MGMT 4710 INTERNATIONAL BUSINESS CHAPTER 1. GLOBALIZATION I. INTRODUCTION As individuals and organizations have expanded their operations across wider geographical areas, global events and competition are affecting almost all firms—large or small. Currently, over 20 percent of world production is sold outside of its country of origin, restrictions on imports continue to decline, the foreign ownership of assets as a percent of world production continues to increase, and world trade continues to grow more rapidly than world production. Globalization refers to the broadening set of interdependent relationships among people from different nations. International business involves all commercial transactions, including sales, investments, and transportation—private and governmental—between parties of two or more countries. II. THE FORCES DRIVING GLOBALIZATION Several factors contribute to the trend toward increased globalization: 1. Increase in and Expansion of Technology: Vast improvements in transportation and communications technology—including the Internet—have significantly increased the effectiveness and efficiency of international business operations. 2. Liberalization of Cross-Border Trade and Resource Movement Over time, most governments have been lowering restrictions on trade and foreign investments. It is believed that international competition makes domestic producers more efficient, and gives citizens greater consumer choices and lower prices. 3. Development of Services That Support International Business Services provided by national and multinational institutions greatly facilitate the conduct and reduce the risks of doing business internationally. 4. Growing Consumer Pressures Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. This has forced competitors to respond to the needs of consumers from all over the world 5. Increased Global Competition The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness. 6. Changing Political Situations The transformation of the political and economic policies of Eastern Europe and East Asia (China and Vietnam in particular) has led to vast increases in trade between these countries and the rest of the world. 7. Expanded Cross-National Cooperation Governments have increasingly entered into cross-national treaties and agreements in order to gain reciprocal advantages for their own firms, to jointly address problems that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries. III. PROBLEMS WITH GLOBALIZATION Anti-globalization forces have protested both peacefully and violently as they press for legislation and other means to stop or slow the globalization process. The issu ...

1. MGMT 4710
INTERNATIONAL BUSINESS
CHAPTER 1. GLOBALIZATION
I. INTRODUCTION
As individuals and organizations have expanded their operations
across wider geographical areas, global events and competition
are affecting almost all firms—large or small. Currently, over
20 percent of world production is sold outside of its country of
origin, restrictions on imports continue to decline, the foreign
ownership of assets as a percent of world production continues
to increase, and world trade continues to grow more rapidly
than world production.
Globalization refers to the broadening set of interdependent
relationships among people from different nations. International
business involves all commercial transactions, including sales,
investments, and transportation—private and governmental—
between parties of two or more countries.
II. THE FORCES DRIVING GLOBALIZATION
Several factors contribute to the trend toward increased
globalization:
1. Increase in and Expansion of Technology:
Vast improvements in transportation and communications
technology—including the Internet—have significantly
increased the effectiveness and efficiency of international
business operations.
2. Liberalization of Cross-Border Trade and Resource
Movement
Over time, most governments have been lowering restrictions on
trade and foreign investments. It is believed that international

2. competition makes domestic producers more efficient, and gives
citizens greater consumer choices and lower prices.
3. Development of Services That Support International
Business
Services provided by national and multinational institutions
greatly facilitate the conduct and reduce the risks of doing
business internationally.
4. Growing Consumer Pressures
Because of innovations in transportation and communicati ons
technology, consumers are well-informed about and often able
to access foreign products. This has forced competitors to
respond to the needs of consumers from all over the world
5.
Increased Global Competition
The pressures of increased foreign competition often persuade
firms to expand internationally in order to gain access to
foreign opportunities and to improve their overall operational
flexibility and competitiveness.
6. Changing Political Situations
The transformation of the political and economic policies of
Eastern Europe and East Asia (China and Vietnam in particular)
has led to vast increases in trade between these countries and
the rest of the world.
7. Expanded Cross-National Cooperation
Governments have increasingly entered into cross-national
treaties and agreements in order to gain reciprocal advantages
for their own firms, to jointly address problems that one country
cannot solve alone, and to deal with areas of concern that lie
outside the territory of all countries.
III.
PROBLEMS WITH GLOBALIZATION

