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Chap 2
Chap 2
Chapter 2
National Differences in
Political, Economic, and
Legal Systems
© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
Learning Objectives
2-1 Understand how the political systems of
countries differ.
2-2 Understand how the economic systems of
countries differ.
2-3 Understand how the legal systems of countries
differ.
2-4 Explain the implications for management
practice of national differences in political
economy.
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Opening Case
China’s Mixed Economy
China used to be a one-party state where private enterprise was
banned, and business activity was controlled by government.
Market-oriented reforms have now made China the second largest
economy in the world.
• Still a one-party state, but now a “socialist market economy.”
• Mixed economy with vibrant private sector and a significant state-
owned sector.
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Industrial Activity in China
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Political Systems 1
Political System
System of government in a nation.
Political systems assessed in terms of degree to which they:
• Emphasize collectivism as opposed to individualism.
• Are democratic or totalitarian.
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Political Systems 2
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Political Systems 3
Socialism.
• Socialists: those who believe in public ownership of the means of
production for the common good of society.
• Modern socialists trace roots to Karl Marx.
• Advocates state ownership of basic means of production, distribution,
and exchange.
• State then manages enterprises to benefit society as a whole.
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Political Systems 4
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Political Systems 5
Individualism.
• Suggests individuals should have freedom over economic and political
pursuits.
• Traced to Aristotle, who argued that individual diversity and private
ownership are desirable.
• Refined in work of David Hume, Adam Smith, and John Stuart Mill.
Individualism stresses:
• Individual freedom and self-expression.
• Letting people pursue self-interests to achieve the best overall good
for society.
• Democratic systems and free markets.
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Political Systems 6
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Political Systems 7
Totalitarianism.
• Form of government in which one person or political party exercises
absolute control over all spheres of human life, and opposing political
parties are prohibited.
• In most totalitarian regimes:
• There is widespread political repression.
• There are no free and fair elections.
• Media is censored.
• Basic civil liberties are denied.
• Challenges to regime are prohibited.
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Political Systems 8
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Political Systems 9
Pseudo-Democracies
Many nations lie between pure democracy and complete
totalitarianism.
• Authoritarian elements capture much of the machinery of state and
use this to deny basic political and civil liberties.
• Example: Russia under Vladimir Putin.
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Economic Systems 1
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Economic Systems 2
Market Economy
Goods and services a country produces and the quantity in which
they are produced is determined by supply and demand.
• Supply must not be restricted by monopolies.
• Government encourages free and fair competition between private
producers.
• Constant incentive to improve products and processes.
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Economic Systems 3
Command Economy
Goods and services a country produces, the quantity in which they
are produced, and the price at which they are sold are planned by
government.
• All businesses are state-owned and have little incentive to control
costs and be efficient.
• Because there is no private ownership, there is little incentive to better
serve consumer needs.
• Dynamism and innovation are absent.
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North Korea’s Command Economy
North Korean leader Kim Jong-un visiting a factory.
Mixed Economy
Includes some elements of market economies and some elements
of command economies.
• Governments take over troubled firms considered vital to national
interests.
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Legal Systems 1
Legal System
Refers to rules, or laws, that regulate behavior, along with
processes by which laws are enforced and through which redress
for grievances is obtained.
A country’s legal system is important because laws:
• Regulate business practice.
• Define manner in which business transactions are executed.
• Set rights and obligations of those involved in business transactions.
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Legal Systems 2
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Legal Systems 3
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Legal Systems 4
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Legal Systems 5
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Legal Systems 6
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Figure 2.1 Rankings of Corruption by
Country, 2019
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Legal Systems 7
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Legal Systems 8
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Legal Systems 9
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Legal Systems 10
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Legal Systems 11
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360° View: Managerial Implications
The Macro Environment Influences Market Attractiveness
• Political, economic, and legal systems of a country raise
important ethical issues that have implications for practicing
international business.
• Political, economic, and legal environments of a country clearly
influence attractiveness of country as a market and/or
investment site.
• A democratic country with a market-based economy, protection
of property rights, and limited corruption is a more attractive
place to do business.
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Summary
In this chapter, we have
• Understood how political systems of countries differ.
• Understood how economic systems of countries differ.
• Understood how legal systems of countries differ.
• Explained implications for management practice of national
differences in political economy.
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