POLITICAL

Political system—namely, the structural dimensions and power dynamics of the government that
1. specify institutions, organizations, and interest groups and
2. define the norms and rules that govern political activities.
The mission of a political system is clear-cut: integrate different groups into a functioning, self-governing society.
Political System = System of Government in a Nation

Political systems can be assessed according to two dimensions:

➢ The degree to which they emphasize collectivism as opposed to individualism.
○ The doctrine of individualism emphasizes the primacy of individual freedom, self-expression, and
personal independence
○ The doctrine of collectivism emphasizes the primacy of the collective (e.g., a group, party, community,
class, society, or nation) over the interests of the individual.
doctrine (n): chủ nghĩa
➢ The degree to which they are democratic or totalitarian.
○ A democracy is a government “of the people, by the people, for the people.” Modern-day democracies
translate this ideology into the principles that all citizens are politically equal, entitled to freedom of
thought, opinion, belief, speech, and association, and command sovereign power over public officials.
○ A totalitarian system subordinates the interests of the individual to that of the collective. An agent in
whatever form, such as an individual, a committee, an assembly, a junta, or a party, monopolizes political
power and uses it to regulate many, if not all, aspects of public and private life.
These dimensions are interrelated;
➢ Systems that emphasize collectivism tend to lean toward totalitarianism, whereas those that place a high
value on individualism tend to be democratic.
➢ However, a large gray area exists in the middle. It is possible to have democratic societies that emphasize a mix
of collectivism and individualism. Similarly, it is possible to have totalitarian societies that are not collectivist.

Political risks are:

➢ the threat that decisions or events in a country will negatively affect the profitability and sustainability of an
investment.
 ➢ the risk that political decisions, events, or conditions change a country’s business environment of the value of
their investment, or threaten the sustainability of their operation.
➢ the potential loss arising from a change in government policy
→ Facing the risk that the political events in the host country will adversely affect its operational objectives,
strategic goals, and profitability.

Classes and Characteristics of Political Risk

➢ Systemic political risks, by influencing the macro business environment, affect the operation of all firms.
➢ Procedural political risk institutes impediments that constrain the flexibility of local operations.
➢ Distributive political risks gradually eliminate the local property rights of foreign companies.
➢ Catastrophic political risk devastates the business environment for all companies.

Category:
➢ Short-term political risk indicators (up to 1 year): Short-term external liabilities, foreign exchange reserves, and
the current account balance
➢ Medium/long-term (beyond 1 year): countries’ solvency (an assessment of economic and financial situation, of
the political situation, and a payment experience analysis for each country)

Types:
1 Risk relating to property ownership
➢ Expropriation (with low compensation, long time): sung công => The government takes the property of a
business at a low compensation but with a very long time for the company to receive the compensation.
➢ Confiscation: tịch thu (without any compensation) => The government takes the property of a business with no
compensation.
➢ Nationalization/Domestication => In case this field belongs to some of the essential fields or the field they
want to manipulate (vd: an ninh lương thực, an ninh năng lượng, quốc phòng)
2 Risk relating to governmental intervention on international trade
➢ Ban on the import/export
➢ Embargo on import
➢ Impose tariff/quota
3 Risk relating to fund transfer/project
➢ Currency inconvertibility
➢ Foreign exchange control
➢ Regulation for fund transfer and transfer restriction risk
4 Political Violence Risk:
➢ includes all violent act(s) undertaken with a political objective;
➢ this concept is broader than ‘war’ and includes i) ‘terrorism’ (political, religious, and ideological objectives) and ii)
political violence damage (damage to material assets as a result of political violence);
➢ for the purposes of analyzing the political violence risk, types of business interruption as a result of political
violence damage are included.

LAW
Law may be defined as a body of rules, created by the state, binding within its jurisdiction and enforced with the
authority of the state through the use of sanctions.
Laws are legally enforced by punishments such as imprisonment or by the payment of money
A set of rules and procedures usually intended to regulate some aspect of society
LEGAL SYSTEM
1. What is the legal system?
➢ The mechanism for conceiving, stipulating, interpreting, and enforcing the laws in a formal jurisdiction.
➢ A legal system is the way the law is structured and operated in a country
 2. Components of a legal system
Modern legal systems evidence three components:
➢ Constitutional Law: translates the country’s constitution into an open and just legal system, setting the
framework for government and defining the authority and procedure of political bodies to establish laws.
➢ Criminal Law: safeguards society by specifying what conduct is criminal, and prescribing punishment to those
who breach those standards.
➢ Civil and Commercial Law: which ensures fairness and efficiency in business transactions by stipulating private
rights and specific remedies in order to regulate conduct between individuals and/or organizations.