3. Anti-globalization forces have protested both peacefully and
violently as they press for legislation and other means to stop or
slow the globalization process. The issues of concern include:
A. Threats to National Sovereignty
Many citizens fear that a country’s participation in multilateral
agreements will diminish its sovereignty and freedom from
external control and curtail its ability to act in its own best
interests. In particular, people in small countries worry that
dependence on larger countries for sales and/or supplies, as well
as the presence of large international firms, will make them
vulnerable to the demands of parties against which they are
essentially powerless.
B. Economic Growth and Environmental Stress
Clearly, economic growth can result in both positive and
negative consequences, including damage to society and the
environment. Unless the positive consequences of globalization
keep pace with the negative costs of economic growth, the
sustainability of economic improveme nt on a worldwide basis
will be problematic.
C. Growing Income Inequality and Personal Stress
Offshoring (the process of shifting domestic production to a
foreign country in order to serve the home market at a reduced
cost), speeds up the process of altering the relative economic
discrepancies between the two countries involved. In particular,
offshoring results in domestic job loss. Although globalization
has positive impacts at a macro level, job loss in advanced
countries is causing stress and insecurity.
IV.
WHY COMPANIES ENGAGE IN INTERNATIONAL
BUSINESS
There are several reasons why companies engage in
international business:

4. D. Expanding Sales
Companies may increase the potential market for their sales by
pursuing international consumer and industrial markets.
B.
Acquiring Resources
Foreign-sourced products, services, resources, and components
can make a firm more competitive both at home and abroad.
E. Minimizing Risk
Firms seek foreign markets in order to minimize cyclical effects
on sales and profits. Defensively, they may also wish to
counter the potential advantages that competitors might gain
from participating in foreign market opportunities.
V.
MODES OF OPERATION IN INTERNATIONAL BUSINESS
A firm can engage in international business through various
operating modes:
F. Merchandise Exports and Imports
Merchandise exports consist of tangible (visible) products, i.e.,
goods that are sent to a foreign country for use or resale.
Merchandise imports consist of tangible products, i.e., goods
brought into a country for use or resale.
B.
Service Exports and Imports
Service exports and imports represent intangible (invisible),
i.e., non-merchandise products. Among these services are
tourism and transportation. For example, when an American
flies to Paris on Air France and stays in a French-owned hotel,
payments made to the airline and the hotel represent service

5. export earnings (income) for France and service import
payments (expenses) for the United States.
G. Investments
Foreign investment consists of the ownership of foreign
property in order to realize a financial gain via profits, growth,
dividends, and/or interest. There are two types of foreign
investments. The first type, foreign direct investment (FDI)
occurs when an investor gains a controlling interest in a foreign
operation. The second type, portfolio investment, occurs when
an investor gains a non-controlling interest in a venture to
achieve a short-term financial gain.
H. Types of International Organizations
There are types of international organizations. The type that is
most used is the multinational enterprise (MNE), whereby a
firm takes a global approach to foreign markets and production,
i.e., it is willing to consider markets and production sites
anywhere in the world. The multinational enterprise is also
known as multinational corporation (MNC). Other types include
collaborative arrangements (companies work together
internationally) such as minority ownership, joint ventures,
licensing agreements, management contracts, or other long-term
contractual arrangements.
VI. Globalization: Three views
By envisioning different ways in which the future may evolve, a
company can be better prepared to develop the facilities and
people needed to succeed in an uncertain environment. At this
time, there is much discussion about the following three
viewpoints.
The first view, that further globalization is inevitable, is based
largely upon the premise that technical advances in

