Voyevodins' Library _ "International Business: Competing in the Global Marketplace" / Charles W.L. Hill ... Chapter 2 ... absolute advantage, ad valorem tariff, administrative trade policies, Andean Pact, antidumping policies, antidumping regulations, arbitrage, ASEAN (Association of South East Asian Nations), balance-of-payments accounts, banking crisis, barriers to entry, barter, basic research centers, bilateral netting, bill of exchange, bill of lading (or draft), Bretton Woods, bureaucratic controls, capital account, capital controls, CARICOM, caste system, centralized depository, channel length, civil law system, class consciousness, class system, collectivism, COMECON, command economy, common law system, common market, communist totalitarianism, communists, comparative advantage, competition policy, constant returns to specialization, controlling interest, copyright, core competence, counterpurchase, countertrade, cross-cultural literacy, cross-licensing agreement, cultural controls, culture, currency board, currency crisis Voevodin's Library: absolute advantage, ad valorem tariff, administrative trade policies, Andean Pact, antidumping policies, antidumping regulations, arbitrage, ASEAN (Association of South East Asian Nations), balance-of-payments accounts, banking crisis, barriers to entry, barter, basic research centers, bilateral netting, bill of exchange, bill of lading (or draft), Bretton Woods, bureaucratic controls, capital account, capital controls, CARICOM, caste system, centralized depository, channel length, civil law system, class consciousness, class system, collectivism, COMECON, command economy, common law system, common market, communist totalitarianism, communists, comparative advantage, competition policy, constant returns to specialization, controlling interest, copyright, core competence, counterpurchase, countertrade, cross-cultural literacy, cross-licensing agreement, cultural controls, culture, currency board, currency crisis


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Chapter 2 Outline

Introduction

As noted in Chapter 1, international business is much more complicated than domestic business because countries differ in many ways. Countries have different political systems, economic systems, and legal systems. Cultural practices can vary dramatically from country to country, as can the education and skill level of the population, and countries are at different stages of economic development. All of these differences can and do have major implications for the practice of international business. They have a profound impact on the benefits, costs, and risks associated with doing business in different countries; the way in which operations in different countries should be managed; and the strategy international firms should pursue in different countries. A main function of this chapter and the next is to develop an awareness of and appreciation for the significance of country differences in political systems, economic systems, legal systems, and national culture. Another function of this chapter and the next is to describe how the political, economic, legal, and cultural systems of many of the world's nation-states are evolving and to draw out the implications of these changes for the practice of international business.

The opening case illustrates the changes occurring in the political and economic systems of one nation, Brazil. As in many other countries, over the last decade, political and economic ideology in Brazil has shifted toward a more free market orientation. One consequence of this shift in ideology has been adoption of an aggressive privatization program that is transforming Brazil's economy. Another has been the opening of the Brazilian economy to foreign investors. These changes are creating enormous opportunities for foreign investors, who for the first time in recent history can invest in many sectors of Brazil's expanding economy. For example, in 1997 the U.S.-based telecommunications company BellSouth paid $2.45 billion to the Brazilian government for a license that will enable it to install and market a wireless phone network in Brazil's largest city, Sao Paulo. Since there are only 12 telephone lines per 100 people in Sao Paulo, BellSouth believes that a huge untapped market exists here.1

This chapter focuses on how the political, economic, and legal systems of countries differ. Collectively we refer to these systems as constituting the political economy of a country. The political, economic, and legal systems of a country are not independent of each other. As we shall see, they interact and influence each other, and in doing so they affect the level of economic well-being in a country. In addition to reviewing these systems, we also explore how differences in political economy influence the benefits, costs, and risks associated with doing business in different countries, and how they impact on management practice and strategy. In the next chapter we will look at how differences in culture influence the practice of international business. Bear in mind, however, that the political economy and culture of a nation are not independent of each other. As will become apparent in Chapter 3, culture can exert an impact on political economy, and the converse can also hold true.

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