Chapter Two

National Business
Environment

McGraw-Hill/Irwin
 Learning Objectives

 Examine the differences between countries in

terms of politics, law, economy, and culture.

 Research to make decisions on selecting foreign

markets to penetrate and organize production and
business activities in those markets.

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CONTENT

Sociocultural forces

Political and legal forces

Economic forces

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SOCIO-CULTURAL FORCES

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Socio-cultural forces

 Definition of Culture

 Determinants of Culture

 Culture Factors and International

Business

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 Definition of Culture

 “A system of values and norms that are

shared among a group of people and that
when taken together constitute a design for
living.”
Hofstede, Namenwirth and Weber (exacted from Charles Hill (2003), International Business, 4th Edition,
McGraw-Hill Irwin)

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 Components of Culture:
Values and Norms
 Values (giá trị): Abstract ideas/assumptions about what a group
believes to be good, right and desirable
 Society’s attitudes toward individual freedom, democracy,
truth, justice, honesty, loyalty, social obligations, collective
responsibilities, role of men and women, love, sex,
marriage.

 Norms (chuẩn mực): social rules and guidelines that prescribe

appropriate behavior in particular situations
 Folkways and Mores

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Values

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 Norms: Folkways and Mores
 Folkways (phong tục): Routine conventions of everyday life.
 Little moral significance
 Generally, social conventions such as dress codes, social
manners, and neighborly behavior

 Mores (tục lệ): Norms central to the functioning of society

and its social life
 Greater significance than folkways
 Violation can bring serious retribution
 Theft, adultery, incest and cannibalism

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Norms: Folkways and Mores

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 Determinants of Culture

Religion
 Social structure

 Religion Education
Political
Philosophy

Culture
 Language Norms and
Values
System
 Education
Economic
Language
Philosophy

 Economic philosophy
Social
 Political philosophy Structure

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Social Structure
 Two dimensions
 The extent to which society is group or individually
oriented
 Degree of stratification into castes or classes
 Social mobility
 Significance to business

 Other influences
 Political philosophy
 Economic philosophy

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 Social structure

India USA

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Body language

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Body language

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 Hofstede
Value Dimension Scores

LO9
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Hofstede
Value Dimension Scores

 Go to https://www.hofstede-
insights.com/

 Choose any two countries and

compare the scores

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 Ethnocentricity

 Ethnocentrism is the belief in the superiority of one’s

own ethnic group
 To overcome ethnocentricity
 Realize that there are many different cultures
 Spend time in another country
 Undergo training on culture and language

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Culture and International
Business
 Culture and communication
 Culture and negotiation
 Culture and decision making process
 Culture and marketing activities
 Culture and HRM

 Cross cultural literacy

 Culture and competitive advantage
 Culture and business ethics

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Political and Legal Forces

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 POLITICAL SYSTEMS
 Political systems are systems of government (structure of
government and modality that governments function).

 Political systems have two dimensions

 Degree of collectivism vs. Individualism
 Degree of democracy vs. totalitarianism

 Collectivism are more tendency toward totalitarianism than

individualism.

 Democracy and totalitarianism: the way that a government is

formed/elected >>> grey area (Chile in 1980, China and
Vietnam today: economy and politic)

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 Socialism and Communism
 Socialism & Communism: achievement ways và totalitarian

 Socialist ideology
 Communism
 Communists believe that socialism can only be achieved
through violent revolution and totalitarian dictatorship
 Social democracy
 Marxist roots. State owned enterprises run for public
good rather than private profit.