6. transportation and communications are pervasive, that
consumers demand the best products for the best prices
regardless of their country of origin, and that MNEs are so
powerful they can pressure governments to further reduce
restrictions on trade and investment. If this is true, then the
challenge is to determine what to make of globalization with
respect to the distribution of its costs and benefits.
The second view, that international business will grow primarily
along regional rather than global lines, is premised on studies
which show that almost all firms that consider themselves
global conduct a dominant portion of the business in their home
and neighboring countries. It may be possible however, that
regionalization is a transitional step on the route to
globalization.
The third view, that forces opposing globalization will greatly
slow its growth, is not to be dismissed. Historically, pressure
groups have often been successful in obstructing policies and
activities that threatened their own well-being. In addition,
recent anti-globalization interests have successfully promoted a
variety of causes in numerous countries that span the globe.
The impact of other uncertainties also impacts the future of
globalization. Some examples of these uncertainties include the
impact of oil prices on global transportation, the general
economic recession and concerns about product safety.
Whether institutions and people can work together to effectively
manage the complexities of today’s interconnected world
remains to be seen.
PAGE
4
MGMT 4710
INTERNATIONAL BUSINESS
CHAPTER 1. GLOBALIZATION

7. I. INTRODUCTION
As individuals and organizations have expanded their operations
across wider geographical areas, global events and competition
are affecting almost all firms—large or small. Currently, over
20 percent of world production is sold outside of its country of
origin, restrictions on imports continue to decline, the foreign
ownership of assets as a percent of world production continues
to increase, and world trade continues to grow more rapidly
than world production.
Globalization refers to the broadening set of interdependent
relationships among people from different nations. International
business involves all commercial transactions, including sales,
investments, and transportation—private and governmental—
between parties of two or more countries.
II. THE FORCES DRIVING GLOBALIZATION
Several factors contribute to the trend toward increased
globalization:
1. Increase in and Expansion of Technology:
Vast improvements in transportation and communications
technology—including the Internet—have significantly
increased the effectiveness and efficiency of international
business operations.
2. Liberalization of Cross-Border Trade and Resource
Movement
Over time, most governments have been lowering restrictions on
trade and foreign investments. It is believed that international
competition makes domestic producers more efficient, and gives
citizens greater consumer choices and lower prices.
3. Development of Services That Support International
Business

8. Services provided by national and multinational institutions
greatly facilitate the conduct and reduce the risks of doing
business internationally.
4. Growing Consumer Pressures
Because of innovations in transportation and communications
technology, consumers are well-informed about and often able
to access foreign products. This has forced competitors to
respond to the needs of consumers from all over the world
5.
Increased Global Competition
The pressures of increased foreign competition often persuade
firms to expand internationally in order to gain access to
foreign opportunities and to improve their overall operational
flexibility and competitiveness.
6. Changing Political Situations
The transformation of the political and economic policies of
Eastern Europe and East Asia (China and Vietnam in particular)
has led to vast increases in trade between these countries and
the rest of the world.
7. Expanded Cross-National Cooperation
Governments have increasingly entered into cross-national
treaties and agreements in order to gain reciprocal advantages
for their own firms, to jointly address problems that one country
cannot solve alone, and to deal with areas of concern that lie
outside the territory of all countries.
III.
PROBLEMS WITH GLOBALIZATION
Anti-globalization forces have protested both peacefully and
violently as they press for legislation and other means to stop or
slow the globalization process. The issues of concern include:
A. Threats to National Sovereignty

9. Many citizens fear that a country’s participation in multilateral
agreements will diminish its sovereignty and freedom from
external control and curtail its ability to act in its own best
interests. In particular, people in small countries worry that
dependence on larger countries for sales and/or supplies, as well
as the presence of large international firms, will make them
vulnerable to the demands of parties against which they are
essentially powerless.
B. Economic Growth and Environmental Stress
Clearly, economic growth can result in both positive and
negative consequences, including damage to society and the
environment. Unless the positive consequences of globalization
keep pace with the negative costs of economic growth, the
sustainability of economic improvement on a worldwide basis
will be problematic.
C. Growing Income Inequality and Personal Stress
Offshoring (the process of shifting domestic production to a
foreign country in order to serve the home market at a reduced
cost), speeds up the process of altering the relative economic
discrepancies between the two countries involved. In particular,
offshoring results in domestic job loss. Although globalization
has positive impacts at a macro level, job loss in advanced
countries is causing stress and insecurity.
IV.
WHY COMPANIES ENGAGE IN INTERNATIONAL
BUSINESS
There are several reasons why companies engage in
international business:
D. Expanding Sales
Companies may increase the potential market for their sales by
pursuing international consumer and industrial markets.
B.