3. Sources of law in Vietnam

➢ Legislation: Constitution Acts, Codes
➢ Delegated legislation: Ordinances, Decrees, Circulars, Decisions

4. Law is a very large field, and it is common to divide it into categories

➢ Common Law and Civil Law are terms used to describe legal systems. A legal system is a way the law is
structured and operated in a country.
○ Common Law is used to describe legal systems based on the English legal system. These are usually
countries which were once part of the British Empire (eg: America, Australia, New Zealand)
○ Civil Law is used to describe legal systems which are based on old Roman Law (from the Roman
Empire in what is now Italy) (eg: France, Germany)(Vietnam is usually classified as a civil law system
and it is based on Roman Law).
➢ Private Law and Public Law

5. Legal system
➢ A common law system relies on tradition, judge-made precedent, and usage. It respects established case law in
resolving disputes.
➢ A civil law system relies on the systematic codification of accessible, detailed laws.
➢ A theocratic law system relies on religious doctrine, precepts, and beliefs.
➢ A customary law system reflects the wisdom of daily experience or, more formally, enduring spiritual legacies
and time-honored philosophical outlooks.
➢ A mixed legal system results when a nation uses two or more of the preceding types.

6. Two Key Legal Concerns Facing IB

➢ Operational concerns include:
○ The process of starting a business involves activities such as registering its name, adopting the
appropriate tax structure, obtaining licenses and permits, arranging credit and securing insurance.
○ Making and enforcing contracts.
○ Hiring and firing rules.
○ Ease of closing a business or going out of business.
➢ Strategic concerns include:
○ Product regulation laws.
○ Product safety laws.
○ Legal jurisdiction.
○ Intellectual property.

Property rights refer to the legal rights over the use of a resource that it owns, which can be violated through
➢ Private action – theft, piracy, blackmail
➢ Public action - legally, e.g., excessive taxation or illegally, e.g., bribes or blackmailing
➢ high levels of corruption reduce FDI, international trade, and economic growth rate in a country
IP
➢ Patents – exclusive rights for a defined period to the manufacture, use, or sale of that invention
➢ Copyrights – the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and
disperse their work as they see fit
➢ Trademarks – design and names by which merchants or manufacturers designate and differentiate their
products

ECONOMIC
The totality of economic factors, such as employment, income, inflation, interest rates, the productivity of a nation
Principles used to assess economic environments
➢ System Complexity:
○ Economic environments are dynamic systems.
○ The intricacy (tính rắc rối) of the simplest economic system defies straightforward specification.
○ Stipulating models that definitively represent a country’s economic performance and potential as well
as work reliably in all types of economic environments is difficult.
➢ Market Dynamism: Evolving circumstances, compounded by disruptive situations and puzzling trends, generate
anomalies and exceptions that convert comebacks into collapses.
➢ Market Interdependence: Cross-national interdependencies moderate the forces of supply, demand, and pricing
signals. Adjusting analysis for actions and reactions across an expanding scope of markets complicates
interpretation

Economic Factors Affecting International Business Operations

Types of economic systems:

1. Traditional economy: family or community-based economy (tribes). System relies on custom or ritual. Decisions
made by the elders. Eg: Aborigines, Amazon tribes..
2. Market Economy: a free-market (capitalistic) economy built upon the private ownership and control of the
factors of production. System relies on consumption choices (Demand – supply principle) Eg: USA, Japan…
3. Command Economy: a centrally-planned economy built upon government ownership and control of the factors
of production. The system relies on Government decisions. Eg: Cuba, North Korea.
4. Mixed Economy: an economy in which economic decisions are largely market-driven and ownership is largely
private, but significant government intervention is still evident. Eg: Most – modern Economies

