Course - Note - 2 - Dang Gia Vung - RA6127378

Course Note 2: National Differences in Political, Economic, and Legal
Systems
1. Outline different forms of Political Systems

Collectivism and Individualism
Collectivism Individualism
- Stresses the primacy of collective goals over - Stresses that the interests of the individual should
individual goals take precedence over the interests of the state
- The needs of society as a whole are generally - An individual should have freedom in his or her
viewed as being more important than individual economic and political pursuits
freedoms
Socialism: 2 central tenets
- Manage state-owned enterprise to benefit society - The importance of guaranteeing individual
as a whole, rather than individual capitalists freedom and self-expression
- Communists (violent revolution and totalitarian - The welfare of society is best served by letting
dictatorship) and social democrats (democratic, people pursue their own economic self-interest
NO violation and dictatorship)
Democracy and Totalitarianism

Democracy Totalitarianism
- Government is by the people, exercised either - Government in which one person or political
directly or through elected representatives party exercises absolute control over all spheres of
human life and prohibits opposing political parties
- Democracy and individualism go hand in hand - Communist version of collectivism and
totalitarianism go hand in hand
- Representative democracy: citizens periodically - Communist totalitarianism: socialism can be
elect individuals to represent them achieved only through a totalitarian dictatorship.
- Includes a multitude of safeguards that are - Theocratic totalitarianism: monopolized by a
typically based in constitutional law, including: party, group, or individual that governs according
 Freedom of expression. to religious principles.
 Free media. - Tribal totalitarianism: a party, group, or
 Universal adult suffrage. individual that represents the interests of a
 Fair court system particular tribe monopolizes political power.
- Right-wing totalitarianism: generally permits
individual economic freedom but restricts
individual political freedom, including free speech,
on the ground that it would lead to the rise of
communism.
2. Outline different forms of Economic Systems

Market Economy
Command Economy
Mixed Economy
Market Economy Command Economy Mixed Economy
All productive activities are All businesses are state owned Some sectors are privately owned,
privately owned some are government owned
Production is determined by the Government plans the goods Government plans some economy
interaction of supply and and services that a country sectors
demand and signaled to produces, the quantity in which
producers through the price they are produced, and the
system prices at which they are sold
- To work, supply must not be - Historically found in - Once common in developed
restricted. communist countries. world, less so now.
- Role of government is to - No incentive for individuals to - Government may aid troubled
encourage vigorous free and fair look for better ways to serve firms whose operations are vital to
competition. needs. national interests.
3. Outline different forms of Legal Systems

Different Legal Systems
Common Law Civil Law Theocratic Law
Based on tradition, precedent, Based on detailed laws Based on religious teachings.
and customs. organized into codes.
More flexible than other systems Have less flexibility than those Most common is Islamic law
under a common law system
Differences in Contract Law

- Contract: specifies conditions under which an exchange is to occur, and details rights of parties
involved.
- Contract law: body of law that governs contract enforcement.
- Under common law:

 Contracts are very detailed with all contingencies spelled out.
 More expensive and can be adversarial.
- Under civil law:
 Contracts tend to be much shorter and less specific
- United Nations Convention on Contracts for the International Sale of Goods (CISG)
Property Rights and Corruption
- Property: a resource that an individual or business owns.
 Land, buildings, equipment, capital, mineral rights, businesses, intellectual property.
- Property rights: legal rights over the use to which a resource is put and over the use made of any
income that may be derived from that resource.
- Private action:
 Theft, piracy, blackmail by private individuals or groups.
- Public action and corruption:
 Public officials extort income, resources, or property.
o Can be done legally by levying excessive taxation, requiring licenses or permits from
property holders, taking assets into state ownership without compensating owners,
redistributing assets without compensating prior owners.
o Can be done illegally through corruption, demanding bribes.
- Foreign Corrupt Practices Act (FCPA):

 Illegal to bribe a foreign government official to obtain or maintain business over which that
foreign official has authority.
 Requires all publicly traded companies to keep detailed records that would reveal whether a
violation of the act has occurred.
2
- Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions (1997):
 Bribery of a foreign public official is a criminal offense.
 Allows for facilitating or expediting payments.
The Protection of Intellectual Property
- Refers to property that is the product of intellectual activity, such as computer software, a
screenplay, a music score.
 Patent: inventor’s exclusive rights for a defined period.
 Copyrights: exclusive legal rights of authors, composers, playwrights, artists, and publishers.
 Trademarks: officially registered designs and names used to differentiate products.
- World Intellectual Property Organization.
- Paris Convention for the Protection of Industrial Property.

Product Safety and Product Liability
- Product safety laws set certain safety 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.
 Can be much greater if a product does not conform to safety standards.
 Criminal and civil laws apply.
 Raises ethical issues when doing business abroad.
4. What are the managerial implications?
Two broad implications:
- Political, economic, and legal systems of a country raise important ethical issues that have implications
for international business.
- Political, economic, and legal environments of a country clearly influence the attractiveness of that
country as a market or investment site.
 A country with democratic political institutions, market-based economic system, and strong legal
system clearly more attractive to do business in.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Free market economies stimulate greater economic growth, whereas state-directed economies
stifle growth. Discuss.
- For the free market economies, as it encourages free and fair competition between private producers,
the economy will become more competitive and efficient. The entrepreneurs have the right to the
profits generated by their efforts by searching a better ways to serve the customer needs (new products,
efficient production process, better marketing and after sales service, efficiently managing their
businesses)  major positive impacts on economic growth.
- In state-directed economies, state-owned enterprises have little incentives to control cost and be
efficient because they cannot go out for business. As the private ownership are prohibited in command
economy, there was no motivation for individuals to look for better ways to serve the customer needs,
that why no dynamism and innovation in this kind of economy.
QUESTION 2: A democratic political system is an essential condition for sustained economic progress. Discuss.
A democratic political system is a good condition for sustained economic progress due to following reasons:
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- Emphasize on accountability and transparency governments, which can led to better governances and
reduce corruptions, create a conducive environments for economic growth.
- Stronger protection of Property rights and well-established rule of law.
- Foster an environment of political and intellectual freedom, then encourage the innovation and creativity
- Prioritize on education and human capital development, which is essential for economic progress
However, the effectiveness of democracy to the sustained economic progress still depend on the quality of
institution, rule of law and the policies pursued by elected leaders
QUESTION 3: Read the Management Focus feature titled Did Walmart Violate the Foreign Corrupt Practices
Act? What is your opinion? If you think it did, what do you think the consequences will be for Walmart?
For this case, Walmart de Mexico took advantages on the laxity of the legal system in Mexico to pursuit their
business purposes by wide-spread bribery for local government with the cover-up of top executives at Walmart.
It could help Walmart to compass their business, however, they could receive the negative perspective from
customers or even the boycott from them. Moreover, the stock of Walmart could be also affected.

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Course Note 2: National Differences in Political, Economic, and Legal

1. Outline different forms of Political Systems

Democracy and Totalitarianism

2. Outline different forms of Economic Systems

3. Outline different forms of Legal Systems

Differences in Contract Law

- Under common law:

- Foreign Corrupt Practices Act (FCPA):

- Paris Convention for the Protection of Industrial Property.

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