10. Acquiring Resources
Foreign-sourced products, services, resources, and components
can make a firm more competitive both at home and abroad.
E. Minimizing Risk
Firms seek foreign markets in order to minimize cyclical effects
on sales and profits. Defensively, they may also wish to
counter the potential advantages that competitors might gain
from participating in foreign market opportunities.
V.
MODES OF OPERATION IN INTERNATIONAL BUSINESS
A firm can engage in international business through various
operating modes:
F. Merchandise Exports and Imports
Merchandise exports consist of tangible (visible) products, i.e.,
goods that are sent to a foreign country for use or resale.
Merchandise imports consist of tangible products, i.e., goods
brought into a country for use or resale.
B.
Service Exports and Imports
Service exports and imports represent intangible (invisible),
i.e., non-merchandise products. Among these services are
tourism and transportation. For example, when an American
flies to Paris on Air France and stays in a French-owned hotel,
payments made to the airline and the hotel represent service
export earnings (income) for France and service import
payments (expenses) for the United States.
G. Investments

11. Foreign investment consists of the ownership of foreign
property in order to realize a financial gain via profits, growth,
dividends, and/or interest. There are two types of foreign
investments. The first type, foreign direct investment (FDI)
occurs when an investor gains a controlling interest in a forei gn
operation. The second type, portfolio investment, occurs when
an investor gains a non-controlling interest in a venture to
achieve a short-term financial gain.
H. Types of International Organizations
There are types of international organizations. The type that is
most used is the multinational enterprise (MNE), whereby a
firm takes a global approach to foreign markets and production,
i.e., it is willing to consider markets and production sites
anywhere in the world. The multinational enterprise is also
known as multinational corporation (MNC). Other types include
collaborative arrangements (companies work together
internationally) such as minority ownership, joint ventures,
licensing agreements, management contracts, or other long-term
contractual arrangements.
VI. Globalization: Three views
By envisioning different ways in which the future may evolve, a
company can be better prepared to develop the facilities and
people needed to succeed in an uncertain environment. At this
time, there is much discussion about the following three
viewpoints.
The first view, that further globalization is inevitable, is based
largely upon the premise that technical advances in
transportation and communications are pervasive, that
consumers demand the best products for the best prices
regardless of their country of origin, and that MNEs are so
powerful they can pressure governments to further reduce
restrictions on trade and investment. If this is true, then the

12. challenge is to determine what to make of globalization with
respect to the distribution of its costs and benefits.
The second view, that international business will grow primarily
along regional rather than global lines, is premised on studies
which show that almost all firms that consider themselves
global conduct a dominant portion of the business in their home
and neighboring countries. It may be possible however, that
regionalization is a transitional step on the route to
globalization.
The third view, that forces opposing globalization will greatly
slow its growth, is not to be dismissed. Historically, pressure
groups have often been successful in obstructing policies and
activities that threatened their own well-being. In addition,
recent anti-globalization interests have successfully promoted a
variety of causes in numerous countries that span the globe.
The impact of other uncertainties also impacts the future of
globalization. Some examples of these uncertainties include the
impact of oil prices on global transportation, the general
economic recession and concerns about product safety.
Whether institutions and people can work together to effectively
manage the complexities of today’s interconnected world
remains to be seen.
PAGE
4
MGMK 4710
INTERNATIONAL BUSINESS
Chapter 4. ECONOMIC ENVIRONMENTS
Look at the following link:
www.heritage.org/index
I.
INTRODUCTION

