions from last week?

3. International Business
Environment
 Political Economy: The political economy of a
nation refers to how the political, economic, and
legal systems of a country are interdependent
 Legal systems
 Determinants of economic development
 Transition economies

4. Legal System
 The rules that regulate behavior along with the
processes by which the laws are enforced and
through which redress for grievances is obtained.
 Types:
 Common Law: tradition, precedent, custom
 Civil Law: set of detailed laws, codes
 Theocratic Law : religion

5. Why is it important for IB?
 Regulates business practice
 Defines how business transactions can occur
e.g. Sharia law no bank interest
 Sets out rights and obligations of parties to a
business transaction
 Contract Law, Property Rights and Corruption,
Protection of Intellectual Property and Product
Safety and Liability

6. Economic Development
 Different countries have dramatically different
levels of economic development (GNI, PPP)
 Human development Index: Amartya Sen
 Life expectancy at birth
 Educational attainment
 Whether average incomes are sufficient to meet
the basic needs of life (PPP based average
income)

7. Transition Economies
 Those economies which have been
characterised by a move towards greater
democracy and economic liberalization.
 Often from centrally planned economic systems
to market based (e.g. BRICS nations, former
USSR countries, Central Asian Republics and
some African States).
 Implications for international business based on
attractiveness, costs, and risks.

8. Q1. The Nobel prize-winning economist Amartya Sen argues that
the concept of development should be broadened to include more
than just economic development. What other factors does Sen
think should be included in an assessment of development? How
might adoption of Sen’s views influence government policy? Do
you think Sen is correct that development is about more than just
economic development? Explain.
 Amartya Sen :Human Development Index
 Eco life should lead to development
 Development: Freedom (tyranny, social deprivation)
 Eco development is ONE factor
 Political freedom will lead to prosperity
 E.G. Poverty line
 http://hdr.undp.org/en/countries
 http://chartsbin.com/view/5352
 Facilitate innovative activity and lead to Economic Vitality.

9.  Rampant bribe taking in some countries, however shunned in Australia
 Subordination of the interest of their country to the personal gain.
 Reduction in the level of transparency in business interactions.
 Many nations with rampant bribery appear to be among the most
economically underdeveloped.
 OK in some countries
 China vs India
 http://www.youtube.com/watch?v=20gs9aN8stM
 http://www.youtube.com/watch?v=lGud_WBWpnE
Q 2.What is the relationship between corruption in a
country (e.g., bribe- taking by government officials) and
economic growth? Is corruption always bad?

10. Q 3.What is a country's legal system? Why is it important
to international businesses? Compare and contrast the
three main types of legal systems in use around the
world. What implications do each of these raise for
international business?
 The rules, or laws, that regulate behaviour along with the processes by
which laws are enforced through which redress for grievances are
obtained.
 It regulates business practice, defines the manner in which business
transactions are to be executed, and sets down the rights and
obligations of those involved in business transactions.

11. Case Study: Japan’s Eco Malaise
 Stagnation of Japanese economy
 1980’s: Growth, Economic boom, surpass USA
 Bubble burst- Stock market crash, recession, bank
debt
 Consequences: no lending by banks, no spending,
deflation, vicious cycle (negative), job cuts
 Stimulation of economy: Infrastructure development,
lower/no interest rates, NOT WORKED
 Demography: Aging population

12. Group 1: In the 1980s Japan was viewed as one of the world’s most
dynamic economies. Today it is viewed as one of its most stagnant. Why
has the Japanese economy stagnated?
Group 2: What lessons does the history of Japan over the last 30 years
hold for other nations? What can countries do to avoid the kind of
deflationary spiral that has gripped Japan?
Group 3: What do you think would be required to get the Japanese
economy moving again?
Group 4: What are the implications of Japan’s economic stagnation for the
benefits, costs, and risks of doing business in this nation?

13. Q1. In the 1980s Japan was viewed as one of the world’s most dynamic
economies. Today it is viewed as one of its most stagnant. Why has the
Japanese economy stagnated?
 The stock market collapsed.
 Property prices plunged.
 Banks sharply curtailed the easy lending practices that had helped to
finance the boom.
 Consumers stopped spending pushing the country into a recession.
Consumers and businesses expect prices to continue to fall and so
continue to delay their purchases despite newly lowered prices pushing
the cycle forward.
 So far, government efforts to stimulate the economy have been
ineffective.

14. Q2. What lessons does the history of Japan over the last 30 years hold for
other nations? What can countries do to avoid the kind of deflationary
spiral that has gripped Japan?
– There are similarities between the situation in Japan that led to its
economic collapse and continued malaise to the situation that led
to the 2008-2009 recession in the United States and its continued
fallout today.
– Sufficient regulation of money lending might have prevented the
situation.
– The role of the government in attempting to spend its way out of
its economic slump. With Japan’s debt now at 200 percent of its
GDP the country has few options left to get back on track.

15. Q3. What do you think would be required to get the Japanese economy
moving again?
– Focus on innovation and the government might make it a national
priority by supporting entrepreneurs and think tanks.
– Open its doors to immigrants. This could expand the market and
help support Japan’s aging population.
Q4. What are the implications of Japan’s economic stagnation for the
benefits, costs, and risks of doing business in this nation?
– Japan’s economic malaise offers both opportunities and
challenges for companies interested in doing business in the
country. On one hand money is cheap and wages are relatively
low. On the other hand, consumers are unwilling to spend money
and the future government policies to spark economic growth
could make could make it more difficult for businesses.

16. Debate: Group I: Japan Group 2: India
– Despite some problems with laws governing business in India, the
country’s long term potential makes it a more attractive destination
for investment.
– Japan’s problems cannot continue indefinitely and that now is a
great time to gain a competitive advantage in the market and be in
a position to capture even more market share when the economy
begins to grow again.
– Japan is likely to pose fewer political and legal risks as compared
to India making it a more attractive investment location.
– http://in.reuters.com/assets/print?aid=INDEE96700820130708
– http://economictimes.indiatimes.com/news/news-by-
company/corporate-trends/mncs-find-it-tough-to-do-business-in-
india-due-to-corruption-and-uncertain-
laws/articleshow/21581460.cms

17. Group Allocations
 Groups of 3-4 students, Peer evaluation
 TOPICS
 Culture in International Business (W 4)
 Theories of International Trade and Investment (W 5)
 The Regulatory Framework (W 6)
 FDI and the MNE (W 7)
 Cooperation among Nations (W 8)
 Foreign Exchange and the International Monetary System (W 9)
 The Structure and Strategy of IB (W 10)
 Entry Strategies for Internationalising (W 11)

18. Any
Questions?