 Social democracy: Australia, England, Germany, Frace, Sweden,

Norway, Spain

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 Western Democracy
 Individuals right to freedom of expression, opinion and organization

 Free media

 Regular elections

 Adult suffrage

 Limited terms for elected representatives

 A fair court system that is independent from the political system

 A non political state bureaucracy

 Nonpolitical force and armed service

 Relatively free access to state information

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 List of countries by system of
government

•Blue – Full presidential republics http://en.wikipedia.org/wiki/List_of_countries_by_system_of_government#Map

•Yellow – Semi-presidential republics
•Green – Presidential republics, executive presidency linked to a parliament
•Orange – Parliamentary republics
•Red – Parliamentary constitutional monarchies in which the monarch does not personally exercise power
•Magenta – Constitutional monarchies in which the monarch personally exercises power, often (but not always)
alongside a weak parliament
•Purple – Absolute monarchies
•Brown – Countries where the dominant role of a single political party or coalition is codified in the constitution
•Dark green – Countries where constitutional provisions for government have been suspended
•Gray – Countries that do not fit in any of the above listed systems 5-34
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 Political risks
Political risks are threats or damages caused by
unexpected changes of political system.

Main causes include:

1. Weak leadership of governments
2. Frequent changes of governments
3. Interventions of army and/or religious leaders
4. Unstable political system
5. Conflicts of religions, ethnics

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 Types of political risks

Macro risks
1. Threats to all industries
2. Impacts on most of companies
3. Wide range, long-term impact, changes the ways to
run business of many industries and sectors

Micro risks: impacts on companies in a certain industry.

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 Consequences of political
risks
 Violence and conflicts

 Terrorism and kidnapping

 Appropriation in 3 ways: (i) foreclosures/tịch thu (forced to transfer

without compensation); (ii) pulsed/xung công (forced to transfer
with compensation); (iii) nationalizied/quốc hữu hóa (happened to
whole industry).

 Political changes

 Requirements of local content

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Measures against political
risks
 Avoiding (not investing in that country)

 Collecting information, preventing and

adapting (risk management)

 Independenizing child companies’ activities

from mother company

 Political lobby

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LEGAL SYSTEMS

 Rules - laws - that regulate

behavior
 processes through which laws are
enforced & grievances are redressed

 Businesses must observe

 home country laws
 host country laws
 international laws and treaties

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LEGAL SYSTEMS

 Three main types of legal systems –

in use around the world:
 Common law/Anglo-American legal
system (Thông luật/Luật Anh Mỹ)
 Civil law/Continental legal system
(Luật dân sự/Luật lục địa)
 Theocratic law/Religious legal system
(Luật thần quyền)

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 LEGAL SYSTEMS IN THE
WORLD

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http://opiniojuris.org/wp-content/uploads/Legal-Systems-of-the-World-Updated-580x361.png
41
http://www.juriglobe.ca/eng/sys-juri/index-syst.php
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 Legal issues in international
business
 Understand trade barriers including (i) quality standards; (ii)
anti-dumping; and (iii) administrative procedures

 Protection of intellectual property (i) industrial property

(invention, patent, trademarks, industrial designs); (ii)
copyrights

 Standards on quality of products

 Taxes

 Anti-monopoly

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 ECONOMIC FORCES

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Economic Forces
are Uncontrollable
 Most significant forces for managers

 Firms assess and forecast economic conditions

 National and international level

 Data published by governments and international

organizations

 World Bank, IMF, UN, OECD

 CIA, US DOC

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 Economic Systems

 Market economy: what is produced & in what

quantity is determined by supply/demand and
signaled to producers through a price system
 Command economy: planned by government
 Mixed economy: a balance of both of the above
 State-directed economy: the state directly
influences the investment activities of private
enterprise through “industrial policy”

 Transitional Economy
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 Transitional Economies

 Deregulation
Removal of legal restriction to the free
play of market systems
Allowing establishment and operations
of private enterprises
 Privatization
Transfer of ownership of state owned
enterprise to private individuals
 Legal systems
Laws that support a market economy
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Purpose of Economic Analysis

 Appraise the overall economic outlook

 Assess the impact of possible changes on the
firm
 Foreign market entry makes economic analyses
more complex
 Foreign environment: many national
economies
 International environment: national economies’
interaction

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Levels of Economic Development

 Developed
 All industrialized nations
 Most technically developed
 Developing
 Lower income nations
 Less technically developed
 NIE: Taiwan, HK, Singapore, S. Korea
 NIC: NIE and Brazil, Mexico, Malaysia, Chile,
Thailand
 Emerging Markets BRIC: Brazil, Russia, India, China
 Most watched by businesses

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Important Economic Indicators

 Gross National Income (GNI)

 GNI/capita
 Income Distribution
 Private consumption
 Unit labor costs
 Exchange rates
 Inflation rates
 Interest rates

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Economic Development

 Development should be measured less by

material output measures such as GDP/GNP,
GDP per capita and more by the capabilities
and opportunities that people enjoy.

