Global Business

Environment
Unit 4
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Political System & Environment

What is a Political Economy?

• The political economy of a nation

refers to how the political, economic,
and legal systems of a country are
interdependent;
– they interact and influence each other.

– they affect the level of economic well-

being in the nation.
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Political System & Environment

What is a Political System?

• Political system refers to the system of government in

a nation.

• Assessed according to:

– the degree to which the country emphasizes collectivism as

opposed to individualism

– the degree to which the country is democratic or

Totalitarian or authoritarian.
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Political System & Environment

What is Individualism?

• Individualism refers to philosophy that an individual

should have freedom in his own economic and political
pursuits.
– can be traced to Greek philosopher, Aristotle (384-322 BC), who
argued that individual diversity and private ownership are
desirable.

– individual economic and political freedoms are the ground rules on

which a society should be based.
– implies democratic political systems and free market
economies.
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Political System & Environment

What is Collectivism?

• Collectivism stresses the primacy of collective goals

over individual goals
– can be traced to the Greek philosopher, Plato (427-347 BC)
• Today, collectivism is equated with socialists (Karl Marx
1818-1883)
– advocate state ownership of the basic means of production,
distribution, and exchange

– manage to benefit society as a whole, rather than individual

capitalists
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Political System & Environment

How does Modern-Day Socialism Look?

 In the early 20th century, socialism split into:

1. Communism – socialism can only be achieved through
violent revolution and totalitarian dictatorship.
– in retreat worldwide by mid-1990s

2. Social democrats – socialism is achieved through

democratic means.
– retreating as many countries move toward free market economies
– state-owned enterprises have been privatized
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Political System & Environment

What is Democracy?

• Democracy refers to a political system in which

government is by the people, exercised either directly
or through elected representatives.
– usually associated with individualism.
– pure democracy is based on the belief citizens should be
that
directly
– most involved
modern in decision
democratic making. representative democracy
states practice
where citizens periodically elect individuals to represent them.
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Political System & Environment

What is Totalitariasm?

• Totalitarianism is a form of government in which one person or

political party exercises absolute control over all spheres of
human life and prohibits opposing political parties.
1. Communist totalitarianism – found in states where the communist party
monopolizes power.

2. Theocratic totalitarianism - found in states where political power is

monopolized by a party, group, or individual that governs according to

religious principles.
3.
Tribal totalitarianism - found in states where a political party that
represents the interests of a particular tribe monopolizes power.
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Economic System
What is an Economic System?
• There are three types of economic systems:
1. Market economies - all productive activities are privately owned and
production is determined by the interaction of supply and demand.
– government encourages free and fair competition between private producers.
2. Command economies - government plans the goods and services that a country
produces, the quantity that is produced, and the prices as which they are sold.
– all businesses are state-owned, and governments allocate resources for “the
good of society.”
– because there is little incentive to control costs and be efficient, command
economies tend to stagnate.
3. Mixed economies - certain sectors of the economy are left to private
ownership and free market mechanisms while other sectors have significant
state ownership
– governments and
tend to government
own planning.
firms that are considered important to national
security.
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Economic System
What Is The Nature Of Economic Transformation?

• The shift toward a market-based system involves:

 deregulation – removing legal restrictions to the free play of

markets, the establishment of private enterprises, and the
manner in which private enterprises operate.

 privatization - transfers the ownership of state property into

the hands of private investors.

 the creation of a legal system to safeguard property rights.

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Economic System
What Does The Changing Economy Mean For Managers?

• Managers must consider:

1. Political risk - the likelihood that political forces will cause
drastic changes in a country's business environment that
adversely affects the profit and other goals of a business
enterprise.
2. Economic risk - the likelihood that economic mismanagement will
cause drastic changes in a country's business environment that
adversely affects the profit and other goals of a business
enterprise.
3. Legal risk - the likelihood that a trading partner will opportunis-
tically break a contract or expropriate property rights.
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Legal System
What is a Legal System?

• The legal system of a country refers to the rules that

regulate behavior along with the processes by which
the laws are enforced and through which redress for
grievances is obtained.
• There are three types of legal systems:
1. Common law - based on tradition, precedent, and custom
2. Civic law - based on detailed set of laws organized into
codes
3. Theocratic law - law is based on religious teachings
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Legal System
How Are Contracts Enforced In Different Legal Systems?

• A contract is a document that specifies the conditions under which an

exchange is to occur and details the rights and obligations of the parties
involved.

• Contract law is the body of law that governs contract enforcement.

• Under a common law system, contracts tend to be very detailed with
all
• contingencies spelled out.

• Under a civil law system, contracts tend to be much shorter and

less
specific because many issues are already covered in the civil code.
Many
places countries
of business have ratified
in different the United Nations Convention on
nations.
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Legal System
• Property Rights - Those rights which go with ownership of real property or a
business. Property rights are theoretical socially-enforced constructs in
economics for determining how a resource or economic good is used and owned.
Resources can be owned by (and hence be the property of) individuals,
associations or governments. Property rights can be viewed as an attribute of an
economic good.

• Intellectual Property (IP) - refers to the creations of the human minds for which
exclusive rights are recognized. Innovators, artistes and business owners are
granted certain exclusive rights to a variety of intangible assets for a specified
duration.