Stages of economic development

1. Pre Industrial countries: incomes < USD 400, limited industrialization, low literacy rates, high birth rates, heavy
reliance on foreign aid, political instability.
2. Less developed countries: income between USD 401 and USD 1,635. Early stages of industrialization, growing
domestic market.
3. Developing countries: income (USD 1,636 - USD 5,500). Decrease in percentage of agricultural workers,
industrialization, rising wages, high literacy rates.
 4. Industrialized countries: income (US$ 5,501 and US$ 10,000), post-industrialization, high standard of living.
5. Advanced countries: income > USD 10,000, post-industrialization, knowledge based - less machine based
GDP & GNI
1. GNI: measures the income generated by both total domestic production and the international production
activities of national companies.
2. Per capita income: GNI is transformed by the number of people living in a country.
3. GDP: is the total value of all goods and services produced within a nation’s borders.
Economic freedom
The key ingredients of economic freedom are:
➢ personal choice
➢ voluntary exchange coordinated by markets;
➢ freedom to enter and compete in markets; and
➢ protection of persons and their property from aggression by others.
Purchasing power parity
➢ number of units of a country’s currency required to buy the same amounts of goods and services in the domestic
market that one unit of income would buy in the other country.
➢ Big Mac Index – Big Mac theory
○ If a Big Mac costs €3.38 in countries that use the euro and $3.73 in the US, then the implied PPP rate is
3.38/3.73 = 0.91.
○ If the actual exchange rate for the euro is lower that the implied PPP rate, the Big Mac theory suggests
that the value of the euro might go up until it reaches the implied PPP rate.
○ If the actual exchange rate is higher, then you might expect the euro to go down until it hits the implied
PPP rate.
Human Development Index (HDI)
Developed by Pakistan economist Mahbub Ul Haq (1990) measures the average achievements in a country on three
dimensions
➢ Longevity: life expectancy at birth
➢ Knowledge: adult literacy rate
➢ Standard of living: GNI per capita
Green issues of development
➢ Growing concern for the ecological welfare of the world spurs calls for green measures of GNP.
➢ Pollution, climate change.
➢ Recycling
➢ Green products.
➢ Corporate social responsibility
Gross National Happiness (GNH): developed in an attempt to define an indicator that measures quality of life or social
progress in more holistic and psychological terms than GDP
Implication for managers
➢ Inflation/deflation: price index and cost of living. ➢ Income distribution/inequality: globally, within
➢ Unemployment: civilian labor force, labor the country, GINI index, urban vs. rural
regulations ➢ Poverty, Labor costs, Productivity
➢ Debt: internal and external debt ➢ Balance of Payments
Economic risks
➢ High inflation ➢ The euro (€) zone breaks up
➢ Protectionism ➢ The global economic recession
➢ Unstable exchange rate ➢ Public debt spirals out of control
➢ Trade deficit

In your own opinion, argue this following statement. “the wide variation and the difference of economic development
level is one of some significant reasons for the current struggles of EUROzone”
 CULTURE

POWER DISTANT
“The extent to which the less powerful members of institutions and organizations within a country expect and
accept that power is distributed unequally”
A company from Austria (low power distance) is considering entering Vietnam (high power distance) market.
Communication tips for the Austrian manager:
1. Give clear and explicit directions to those working with him
2. Deadlines should be highlighted and stressed
3. Do not expect subordinates to take initiative
4. Be more authoritarian in his management style
5. Show respect and deference to those higher up the ladder

LOW HIGH
➢ Minimize the inequalities among people ➢ Inequalities among people are both expected and
➢ Interdependence between less and more desired
powerful people ➢ Less powerful people should be depended on the
➢ Flat hierarchy pyramid more powerful
➢ Power decentralization ➢ Slope hierarchy pyramid
➢ Narrow salary range ➢ Power centralization
➢ Subordinated expect to be consulted ➢ Wide salary range
➢ The ideal boss is a resourceful democrat ➢ Subordinated expect to be told what to do
➢ Privileges and status are disapproved ➢ The ideal boss is a benevolent autocrat or good
father
➢ Privileges and status are both expected and
popular

UNCERTAINTY AVOIDANCE
“The extent to which members of a society feel threatened by uncertain or unknown situations”
A company from France (high uncertainty avoidance) is considering investing in Denmark (low uncertainty avoidance)
Communication tips for the French manager:
1. Try to be more flexible or open in his approach to new ideas than he may be used to
2. Be prepared to push through agreed plans quickly as they would be expected to be realized as soon as
possible
3. Allow employees the autonomy and space to execute their tasks on their own; only guidelines and resources
will be expected of him

WEAK STRONG
➢ Uncertainty: normal feature of life and each day is ➢ Uncertainty: continuous threat that must be
 accepted as it comes fought
➢ Low stress – subjective feeling of well-being ➢ High stress – the subjective feeling of anxiety
➢ Aggression and emotions must not be shown ➢ Aggression and emotions may be shown at
➢ Comfortable in ambiguous situations and with proper times
unfamiliar risk ➢ Fear of ambiguous situations and of unfamiliar
➢ There should not be more rules than necessary risk
➢ Precision and punctuality have to be learned ➢ The emotional need for rules, even if they never
➢ Tolerance to innovation work
➢ Motivation by achievement ➢ Precision and punctuality come naturally
➢ Resistance to innovation
➢ Motivation by security

INDIVIDUALISM
“The tendency of people to look after themselves and their immediate family and neglect the needs of society”
A company from UK (high individualism) is considering investing in Mexico (low individualism)
Communication tips for the UK manager:
1. Note that individuals have a strong sense of responsibility for their family
2. Remember that praise should be directed to a team rather than individuals
3. Understand that rewards depend upon seniority and experience
4. Be aware that the decision-making process will be rather slow, as many members across the hierarchy need
to be consulted

