Bài giảng Global Business Today - Chapter 3 Political Economy and Economic Development

Global Business Today 8e© 2014 by McGraw-Hill Education.  This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.  This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.  by Charles W.L. HillChapter 3Political Economy and Economic DevelopmentIntroductionQuestion: What are the implications of a country’s political economy on its level of economic development and its environment for doing business? Answer:A country’s political economy influences its level of economic developmentHigher levels of economic development create a more favorable environment for international business Differences in Economic DevelopmentA country’s level of economic development affects its attractiveness as a possible market or production location for firms One common measure is a country’s gross national income (GNI) per head of populationA purchasing power parity (PPP) adjustment allows for a more direct comparison of living standards in different countries Differences in Economic DevelopmentAmartya Sen - development should be assessed less by material output and more by the capabilities and opportunities that people enjoy The United Nations created the Human Development Index based on life expectancy, education attainment, and whether average incomes are sufficient to meet the basic needs of life in a country Political Economy  and Economic ProgressQuestion: What factors influence a country’s rate of economic development?Innovation (new products, new processes, new organizations, new management practices, and new strategies) and entrepreneurship promote long-run economic growth Geography - influences economic policy, and thus economic developmentEducation levelsStates in TransitionSince the late 1980s:A wave of democratic revolutions has swept the worldMany totalitarian regimes have collapsed Countries have moved from centrally planned and mixed economies towards free markets States in TransitionDemocracy has spread to new countries because: Many totalitarian regimes failed to deliver economic progress to the majority of their populationNew technologies have broken down the ability of the state to control access to uncensored informationEconomic advances have led to the emergence of prosperous middle and working classes who demand democratic reforms States in TransitionThe shift toward a market-based economic system involves: Deregulation – involves removing legal restrictions on the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operatePrivatization - transfers the ownership of state property into the hands of private investorsLegal system - that protects property rights and the machinery to enforce that system Implications of a Changing EconomyQuestion: What are the implications of a changing economy for international firms?Markets that were formerly off-limits to Western business are now openChina (population of 1.3 billion) could be a bigger market than the U.S., the EU, and Japan combinedIndia (population 1.2 billion) is also a potentially huge market However, just as the potential gains are large, so are the risks Implications for ManagersQuestion: What are the benefits of doing business in foreign markets?The long-run monetary benefits of doing business in a foreign market are a function of the market’s size, and of the present and likely future wealth of its consumersConsider:First mover advantages – advantages that accrue to early entrants in a marketLate mover disadvantages – handicaps that late entrants might sufferImplications for ManagersQuestion: What are the costs of doing business in foreign markets?Political, economic, and legal factors determine the costs of doing business in a countryIt may be necessary to pay bribes Infrastructure problems can raise the cost of doing business in underdeveloped marketsLocal regulations can raise the cost of doing business Implications for ManagersDoing business in foreign markets involves riskPolitical 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 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 Legal risk - the likelihood that a trading partner will opportunistically break a contract or expropriate property rightsImplications for ManagersThe overall attractiveness of a country as a potential market and/or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that countryGenerally, the costs and risks are lower in economically developed and politically stable marketsHowever, the potential for growth may be higher in less developed nations