© 2011 South-Western | Cengage Learning Government and Global Business 4-1 4-1Political Environment and Global Business 4-2 4-2How Government Discourages

© 2011 South-Western | Cengage Learning

Government and Global Business

4-14-1 Political Environment and Global Business

4-24-2 How Government Discourages Global Business

4-34-3 How Government Encourages Global Business

CHAPTER 4

INTERNATIONAL BUSINESS, 4e CHAPTER

© 2011 South-Western | Cengage Learning SLIDE 2

4LESSON 4-1

Political Environment and Global Business

GOALSGOALSDiscuss various political systems

around the world.Explain the political environment for

a company’s host and home countries.



4

Types of Political Systems

Political system-is the means by which people in a society make the rules that control and influence their lives.

Types of Political Systems: Democracy Totalitarianism Mixed System



Democracy

All citizens have the opportunity to take part in making the rules that govern them

Emphasizes importance of individuals wants and needs Equal rights, right to vote, freedoms (speech and

religion) Extends to economic system freedom to own and

operate your own business Tend to have market economies

Ex. United States

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Totalitarianism

Most people are excluded from making the rules by which they live

Political control is held by one person or a small group of individuals

Monarchy and Dictatorship People’s right and freedoms are restricted People may not be able to travel outside of the country

or to practice a religion of their choosing Command Economies

Ex. Cuba and North Korea

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Mixed Systems

Most political systems are considered mixed Characteristics that fall into both categories Most European countries are mixed economies

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4Political Relations with Host Countries

Host Country-is a country in which a multinational enterprise is a guest. Multinational enterprises fulfill a number of positive roles in host countries while operating within the existing economic, social, and legal environment.

Multinational enterprises simulate economic activity. They also: Provide employment for the host country Introduce advanced technology Comply with societal expectations and responsibilities



Political Relations with Host Countries

Social responsibility-is the process whereby people function as good citizens and are sensitive to their surroundings.

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Political Relations with Home Countries

Home country-is the country where a multinational enterprise is headquartered. A multinational enterprise is expected to comply with home country’s social, economic, and legal mandates.

Host Country and Companies

Each group of 3 will choose a company and research any host country compliances they must meet while operating there.

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4LESSON 4-2

How Government Discourages Global Business

GOALSGOALSDescribe laws and trade barriers

that can discourage global business.

Explain how political risks can disrupt global business activities.

Identify the major types of taxes that governments impose around the world.



4Government Activities Influence Business

Every day businesses throughout the world must comply with thousands of government laws and regulations. Some of these laws protect workers and consumers while others protect domestic businesses. In both cases the laws have the potential for discouraging international business.

Why do governments regulate businesses?



Continued.

-To protect the health and safety of workers;; occupational laws are put into place to protect workers For Example, in many countries, the law requires factory

workers to wear safety equipment such as protective eye goggles, hard hats, and earplugs.

Consumer protection laws are also put into place For Example, most developed countries require that all food

ingredients be listed on product labels.

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Continued.

These laws tend to increase cost for businesses. These increased costs may make a product less competitive with products manufactured in countries that do not have such laws.

Not as strict in developing countries as industrialized. A product in Canada will probably cost more than a similar product made in Mexico, even if both are sold in Ireland.

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Trade Barriers Governments that establish such trade barriers are enforcing

protectionism. Protectionism-government policy of protecting local or domestic

industries from foreign competition. Governments impose restrictions on foreign competition in several ways:

Establishing tariffs or customs duties to increase the price of imported products

Placing quotas on the importing of certain products Requiring domestic companies to boycott particular countries Enacting restrictive licensing requirements for importers

*Bolded words are terms you need to know for your test

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Tariffs

or duties, is a tax placed on products that are traded internationally. Duties raise the cost of the product to the importer, which discourages consumers from buying the product. Duties are a common trade barrier

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Quotas

placed on some imported products; is a limit on the quantity or monetary amount of a product that can be imported from a given country. This action attempts to protect domestic products from too much foreign competition.

