Transcript Political Risk (1)

OHT 5.1
The political, legal,
economic and
technological
environment
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.2
Political Risk (1)
• ‘Uncertainty that stems, in whole or in part,
from the exercise of power by governmental
and non-governmental actors’
(Zonis, M. 2000)
• Macropolitical risks
• Micropolitical risks
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.3
Political Risk (2)
• Responses to political risks:
– Improve relative bargaining power
– Adopt integrative techniques
– Adopt protective and defensive techniques
• Drivers of political risk:
– External
– Interaction
– Internal
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.4
Prioritising (political) risk
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.5
International Legal Environment
• Types of legal system
– Common law
– Statutory law
– Code law
– Religious law
– Bureaucratic law
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.6
Settling International Disputes
• Which country’s laws apply?
• In which country should the issue be
resolved?
• What techniques to use:
– Litigation
– Arbitration or mediation
– Negotiation?
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.7
Intellectual Property Rights
•
•
•
•
Patents
Trademarks
Copyrights
TRIPS (Trade Related Intellectual Property
Rights)
– Developed countries (since 1 Jan 1996)
– Developing/Transitional countries (since 1 Jan
2000)
– Least developed countries (from Jan 2006)
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.8
Free market economies
• Prices act as ‘signals’ to both consumers and
producers
• Profits aid resource allocation
– Direct resources to the most profitable
activities
– Reward risk-taking
– Encourage productive efficiency (minimum
costs)
– Provide resources (e.g. ploughed-back profits)
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.9
Command Economies
• Prices play little or no role in resource
allocation
• National plan gives ‘road map’ with output
targets for industries and firms
• Input-output analysis often used in devising
the national plan
• Inconsistencies in plans and failure to
anticipate real consumer wants often lead to
unwanted production
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.10
Price elasticity of demand (PED) (1)
• Measures the responsiveness of the quantity
demanded (QD) of a product to a change in its
own price
• PED = % change in QD of X
% change in price of X
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.11
PED (2)
• Relatively elastic demand if PED >I (ignoring
sign)
– Fall in price: Total revenue rises
– Rise in price: Total revenue falls
• Relatively inelastic demand if PED < I
(ignoring sign)
– Rise in price: Total revenue rises
– Fall in price:Total revenue falls
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.12
Cross elasticity of demand (CED)
• Measures the responsiveness of the quantity
demanded (QD) of X to a change in the price of Y
• CED = % change in QD of X
% change in price of Y
• Where X and Y are substitutes in consumption
– CED is positive
• Where X and Y are complements in consumption
– CED is negative
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.13
Income elasticity of demand (IED) (1)
• Measures the responsiveness of the quantity
demanded (QD) of X to a change in
household or national income.
• IED = % change in QD of X
% change in real income
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.14
IED (2)
• Some goods and especially services (e.g.
education, health, leisure) have high positive
IEDs
• IED may be negative over certain ranges of
income for ‘inferior’ goods and services
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.15
Economic variables and business
• Real income per head (standard of living)
• Economic growth (rate of increase of real
income per head)
• Exchange rate
• Inflation rate
• Unemployment rate
• Tax and subsidy levels
• Technological change
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004
OHT 5.16
Technical change and the level of employment
Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004