• Product Safety Requirement - If you import, produce or distribute goods,

including second-hand, the law states they must be safe for the consumer to use.
A safe product is one that provides either no risk or a minimum acceptable level
of risk, taking into account the normal or reasonably foreseeable use of the
product and the need to maintain a high level of protection for consumers.
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Socio-Cultural System
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Socio-Cultural System
Understanding A Social System

• A social system is a complex set of human relationships

interacting in many ways.

• Within a single organization, the social system includes all the

people in it and their relationships to one another and to the
outside world. Two points stand out in the complex
interactions among people in a social system.

• First, the behavior of any one member can have an impact,

directly or indirectly, on the behavior of any other.

• A second important point, the organization revolves around

the social system‟s boundaries.
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Socio-Cultural System
Religion : Are Employees Taking Their Faith To Work?

• Religion is not limited to traditional, organized religions, but also includes

religious beliefs that are practiced by a small group of people and are not
part of just a formal temple, church or mosque.

• Religious observances or practices include, for example, attending worship

services, praying, wearing religious garb or symbols, displaying religious
objects, adhering to certain dietary rules, proselytizing or other forms of
religious expression, or refraining from certain activities.

• According to research, many organizations are supportive of their

employees‟ needs for special accommodation related to their religious and
spiritual beliefs. The findings reveal that employee morale and employee
retention are most affected by having a workplace that provides
religious
accommodation for its employees.
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Socio-Cultural System
Religion : Are Employees Taking Their Faith To Work?

 The most prevalent types of religious accommodation include

the following:

• taking into account the different religious beliefs of

employees when planning holiday-related events;

• allowing religious decorations of an individual‟s workspace;

• providing flexible scheduling to accommodate employees‟
religious practices at work;
• and, taking into account employees‟ various religious holidays
when planning work-related events.
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Socio-Cultural System
The Power of Language for Improving Organizational Culture

• The power of language as a catalyst for improving not only company

culture but the bottom-line performance of business is frequently
overlooked. But, when it accounts for the vast majority of our
communication, it is high time that we start thinking before we speak.

• Among other things, culture is made up of all the small conversations

we have on a day-to-day basis but as businesses we often fail to look
at this language element when we‟re trying to effect change.
• When you compare it to modifying human behaviors and values,
language is relatively easy to change and can have an
immediate
impact in most organizations.
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Socio-Cultural System
The Power of Language for Improving Organizational Culture

• Most people learn contextually- specific patterns of language to use in

certain situations. If an organization promotes success by encouraging
people to talk about problems and their solutions, then everybody learns
that pattern of language and it forms a culture oriented towards problem
resolution.
• In the communication process, the target to achieve is to unpick negative
patterns of language and give people new words, phrases and contexts to
make their use of language more effective.
• The preferred styles for most leaders are what we call „advocacy‟ or
„advisory‟ types of language. These are what you‟d expect from senior
business people, but both of these styles suggest answers and are not
particularly useful if you want to stimulate and encourage people to
explore problems.
everyday
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Socio-Cultural System
Education and Organizational Culture

• In the management scenario,education refers to much beyond

bookish knowledge.

• Education in the organizational context is the skill to make the

best use of an available opportunity.

• Smart skills (practically educated employee) will strongly

influence organizational culture.

• Education injects the spirit of inviting creative changes and

encourages employees at all levels to accept change as and
when it comes and keep the organization updated.
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Socio-Cultural System

• Organizational Aesthetics is how the “arts” inform organizational

learning and development. It is the creativity at work.

• The arts are emerging as a role model for business and government
organizations because the arts excel in areas where managers struggle
the most: chaos, diversity, ambiguity, envisioning the future and the
ability to dare to break molds.
• For organizations to flourish, we must create environments that
creativity in all its diversity. We must bring together multitalented
foster
groups of people who collaborate and orchestrate the exchange of
knowledge and ideas that shape the future.
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Socio-Cultural System
Culture:

 Japanese people never look deeply to your eyes

 In some Arabic culture, women cannot go outside without a man

 Religious Muslims dont drink alcohol and drugs (Never try to
serve)
 Socio-Cultural System
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Culture:
The Top Ten Ways That Culture Can Affect
International Negotiations

1. Negotiating goal: Contract or 6. Emotionalism: High or low?

relationship?
7. Form of agreement: General
2. Negotiating attitude: Win-Lose or specific?
or Win-Win?
8. Building an agreement: Bottom
3. Personal style: Informal or up or top down?
formal?
9. Team organization: One leader
4. Communication: Direct or or group consensus?
indirect?
10.Risk taking: High or low?
5. Sensitivity to time: High or low?
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Socio-Cultural System
Culture: If You Want to Make an International Agreement -
(tricks) or (hints) to handle cultural differences

 Germany: You must be timely

 France: You must wear an official dress (suit up)
 Italy: While at a business dinner, keep talking about Italian food
 Russia: While negotiation if they doing hand contact or touch
your shoulders, they start to trust you

 Saudi Arabia: During the greetings kiss three times (never, ever
try to kiss a woman)