M04 rugm 6563_05_ppw_ch04

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Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

International politics

Chapter 4

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International politics

• Objectives• Introduction • Economic integration• The European Union (EU)• Other examples of economic integration• Economic integration and strategic management.

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Objectives

• Compare and contrast major political and economic systems and note the linkage among them.

• Examine the primary reasons for the current privatization movement and the economic impact that this movement is having on selected countries.

• Describe the five major levels of economic integration and how each works.

• Discuss how MNEs are using strategic planning to benefit from current worldwide economic integration efforts.

• Discuss the impact of NGOs on international business.

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Introduction

• Over the last two decades there has been a dramatic change in the political systems of many countries.

• In particular, there has been a move towards market-driven economies in Eastern Europe and China.

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Political ideologies and economics

• Political systems– Democracy: A system of government in which

the people directly or through their elected officials, decide what is to be done.

– Totalitarianism: A system of government in which one individual or party maintains complete control and either refuses to recognize other parties or suppresses them.

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• Economic systems– Market-driven economy: An economy in which

goods and services are allocated on the basis of consumer demand.

– Centrally determined economy: An economy in which goods and services are allocated based on a plan formulated by a committee that decided what is to be offered.

– Mixed economies: Economic systems characterized by a combination of market-and centrally-driven planning.

Political ideologies andeconomics (Continued)

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Government control of assets

• Privatization: The process of selling government assets to private buyers.– Divestiture: A process by which a government or

business sells assets.

– Contract Management: A process by which an organization (such as the government) transfers operating responsibility of an industry without transferring the legal title and ownership.

• Nationalization: A process by which the government takes control of business assets, with or without remuneration of the owner.

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Government – business cooperation

• Although governments are privatizing assets, this does not mean that they are not involved in business.

• Business-government cooperation continues to be beneficial, particularly in the EU and Japan.

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Economic integration

• The establishment of transnational rules and regulations that enhance economic trade and cooperation among countries.

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Trade creation and diversion

• Trade creation: A process in which members of an economic integration group begin to focus their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other.

• Trade diversion: A process in which members of an economic integration group decreases trade with non-member countries in favor of trade with each other.

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Levels of economic integration

• Free Trade Area: barriers to trade (such as tariffs) among member countries are removed (e.g. NAFTA).

• Customs Union: tariff between member countries are eliminated and a common trade policy toward nonmember countries is established.

• Common Market: elimination of trade barriers among member countries, a common external trade policy and mobility of factors of production among member countries.

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• Economic union: A deep form of integration characterized by free movement of goods services, and factors of production among member countries and full integration of economic policies.

• Political union: An economic union in which there is full economic integration, unification of economic policies and a single government.

Levels of economic integration (Continued)

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Ethics, environment, MNEs and the civil society

• The civil society is a group of individuals, organizations and institutions that act outside the government and the market to advance a diverse set of interests, including opposition to global business.

• Non-governmental organizations (NGOs) are private-sector groups that act to advance diverse social interests.

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The European Union: formation

• European Coal and Steel Community (ECSC): A community formed in 1952 by Belgium, France, Italy, Luxembourg, the Netherlands and West Germany.

• European Union (EU): A treaty-based institutional framework that manages economic and political cooperation among its 27 member countries.

• European Free Trade Association (EFTA): A free trade area currently consisting of Iceland, Liechtenstein, Norway and Switzerland.

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The European Union: organization

• European Council• Council of the European Union• European Commission• European Parliament• Court of Justice• Court of Auditors.

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Figure 4.1 The European Union’s institutions

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Other examples of economic integration

• Andean Community: An economic union that consists of Bolivia, Colombia, Ecuador, Peru and Venezuela.

• Mercosur: A free trade group that consists of Argentina, Brazil, Paraguay and Uruguay.

• ASEAN: Founded by Indonesia, Malaysia, the Philippines, Singapore and Thailand.

• FTAA: A free trade agreement of the Americas that has not yet been implemented.

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Economic integration and strategic management

• A strategic alliance is a business relationship in which two or more companies work together to achieve a collective advantage.

• These alliances can take a number of forms:– research cooperation;

– marketing cooperation;

– licensing of a product or technology for a specific market region.

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Localization of business operations

• MNEs must adapt their offering, their expectations and the way in which they do business to each market in which they operate.

• These efforts result in the localization of business operations and typically focus on four areas: – Products

– Profits

– Production

– Management.

M04 rugm 6563_05_ppw_ch04

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