Transcript (Textbook) Behavior in Organizations, 8ed (A. B. Shani)

Chapter 2
National Differences in
Political Economy
Political Systems
The political economy of a nation refers to how the
political, economic, and legal systems of a country are
interdependent; they interact and influence each other, and
in doing so they affect the level of economic well-being
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Economic Systems
Political ideology and economic systems are connected
In countries where individual goals are emphasized free
market economies are likely
There are three types of economic systems:
market economies
command economies
mixed economies
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Differences In Contract Law
Many countries have ratified the United Nations
Convention on Contracts for the International Sale of
Goods (CIGS) which establishes a uniform set of rules
governing certain aspects of the making and performance
of everyday commercial contracts between buyers and
sellers who have their places of business in different
nations
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Property Rights And Corruption
Figure 2.1: Rankings of Corruption by Country 2006
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Property Rights And Corruption
The Foreign Corrupt Practices Act makes it illegal for U.S.
companies to bribe foreign government officials to obtain or
maintain business over which that foreign official has
authority
The OECD has also adopted a convention that obliges
member states to make the bribery of foreign public officials
a criminal offense
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The Protection Of
Intellectual Property Rights
Intellectual property refers to property that is the product
of intellectual activity
Intellectual property can be protected using:
Patents – exclusive rights for a defined period to the
manufacture, use, or sale of that invention
Copyrights – the exclusive legal rights of authors,
composers, playwrights, artists, and publishers to publish
and disperse their work as they see fit
Trademarks – design and names by which merchants or
manufacturers designate and differentiate their products
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The Protection Of
Intellectual Property Rights
Protection of intellectual property rights differs from
country to country – when intellectual property protection is
lax, piracy is common
Many countries are members of the World Intellectual
Property Organization and have signed international
treaties to protect intellectual property including the Paris
Convention for the Protection of Industrial Property
To avoid piracy, firms can stay away from countries
where intellectual property laws are lax, file lawsuits, and
lobby governments for international property rights
agreements and enforcement
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Product Safety And Product Liability
Property safety laws set certain standards to which a
product must adhere
Product liability involves holding a firm and its officers
responsible when a product causes injury, death, or
damage
When product safety laws are stricter in a firm’s home
country than in a foreign country, or when liability laws are
more lax, the firm has to decide whether to adhere to home
country or host country standards
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The Determinants Of
Economic Development
Countries have different levels of economic development
Gross national income (GNI) per person is a common
measure of economic development
Purchasing power parity (PPP) involves adjusting GNI by
purchasing power
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Differences In
Economic Development
Table 2.1: Economic Data for Select Countries
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Geography, Education, And
Economic Development
In addition to political and economic systems, geography
and education are also important determinants of economic
development
Countries with favorable geography are more likely to
engage in trade, and so, be more open to market-based
economic systems, and the economic growth they promote
Countries that invest in education have higher growth
rates because the workforce is more productive
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States In Transition
Since the late 1980s, two trends have emerged in the
political economy:
A wave of democratic revolutions swept the world in the
late 1980s and early 1990s
There has been a move away from centrally planned and
mixed economies and toward a more free market economic
model
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The Spread Of Democracy
Map 2.5: Political Freedom in 2006
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The New World Order
And Global Terrorism
Many countries may be increasingly difficult places in
which to do business, either because of their inherent
violent conflict, or because they are part of a civilization
that is in conflict with an enterprise’s home country
Terrorism represents one of the major threats to world
peace and economic progress in the 21st century
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The Spread Of MarketBased Systems
Map 2.6: Distribution of Economic Freedom in 2007
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The Nature Of
Economic Transformation
The shift toward a market-based system involves:
Deregulation – removing legal restrictions to the free play
of markets, the establishment of private enterprises, and
the manner in which private enterprises operate
Privatization - transfers the ownership of state property
into the hands of private investors
The creation of a legal system to safeguard property
rights
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Implications Of
Changing Economy
Markets that were formerly off-limits to Western business
are now open
China with its 1.2 billion people and India with its
population of almost 1 billion are especially important
However, just as the potential gains are large, so are the
risks
Democracy may not thrive in some countries
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Implications Of Changing
Political Economy
Figure 2.3: The World’s Largest National Economies, 20052025 (GDP $ billions)
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Implications For Managers
There are two broad implications for managers:
the political, economic, and legal systems of a country
raise important ethical issues that have implications for the
practice of international business
the political, economic, and legal environment of a
country clearly influences the attractiveness of that country
as a market and/or investment site
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Benefits
The long-run benefits of doing business in a country are
a function of the size of the market, the present wealth of
consumers in that market, and the likely future wealth of
consumers
By identifying and investing early in a potential future
economic stars, firms may be able to gain first mover
advantages (advantages that accrue to early entrants into a
market) and establish loyalty and experience in a country
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Costs
The costs of doing business in a country are influenced by
political, economic, and legal factors:
Political costs include the cost of paying bribes or
lobbying for favorable or fair treatment
Economic costs relate primarily to the sophistication of
the economic system, including the infrastructure and
supporting businesses
It can be more costly to do business in countries with
dramatically different product, workplace, and pollution
standards, or where there is poor legal protection for
property rights
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Risks
The risks of doing business are determined by a number of
political, economic, and legal factors:
Political risk is 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 is 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 is the likelihood that a trading partner will
opportunistically break a contract or expropriate property
rights
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Overall Attractiveness
The 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 country