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Dimensions of the Economy
 Gross National Income (GNI)
 The measure of the income generated by a nation’s
residents from international and domestic activity
 Preferred over GDP which measures income from
domestic activity from residents and non-residents
 GNI/Capita
 Compares countries with respect to the well-being of
their citizens
 Used to assess market or investment potential
 Underground economy: a nation’s income not measured by
official statistics
 Non-reporting
 underreporting

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 52

GNI/capital

Source: World Bank, 2020

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Purchasing Power Parity

 Purchasing Power Parity

 The number of units of a currency required
to buy the same amount of goods and
services in a domestic market that $1.00
would buy in the U.S.
 Helps to make comparisons possible across
economies

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Purchasing Power Parity
Vietnam USA
• In Vietnam, 1.350.000 VND
Goods
(VND) (USD) buys what $107.2 buys in the
U.S.
Soap 5.000 0,5
• 1.350.000VNĐ / $107.85 =

Rice (1kg) 20.000 0,7 12.593 VNĐ/USD

• PPP rate is $1 = 12.593 VNĐ
Shoes (a pair) 800.000 60
• GNI/capital in Vietnam ~
Dress (1 unit) 500.000 45 60.000.000 VNĐ/23.000 ~ 2,600
USD
Socks (a pair) 25.000 1
• GNI/capital in Vietnam (PPP) =
Tổng 1.350.000 107,2
60.000.000/12.593 = 4.765 USD
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Human Development Index
 Economic growth is not synonymous with economic
development
 The human needs approach defines economic
development as the reduction of poverty,
unemployment, and inequality in the distribution of
income
 HDI (UN index) measures
 Long and healthy life - life expectancy
 Ability to acquire knowledge - adult literacy
 Access to resources needed for a decent standard of living -
GDP/capita

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HDI Index Highlights
 Top five:
Iceland, Norway, Australia, Canada, Ireland
 Second five:
Sweden, Switzerland, Japan, Netherlands, France
 Third five:
Finland, U.S., Spain, Denmark, Austria
 Penultimate (near bottom) five:
Congo (DR), Ethiopia, Chad, Central African Rep.,
Mozambique
 Last five:
Mali, Niger, Guinea-Bissau, Burkina Faso, Sierra
Leone

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 57

Industrialization
The process of transition from an
agricultural economy to an industrial
economy, leading to a structural shift
towards reducing the proportion of
the agricultural sector, increasing the Agriculture
industrial and service sectors.

Industry

Service

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 58

Industrialization

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Economic cycle

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Economic System of
Vietnam
 Vietnam and Industrialization:
Why?
 Hong Kong does not need to
industrialize. Its service sector is well
developed.

 Malaysia is trying to escape from

manufacturing.
There are two ways to answer. First, Vietnam as well as Japan, Korea, China
have or had a large portion of population and labor force in agriculture.
Second, Vietnam should go forward in its selected direction than change its
direction.

Vietnam rural population was at 60.42 millions in 2012 (68% of population).

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 Where is Vietnam in the EA’s
industrial map?

 Vietnam and ASEAN were direct competitors in most of the

commodities
 Vietnam had advantage in few products such as live animal,
meat (HS).
 ASEAN 4 (Malaysia, Thailand, Philippines and Indonesia) was
more competitive than Vietnam in most of the industrial
products including steel, electronics and its components,
automobile and its parts and components.

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Internet source

Michigan State University

http://globaledge.msu.edu/

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