13. Chapter 3 discussed how cultural environments affect the
political environments. In turn, political/legal environments
have huge implications economic environments. High-income
(developed) economies tend to be democratic nations. Low to
middle income (developing) economies are likely to have a
totalitarian system.
II.
ECONOMIC SYSTEMS
An economic system is the set of structures and processes that
guides the allocation of scarce resources and shapes the conduct
of business activities in a nation. There are three main economic
systems: market economy, command economy, and mixed
economy
A.
Market economy
It is an economic system in which productive activities are
privately owned and operated. Credited to Adam Smith, the
laissez-faire principle, i.e., nonintervention by government in a
country’s economic activity, states that producers are driven by
the profit motive, while consumers determine the relationship
between price and quantity demanded. The high standards
imposed by a market economy are based on some preconditions,
including sound macroeconomic policies, fair and transparent
political institutions, open trade and high levels of education.
Main characteristics:
- Private property rights: policies protect rights of individuals
to own property
- Pricing system: interaction of supply and demand determines

14. prices of goods and services
- Production: market determine the quantity of goods and
services to be produced
- Consumption: individuals freely make buying decision
- State: hands off system of laissez-faire, limited regulation so
market operates properly
- Capitalism: private ownership of means of production
- Resources: supply-demand interactions determine how
resources are distributed and used
B.
Command economy
It is an economic system in which productive activities are
planned and owned by the state. Also known as planned
economies, command economies are built upon the government
ownership and control of the factors of production. Central
planning authorities determine what products will be produced
in what quantities and the prices at which they will be sold.
Main characteristics:
- Private property rights: policies prohibit individuals from
owning property
- Pricing system: government regulates prices of goods and
services
- Production: government decides which quantity of which
goods and services to be produced

15. - State: hands on system of government control of production,
consumption and prices
- Socialism: state ownership of means of production
- Resources: state distributes and decides how to use resources
C.
Mixed economy
It is an economic system in which private ownership
(capitalism) and state ownership (socialism) co-exist. Mixed
economies fall between the extremes of market and command
economies. While economic decisions are largely market-
driven and ownership is largely private, government nonetheless
intervenes in many economic decisions. The extent and nature
of such intervention may take the form of government
ownership of certain factors of production, the granting of
subsidies, the taxation of certain economic activities, and/or the
redistribution of income and wealth.
Main characteristics: features of market economy and command
economy are combined:
- State: substantial government intervention in production and
pricing
- Market: sizable public sector alongside dominant private
sector
- Production: government controls production and resources in
key sectors
III.
ECONOMIC INDICATORS
MNEs’ managers need to look at various indicators (measures)
to assess the

16. level of a country’s economic performance and potential. There
are several
indicators that managers can use:
A.Gross Domestic Product (GDP)
Gross Domestic Product measures the value of goods and
services generated by both domestic and foreign-owned firms
within a nation’s borders in a given period, usually a year. The
concepts of Gross National Income (GNI) and Gross National
Product (GNP) are sometimes used, but they are similar to GDP.
Even though GDP provides the size of a country’s economy,
managers should closely examine GDP growth rate.
B. Other economic indicators
To better understand a country level of economic development,
managers need to study other GDP-related measures:
- Population: it can determine the size of a particular market
- Per capita income: besides the size of an economy (GDP), and
that of its population, the capacity of a country’s individuals to
make purchases is determined by the per capita income. Per
capita income is obtained by dividing GDP by population. Per
capita income is the measure used by international institutions
(World Bank, International Monetary Fund, etc.) to classify
countries (rich vs poor countries, developed vs developing
countries, high-, middle-, or low-income countries, etc.)
- Purchasing power parity: it represents the number of units of a
country’s currency required to buy the same amount of goods
and services in the domestic market that one unit of income
would buy in another country. PPP is estimated by calculating
the value of a universal “basket” of goods that can be purchased
with one unit of a country’s currency.