Other things being equal, the benefit-cost-risk trade-off is
likely to be most favorable in politically stable developed
and developing nations that have free market systems and
no dramatic upsurge in either inflation rates or private
sector debt
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Chapter 3
Differences in Culture
Introduction
Successful international managers need cross-cultural
literacy - an understanding of how cultural differences
across and within nations can affect the way in which
business is practiced
A relationship may exist between culture and the costs of
doing business in a country or region
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The Determinants Of Culture
The values and norms of a culture are the evolutionary
product of a number of factors at work in a society including
religion, political and economic philosophies, education,
language, and social structure
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Religious And Ethical Systems
Religion is a system of shared beliefs and rituals that are
concerned with the realm of the sacred
Ethical systems are a set of moral principles, or values,
that are used to guide and shape behavior
Religion and ethics are often closely intertwined
Four religions dominate society -Christianity, Islam,
Hinduism, and Buddhism
Confucianism is also important in influencing behavior
and culture in many parts of Asia
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Religious And Ethical Systems
Map 3.1 World Religions
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Spoken Language
Countries with more than one language often have more
than one culture
The most widely spoken language in the world, but
Chinese is the mother tongue of the largest number of
people
English is also becoming the language of international
business, but knowledge of the local language is beneficial,
and in some cases, critical for business success
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Education
Formal education is the medium through which
individuals learn many of the language, conceptual, and
mathematical skills that are indispensable in a modern
society
Education is important in determining a nation’s
competitive advantage
General education levels can also be a good index for
the kinds of products that might sell in a country
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Culture And The Workplace
It is important for companies to understand how a
society’s culture affects workplace values
Management processes and practices must be adapted
to culturally-determined work-related values
Geert Hofstede identified four dimensions of culture:
power distance, uncertainty avoidance, individualism
versus collectivism, and masculinity versus femininity
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Culture And The Workplace
Power distance focuses on how a society deals with the
fact that people are unequal in physical and intellectual
capabilities
Individualism versus collectivism focuses on the
relationship between the individual and his or her fellows
Uncertainty avoidance measures the extent to which
different cultures socialize their members into accepting
ambiguous situations and tolerating ambiguity
Masculinity versus femininity looks at the relationship
between gender and work roles
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Culture And The Workplace
Table 3.1: Work-Related Values for 20 Selected Countries
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Cultural Change
Culture evolves over time, although changes in value
systems can be slow and painful for a society
Social turmoil is an inevitable outcome of cultural change
As countries become economically stronger, cultural
change is particularly common
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Implications For Managers
Societies differ because their cultures vary
Cultures vary because of profound differences in social
structure, religion, language, education, economic
philosophy, and political philosophy
There are three important implications that flow from these
differences:
1. There is a need to develop cross-cultural literacy
2. There is a connection between culture and national
competitive advantage
3. There is a connection between culture and ethics in
decision making
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Cross-Cultural Literacy
Cross-cultural literacy is critical to the success of
international businesses
Companies that are ill informed about the practices of
another culture are unlikely to succeed in that culture
Managers must also beware of ethnocentric behavior, or
a belief in the superiority of one's own culture
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Culture And Competitive Advantage
The connection between culture and competitive
advantage is important because:
it suggests which countries are likely to produce the most
viable competitors
it has implications for the choice of countries in which to
locate production facilities and do business
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Chapter 4
Ethics in International Business
Ethical Issues In
International Business
The most common ethical issues in business involve:
 employment practices
 human rights
 environmental regulations
 corruption
 the moral obligation of multinational companies
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Environmental Pollution
 Ethical issues arise when environmental regulations in
host nations are far inferior to those in the home nation
 Environmental questions take on added importance
because some parts of the environment are a public
good that no one owns, but anyone can despoil
 The tragedy of the commons occurs when a resource
held in common by all, but owned by no one, is overused
by individuals, resulting in its degradation
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Corruption
 The U.S. Foreign Corrupt Practices Act outlawed the
practice of paying bribes to foreign government officials
in order to gain business
 The Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions adopted
by the Organization for Economic Cooperation and
Development (OECD), obliges member states to make
the bribery of foreign public officials a criminal offense
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Corruption
 Some economists believe that in a country where
preexisting political structures distort or limit the workings
of the market mechanism, corruption in the form of
black-marketeering, smuggling, and side payments to
government bureaucrats to “speed up” approval for
business investments may actually enhance welfare
 Other economists have argued that corruption reduces
the returns on business investment and leads to low
economic growth
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Moral Obligations
 Social responsibility refers to the idea that business
people should take the social consequences of
economic actions into account when making business
decisions, and that there should be a presumption in
favor of decisions that have both good economic and
good social consequences
 Social responsibility can be supported for its own sake
simply because it is the right way for a business to
behave
 Advocates argue that businesses need to recognize their
noblesse oblige (honorable and benevolent behavior that
is the responsibility of successful companies) and give
something back to the societies that have made their
success possible
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Ethical Dilemmas
 Ethical dilemmas are situations in which none of the
available alternatives seems ethically acceptable
 The ethical obligations of a multinational corporation
toward employment conditions, human rights, corruption,
environmental pollution, and the use of power are not
always clear cut
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The Roots Of Unethical Behavior
Figure 4.1: Determinants of Ethical Behavior
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Summary of Decision-Making Steps
 In the end, there are clearly things that an international
business should do, and there are things that an
international business should not do
 But, not all ethical dilemmas have a clean and obvious
solution
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