AOFBusiness in a Global Economy

Unit 2, Lesson 4

Political and Economic Systems

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Risks are inherent in the global marketplace

• Social aspects

• Technology

• Economic development

• Politics and laws

What other things must one consider when analyzing a foreign market?

Global businesses face political risks

• Ownership risks

• Loss of business property

• Operating risks

• Disruption of business

• Transfer risks

• Problems moving goods or money

Risk

Political Stability

Risk vs. Political Stability

Attorneys are an essential part of a global team

• Contracts

• Property rights

o Intellectual property

• Product safety

Do people own their ideas?

Why or why not?

Other factors contribute to business success

Geography

o Location

o Resources

Education

o Literacy rate

What influence does a country’s GDP have on its literacy rate, and vice versa?

Highest National Literacy Rates

1 Sweden

2 Norway

3 Denmark

4 Finland

5 Canada

6 Netherlands

7 Czech Republic

8 United Kingdom

9 USA

10 Germany

Economic policies can benefit business

• Taxes pay for public services.• Education• Infrastructure

• Governments may try to protect local businesses…• Tariffs • Quotas• Subsidies

• …but this can reduce choice, raise prices, and make local businesses uncompetitive.

How do protectionist policies affect economic development?

Percentage of GDP Spent on Education

Economic development indicators measure production, consumption, or quality of life

GDP: Gross Domestic Product

• Goods and services produced and consumed

PPP: Purchasing Power Parity

• Adjusts for cost of living

HDI: Human Development Index

• Quality of life How could an increasing level of economic development influence a firm’s decision to expand to a country?

1 USA

2 Japan

3 Germany

4 China

5 United Kingdom

Highest GDP 2007

Risk analyses protect global businesses

• Social factors: language, customs

• Technological factors: energy, transportation, communications

• Economic factors: capital, resources

• Political factors: protectionism, conflicts

What other factors could be included in a risk analysis?

STEP