17. - Inflation: it is the pervasive and sustained rise in the
aggregate level of prices as measured by a cost of living index.
When aggregate demand grows faster than aggregate supply,
i.e., when prices rise faster than incomes, the effects can be
dramatic. Some countries have high inflation rates (i.e. prices
go up faster). There are however instances where prices go
down (a phenomenon called deflation)
- Unemployment rate: it represents the number of unemployed
workers divided by the total civilian labor force in a given
country.
- Debt: it is the sum total of a government’s financial
obligations; it measures the state’s borrowing from its
population, from foreign organizations, from foreign
governments, and from international institutions. A country’s
government has revenues as well as spending (budget). Budget
surplus exists when revenues are higher than spending. When
revenues are lower than spending, the government has a budget
deficit, and this will force the government borrow, resulting in
debt.
- Income distribution: it describes what share of a country’s
income goes to various segments of the population. Uneven
income distribution occurs in virtually every country with the
U.S. having the largest inequality compared to other
industrialized nations.
- Poverty: it is a condition in which a person or community is
deprived of, or lacks the essentials for a minimum standard of
well-being and life. According to the World Bank, globally, the
world is about 80 percent poor, 10 percent middle income, and
10 percent rich. The reduction of the number of people in
poverty has been concentrated in a few countries like China, but
poverty appears to be growing worldwide.
IV. IMPACT OF POLITICAL ENVIRONMENTS ON
ECONOMY

18. Political and legal environments affect economic environments.
Political risk is a crucial factor MNEs’ managers consider
before making the decision of whether to invest in a country. It
is no surprise that MNEs invest more in stable countries and
less in unstable nations.
- Democracies and market economy: because democracies
involve freedom of economic organization (i.e. to start a
company), most democratic countries tend to also have a market
economic system. In addition, the legal system in democratic
nations tends to have and enforce laws that protect private
ownership (i.e. property rights) which promotes economic
growth. Not surprisingly, most high-income economies are
democratic nations
- Totalitarianism and command economy: because
totalitarianism prohibits freedom of economic organization,
most totalitarian countries tend to adopt the command economic
systems. Also, the legal system in totalitarian nations has laws
that do not allow private ownership, which does not promote
economic prosperity. Most totalitarian countries are low income
economies.
- Transition toward democracy and market economy: unable to
improve living standards of their populations, several
totalitarian nations are undergoing political transformations by
increasingly carrying out democratic reforms. Often, these
reforms are the result of political pressures from the bottom
(i.e. by the people). Many countries have been transiti oning
toward democracy and market economy have also experienced
economic hardship, income disparity, and therefore social
discontent and often political instability.
PAGE
2
MGMK 4710

19. INTERNATIONAL BUSINESS
CHAPTER 3. THE POLITICAL AND LEGAL
ENVIRONMENTS
I.
INTRODUCTION
For a multinational enterprise to succeed in countries with
different political and legal environments, its management must
carefully analyze the fit between its corporate policies and the
political and legal conditions of each particular nation.
http://www.theglobaleconomy.com/indicators_list.php
( Go to Global Rankings, and then select:
+ Governance, Institutions, corruption
+ Country risk indicators
II.
THE POLITICAL ENVIRONMENT
A political system is the complete set of institutions,
organizations, and interest groups involved in who gets to
decide on the goals of a country and how those goals are to be
achieved. The political system is influenced by culture
(particularly the role played by the individual versus the
collectivity).
A.
Individualism versus Collectivism
In individualistic societies, the government plays a limited role
in business. The relationship between government and business
tends to be adversarial. The government promotes marketplace
competition, but may intervene to deal with market

20. imperfections (e.g. monopoly). The concept that the government
should not interfere in business affairs is captured in the idea of
laissez-faire. In collectivist societies, the government defines
economic needs and priorities, and centrally planned business
activities. The government is highly connected to and
interdependent with business, so the relationship is cooperative.
B.
Political Systems:
1. Democracy: political system in which citizens participate in
the decision-making and governance process, either directly or
through elected representatives. The main characteristics of a
democracy are:
- Authority: clear separation of power among three branches of
government
- Elections: citizens elect freely their representatives. Elections
allow citizens to participate in the decision-making process
- Rights: freedom of opinion, expression, press, religion,
association and access to information; freedom of organization
(e.g. freedom to start a business)
- Political risk: low because if citizens are unhappy, they can
change their representatives through elections
There are three main variations of democracy:
- Presidential democracy: citizens elect a president (United
States)
- Parliamentary democracy: the party with the most votes after
elections designates a prime minister (United Kingdom)
- Mixed democracy: citizens elect a president, and the party
with the most votes after elections designates a prime minister

