1-1 8-1 Ideological Forces Communism Government should own all the major factors of production Labor unions are government- controlled This ideology persists in few countries Capitalism An economic system in which the means of production and distribution are for the most part privately owned and operated for private profit LO1
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1-1 8-1 Ideological Forces Communism Government should own all the major factors of production Labor unions are government-controlled This ideology.
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1-1
8-1
Ideological Forces
Communism Government should own all the major
factors of production Labor unions are government-controlled This ideology persists in few countries
Capitalism An economic system in which the means of
production and distribution are for the most part privately owned and operated for private profit
LO1
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8-2
Ideological Forces
Socialism In an extreme form socialist governments can
control public utilities and some basic means of production
Socialist governments rarely perform in ways consistent with a “pure” doctrine
Many European countries including Great Britain, France, Spain, Greece, Germany, Italy, Austria, and others have practiced a form of socialism
LO1
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8-3
Conservative or Liberal
Conservative In recent U.S. terms a conservative believes in
minimizing government oversight of economic activity and maximizing the independence of the private sector
Liberal In recent U.S. terms a liberal urges greater
government regulation and oversight of the economy
These terms usually have entirely different meanings outside the U.S.
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The government suspects that the firms are concealing profits
To increase the firm’s profitability For ideological reasons - countries have national,
government run utility companies, control strategic industries (petroleum in Mexico), etc.
To preserve jobs by supporting failing industries that are important to the economy
As a consequence of previous government’s support to protect the public investment
Why Firms are Nationalized
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8-5
Unfair Competition?
Privately owned companies complain that government owned companies Can cut prices because maximizing profit is
not their main purpose Get cheaper financing Get government contracts Get export assistance Can hold down wages with government
assistance
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Privatization Anywhere Any Way
Privatization does not always refer to ownership transfer from government to private entities Activities previously conducted by the state
may be contracted out Governments may lease state-owned plants
to private entities Governments may combine a joint venture
with a management contract with a private group to run a previously government-operated business
LO2
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Government Protection
Any government, regardless of ideology, must protect the nation’s economic welfare
National defense Protection from banditry, piracy Terrorism
LO3
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Government Protection
Terrorism Unlawful acts of violence committed for a wide
variety of reasons, Economic gain: ransom To overthrow a government To gain release of imprisoned colleagues To exact revenge for real or imagined wrongs To punish nonbelievers of the terrorists' religion
LO3
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Government Protection
World wide terrorist groups: a new trend Government-sponsored terrorism: act of war
Countries finance, sponsor, and train terrorists and/or provide sanctuaries for them
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Government Protection Kidnapping for Ransom
Victims held for large ransoms Columbia and Peru are dangerous places
for American executives U.S. executives practice “commando
management” to avoid kidnap risk Arrive secretly, meet for a few days and
fly off before kidnappers learn of their presence
Such behavior is suggested when operating in countries that are on the U.S. State Department’s warning list
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Countermeasures by Industry
KRE (kidnap, ransom, and extortion) Insurance to cover ransom payments, antiterrorist
schools Cassidy and Davis
The world’s largest kidnapping and extortion underwriting firm is located in London
Antiterrorist Schools
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Terrorism Developments
Nuclear Terrorism Failing security standards at former Soviet
installations permit uranium to be stolen, then sold to terrorists
Chemical and Biological Terrorism Recipes from self-taught terrorists that can be
downloaded from the Internet
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Government Stability
Stable Government Maintains itself in power and whose fiscal,
monetary and political policies are predictable and not subject to sudden, radical changes
Unstable Government Cannot maintain itself in power or makes
sudden, unpredictable, or radical policy changes
LO5
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Traditional Hostilities
Traditional hostilities refer to long-standing enmities between tribes, races, religions, ideologies, or countries Arab countries -Israel Hutus and Tutsis in Burundi and Rwanda Tamils and Sinhalese in Sri Lanka
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International Companies and Political Forces
International companies are powerful and can influence their destiny make decisions about where to invest, where to
conduct research and development, and where to manufacture products
The financial size of many international companies relative to the host economy or economic sector gives them a strong negotiating position
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Country Risk Assessment
A country risk assessment (CRA) is an evaluation by the firm that assesses a country’s economic situation, policies and politics to determine how much risk exists of losing an asset or not being paid
Government officials sensitive to interest groups that are being hurt by international competition
Arguments for trade restrictions National defense Sanctions to punish offending nations Protect infant or dying industry Protect domestic jobs from cheap foreign labor Scientific tariff or fair competition
LO7
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Dumping
Dumping is within the domain of the WTO The WTO defines dumping as selling a product abroad
for less than the average cost of production at home home market price the price to third countries
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Subsidies and Countervailing Duties
Subsidies are economic actions by a government to support exports or hinder imports
Countervailing duties are additional import taxes levied by the importing nation’s government on imports that have benefited from export subsidies offered by the exporting nation’s government
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Tariff Barriers
Tariffs or import duties are taxes levied on imported goods to reduce their competitiveness
Ad valorem duties are assessed as a percentage of invoice value
Specific duties are assessed as a fixed sum per unit
Compound duties are a combination of ad valorem and specific duties
A variable levy may guarantee the market price of the import is equal to that of the domestic product
LO8
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Non-Tariff Barriers
Forms of discrimination against imports other than import duties such as Specifications Customs procedures
Quotas are numerical limits on specific classes of imports Absolute: once number is reached imports stop Global: no regard to source Allocated or discriminating: assigned to specific
countries
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Non-Tariff Barriers
Voluntary export restraints (VERs) are export quotas imposed by the exporting country
Orderly marketing arrangements are VERs based on formal agreements between exporting and importing countries
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Non-Quantitative Non-Tariff Barriers
Government participation in trade Procurement policies Local content requirements
Customs and other administrative procedures Standards