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Boycotts

Absolute restriction on a product

For example, India the importation of many consumer good is banned. This ban forces foreign companies that want to sell consumer goods in India to invest in India and manufacture that products locally. Norway protects its apple and pear producers by allowing imports only after the domestic crop has been sold.

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Licensing Requirements

grants permission to import a product; can be withdrawn at anytime

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4Political Risks in International Business

Trade sanctionsExpropriationEconomic nationalismCivil unrest or war



Trade Sanctions

Governments can impose trade restrictions against another country to protest that country’s behavior.

For example, In the early 1990’s the United States banned the sale of high-technology equipment to China. The United States was protecting China’s apparent sale of missile technology to Pakistan, which violated an international arms-control agreement.

Trade sanctions range from tariffs to boycotts.

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Trade Embargo

stop all import-export trade with that country

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Expropriation

Occurs when a government takes control and ownership of foreign-owned assets and companies.

In 2009, the president of Venezuela ordered the expropriation of an American-owned rice processing plant when the company allegedly violated government price controls.

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Economic Nationalism

-The trend of some countries to restrict foreign ownership of companies and to establish laws that protect against foreign imports. Encouraging people to buy domestic.

Civil Unrest or War

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4

International Taxes Government collects taxes to pay for welfare programs,

to build roads and bridges, to provide health care insurance, and to support military forces.

Customs dutySales taxExcise taxPayroll-related taxIncome taxes



Customs Tax

Import Tax; customs duties are also collected to raise revenue to pay for government programs

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Sales Tax

tax on sale of products; also referred to as a regressive tax; same rate of tax is charged to all consumers, no matter what their income level. Some countries, such as Singapore and Canada, have taxes similar to sales taxes called consumption taxes on goods or services

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Excise Tax

tax levied on the sale or consumption of specific products or commodities-such as alcoholic beverages, tobacco, telephone service, airline tickets, gasoline, and motor vehicles.

For example, the US collects gasoline excise taxes for highway construction and repair. These taxes are often based on the “benefits received” principle, meaning that only drivers, who would receive the most benefit from well-maintained highways, are assessed the tax.

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Pay-roll Tax

Two categories1. Taxes withheld from employee pay

2. Taxes paid by employer based on employee pay

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Payroll Tax

Social Security (both) Medicare (both) Income tax (employee) Payroll tax (employer) Unemployment tax (employer) Workers’ Compensation (employer)

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Income Tax

tax on the amount of income a person or corporation earns, minus allowable deductions and credits. More you make the more you are able to be taxed

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4LESSON 4-3

How Government Encourages Global Business

GOALSGOALSExplain government actions that

can encourage global business activities.

Discuss U.S. government agencies that can help reduce international risk.

Describe how tax incentives encourage global business.



4

Encouraging International Business

Free-trade zonesMost favored nation (MFN)Free-trade agreementsCommon markets



Free-trade zones

is a designated area, usually around a seaport or airport, where products can be imported duty-free and then stored, assembled, and used in manufacturing

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Most Favored Nation

(MFN)-allows a country to export into the granting country under the most favorable trade conditions that the importing country offers to any of its trading partners.

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Free-trade agreements

member countries agree to eliminate duties and trade barriers on products traded among members. This results in increased trade among members.

Ex. United States, Canada and Mexico signed the North American Free Trade Agreement (NAFTA) in 1993. Eased transportation among the three countries and eliminated duties between them.

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Common Market

members eliminate duties and other trade barriers, allow companies to invest freely in each member’s country, and allow workers to move freely across borders

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Tax Incentives

Corporate tax deduction on income earned by foreign subsidiaries

Double-taxation avoidance treatiesTax holiday-means the corporation does not

pay corporate income taxes if it invests in their country. These tax holidays may last for as long as ten years.

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© 2011 South-Western | Cengage Learning Government and Global Business 4-1 4-1Political Environment and Global Business 4-2 4-2How Government Discourages