21. (France)
2. Totalitarianism: political system in which one person or
party monopolizes power, and citizens do not participate in the
decision-making and governance process. The main
characteristics of totalitarianism are:
- Authority: all branches of government are controlled by one
person or one party
- Elections: citizens are not allowed to elect their
representatives (or elections are fake, and they results are made
up in an office by the leader or the party)
- Rights: no freedom of opinion, expression, press, religion,
association, access to information, organization (no freedom to
start a business)
- Political risk: high because are citizens not represented. The
government use police to suppress dissent (this can lead to
riots, protests, wars and chaos)
There are three main variations of totalitarianism:
- Theocracy: religious leaders are also the political leaders
(Iran)
- Secular totalitarianism (dictatorship or right wing): using the
military, the government exercises absolute power through the
authority of the state (Congo)
- Communism: the communist party controls all power (China)
C. Trends in Political Ideologies
The world is experiencing general movements toward
democracy. Several factors have powered the democratization of
the world, including:
- Standards of living: many totalitarian regimes failed to

22. improve the economic lives of their citizens, who eventually
challenged the right of the state to govern.
- Technologies: vastly improved communications technology
weakened the ability of regimes to control people’s access to
information
- Globalization: factors such as interdependence among nations,
regional integration, and multinational institutions (World
Bank, International Monetary Fund, World Trade Organization,
etc.) pressure totalitarian regimes to open their political space
and allow more freedom.
E.
Political Risk
Political risk is the possibility that political conditions will
affect a country's business environment in ways that will cost
investors some or all of the value of their investment or force
them to accept lower than projected rates of return. Leading
sources of political risk are: expropriation (nationalization), war
between countries, civil war (within a country), unilateral
breach of contract, destructive government actions, harmful
actions against people, and discriminatory taxation policies. The
global economic crisis has only served to increase political risk
as governments take exceptional measures against the groups
they blame.
III.
THE LEGAL ENVIRONMENT
A legal system is the mechanism for creating, interpreting, and
enforcing the laws in a country. The three components of
modern legal systems are constitutional law, criminal law, civil
and commercial laws.
A. Types of Legal Systems: The main legal systems are:
1. Common law:legal system based on tradition, judge-made
precedent, custom, and usage. Courts play an important role in

23. interpreting the law. Common law started in England, then it
spread to former British colonies, including Australia, Canada,
New Zealand, and the United States. Key characteristics
include:
- More flexibility: judges resolve disputes based on their
interpretation of the law
- More confrontational: lawyers argue so that judges interpret
the law in their favor
2. Civil law: legal system that uses a detailed and
comprehensive set of statutes and codes as a primary means to
form legal judgments. Courts play an important role in applying
the law. Derived from Roman law, it is the oldest, the most
influential, and the most widely distributed around the world
(civil law nations include Latin European countries, Germany,
Japan). Key characteristics include:
- Less flexibility: judges resolve disputes by applying the law
(no interpretation).
- Less confrontational: detailed statutes and codes serve to
guide judges’ rulings
3. Theocratic law: legal system based upon religious teachings.
Today, the only surviving theocratic legal system formally
practiced by some governments is the Islamic law (examples
include Iran and Saudi Arabia). Key characteristics are:
- Less flexibility: judges resolve disputes by strictly following
the Koran
- Less confrontational: teachings from the Koran serve to guide
judges’ rulings
B. Trends in Legal Systems: Countries can be classified as
following either:
- Rule of man: The rule of man places ultimate power in the