LOW
➢ Individuals learn to think in terms of “we”
➢ Diplomas provide entry to higher status groups
➢ Relationship employer-employee is perceived in
moral terms, as a family
➢ Hiring and promotion decisions take employees’
ingroup into account
➢ Management is the management of groups
➢ Relationship prevails over task
HIGH
➢ Individuals learn to think in terms of “I”
➢ Diplomas increase economic worth and/or
self-respect
➢ Relationship employer-employee is a contract
based on mutual advantage
➢ Hiring and promotion are supposed to be based
on skills and rules only
➢ Management is the management of individuals
➢ Task prevails over relationship

MASCULINITY
“The tendency within a society to emphasize traditional gender roles”

LOW
➢ Dominant values: caring for others and
preservation
➢ People and warm relationships are important
➢ Sympathy for the weak
➢ In family, both fathers and mothers deal with
facts and feelings
➢ Stress on equality, solidarity, and quality of
work-life
➢ Managers use intuition and strive for consensus
➢ Resolution of conflicts by compromise and
negotiation
HIGH
➢ Dominant values: material success and progress
➢ Money and things are important
➢ Sympathy for the strong
➢ In family, fathers deal with facts and mothers
with feelings
➢ Stress on equity, competition among colleagues,
and performance
➢ Managers are expected to be decisive and
assertive
➢ Resolution of conflicts by fighting them out

The shared values, attitudes, and beliefs of a group of individuals constitute a culture.
➢ VALUE:
○ Values are abstract ideas about what a group believes to be good, right, and desirable, in order words,
values are shared assumptions about how things ought to be.
○ Values include a society’s attitudes toward concepts (such as freedom, truth, responsibility, etc.)
➢ NORM
 ○ FOLKWAYS (Phong tục tập quán)
■ Folkways are the routine conventions of everyday life and actions of little moral significance
■ Folkways are social conventions (dress code, social manners, eating with the correct utensils,...)
■ Folkways include rituals and symbolic behavior
○ MORES (Tập tục)
■ Mores are seen as central to the functioning of a society and to its social life and have much
greater significance than folkways
■ Violating mores can bring serious retribution
■ Mores include such factors as indictments against theft, adultery, incest, and cannibalism
Bicultural or multicultural: meaning that they have internalized more than one national culture because of having dual
or multiple citizenships, parents or spouses from another country, or lived abroad at an impressionable age.

Determinants
1. Social Structure
a. Dimensions
➢ First dimension: the basic unit of social organization is the individual (ex: Western societies) [INDIVIDUAL]
➢ Second dimension: a society is stratified into classes or castes [GROUP]
○ Some societies are characterized by a relatively high degree of social stratification and relatively low
mobility between strata (ex: Indian)
○ Other societies are characterized by a low degree of social stratification and high mobility between
strata (ex: American)
b. Individual vs Group
2. Religious and Ethical Systems
➢ Religion may be defined as a system of shared beliefs and rituals that are concerned with the realm of the
sacred.
➢ Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior. Most of
the world’s ethical systems are the product of religions
3. Language
➢ Verbal
➢ Non-Verbal

Culture is part of the institutional and physical factors that affect the operating environment. They consist of:
➢ Cultural awareness.
➢ Identification and dynamics of cultures.
➢ Behavioral practices affecting business.
➢ Strategies for dealing with cultural differences.
Cultural Collision
IB involves people from different national cultures, which affects every business function—managing a workforce,
marketing and transporting output, purchasing supplies, dealing with regulators, and securing funds.
Sometimes issues can happen because cultures may have different values. When contact among divergent cultures
creates problems, the situation is known as a cultural collision. Cultural collision may cause:
➢ Ineffective business practices.
➢ Personal distress.
Deal-focus (DF) culture vs Relationship-focus (RF) culture
An example of cultural collision: deal-focus (DF) culture, where people are primarily task-oriented; whereas
relationship-focus (RF) culture is based more on getting to know potential business partners, and traditionally moves
slower.
DF people typically view RF people as time-wasters, whereas RF people view DF people as offensively blunt.
The Saudis had less compulsion to wrap things up, regarded small talk at a café as a means to identify acceptable
business partners and put dealings with friends ahead of business dealings.
Source of change
➢ Change by choice may occur as a reaction to social and economic situations that present people with new
alternatives. Imposition
➢ Change by imposition - sometimes called cultural imperialism - involves imposing certain elements from an
alien culture, such as a forced change in-laws by an occupying country that, over time, becomes part of the
subject culture