National Differences in

Political Economy

Chapter 2

Political Economy

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

Risks in International

Business

Cross-Cultural

Risk

Country (Political)

Risk

Currency (Financial)

Risk

Commercial Risk

Political System

Legal System

Country (Political) Risk

1. Unstable political system

2. Laws unfavorable to foreign firms

3. Bureaucracy

4. Corruption

5. Government protectionism

Political System

Political system refers to the system of government in a nation

Totalitarianism government seeks control of economic & political matters,

and beliefs of citizens.

Examples Previously China, Soviet Union. Presently Cuba, North Korea, Libya,

Sudan, Zimbabwe etc.

Mainly related to command economy

Political System

Socialism government control basic means of production, distribution and

commercial activities to ensure

collective welfare of people.

Examples China, Egypt, India, Russia, Venezuela etc.

Mainly related to mixed economy

Political System

Democracy Government limited intervention and individual property

rights.

Examples Australia, New Zealand, Japan, Canada, United States, most EU

countries.

Related to market economy

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

Common Law

Civil Law

Religious Law

Based on traditions, previous cases and precedents - interpretive

Australia, Canada, Ireland, UK, U.S, New Zealand.

Common Law

Detailed set of laws organized into codes commercial, civil, criminal - applied

Japan, Russia, S. Korea, most Latin American countries.

Civil Law

Based on religious beliefs as mandated by supreme being

Islam, Jewish, Hindu laws

Religious Law

Country Risks

Political Risks

Government Takeover expropriation, confiscation, domestication

Embargo/Sanctions

Boycotts against firms/nations

War/violence

Terrorism

Country Risks

Legal Risks

Foreign Investment Laws

Marketing and Distribution Laws

Environmental Laws

Intellectual Property Law

Product Safety

Managing Country Risks

Proactive Environmental Scanning

Strict Ethical Standards

Alliance with Qualified Local Partners

Protection through Legal Contracts

Risk Insurance

Malaysia Country Risk Report (AMB Country Risk Report , 2014)

Political Risk

Moderate Risk Increased foreign participation, increased transparency, less

government involvement, subsidies and price controls.

Economic Risk

Moderate Risk Dependent on exports vulnerable to economic uncertainties Outlook remains strong sought to boost domestic demand

Financial Risk

Low Risk Conservative and proactive supervision and prudent lending

practices by banking sector

Progress continues on liberalizing capital markets.