24. hands of one person and is the cornerstone of totalitarian
governments. A the rule of man is dominant in totalitarian (and
poor) nations, MNEs’ managers that conduct business there
should expect to find inconsistent and sometimes changing laws
- Rule of law: The rule of law is the hallmark of democratic
governments and holds that authority comes from written and
transparent laws. The rule of law flourishes in well-to-do
industrialized countries such as the United States, Japan, and
most of Europe
C.
Legal issues in international business
Doing business in multiple countries that have different and
conflicting legal systems and practices raises major issues for
MNEs. Of a particular concern is how laws are enforced in
totalitarian countries where courts that handle legal matters are
not free from political interference. Legal issues of concern
include:
1. Country of Origin and Local Content: Local content is
important to
all nations, and most countries push foreign firms to add value
locally. In addition, product origin determines applicable fees
and may be subject to quantitative restrictions as well. The
global credit crisis highlights this concern in the ongoing
political debate.
2. Marketplace Behavior: National laws determine permissible
practices
in pricing, distribution, advertising, and the promotion of
products, and they vary widely from one country to another.
3. Product Safety and Liability: Often products must be
customized in
order to comply with local standards, which may be higher than
those found in a firm’s home market. While product liability
laws are very stringent in markets such as the United States,

25. they are spotty, absent, and at times even arbitrary in many less
developed countries.
4. Legal Jurisdiction. Every country specifies which law should
apply
and where litigation should occur when agents are involved—
whether they are legal residents of the same or different
countries.
5.
Intellectual Property Rights
- Definition: Intellectual property rightsconsist of ownership
rights to intangible assets, i.e., the right to control and derive
the benefits from writing and other creative art forms
(copyright), inventions (patents), and identifiers (trademarks).
- MNEs’ concern: Problems arise because intellectual property,
whether in the form of literature, music, design, software,
scientific patents, or brand names, is difficult to create but easy
to duplicate. Cross-national and cross-cultural legal differences
complicate specifying, regulating, and enforcing intellectual
property rights. The costs of piracy, whether in terms of lost
sales and royalties or future creativity, are very high for
registered owners.
-Piracy: piracy is rooted in fundamental legal, economic, and
cultural forces. While some countries may impose prohibitions
on piracy, local authorities may actually encourage violations.
Many of these problems stem from legal legacies in emerging
markets where the rule of man applies. Generally, less
developed countries provide weaker legal protection for
intellectual property than do industrialized nations. While less
developed nations feel they have little to gain by protecting
intellectual property, developed nations feel it is critical to
assuring continuing
creativity.

26. PAGE
1
MGMK 4710
INTERNATIONAL BUSINESS
UNIT 1: GENERAL ENVIRONMENTS
ESSAY QUESTIONS 1.2.
JAPAN
Alyssa Parsley
Instructions for Essay Questions 1.2:
· Go to Essay Questions 1.2.
· Your answers must have a title that looks like the one above.
Write your country’s name and your team members’ names.
(ALREADY WRITTEN. COUNTRY IS JAPAN)
· Write question # (e.g., Question 1), delete all directions, then
provide your answer.
· For each question, break your answer into two or more
paragraphs. Single-space your answers.
· In your answers, provide specifics related to your country
(that is, do not be generic)
· Each answer must show that you have read relevant concepts
from the Study Guides.
· Provide references of your source(s).
QUESTION 1:
Chapter 4 identifies three economic systems (market economy,
command economy, and mixed economy). In one sentence, give
the name of your country’s economic system. In 5 to 7
sentences, explain your answer. Provide specifics about your
country.
QUESTION 2:

27. Using the table below (please write your country’s name), key
in your country’s economic data. Make sure the entire table is
on the same page (a table should not stretch over two pages).
Table 1. United States’ economic data
Years
Gross Domestic Product
Population
Per capita income ($)
(GDP/population)
$million
% Growth
In million
% Growth
2011
N/A
N/A
2012
2013
2014

28. 2015
2016
2017
2018
2019
In 7 to 10 sentences, use the data in Table 1 above to
evaluate your country’s economy. NOTE: When doing your

29. evaluation, focus on how GDP (size of the economy) has
changed overtime (percentage growth of GDP), and the level of
per capita income (high-, middle- or low-income). You can see
the breakdown of economies by per capita income by exploring
“Useful Internet Links” I have provided in D2L under Content.
4