CHAPTER 2: NATIONAL DIFFERENCES

A PESTEL analysis
studies the key external
factors that influence
an organization
 NATIONAL DIFFERENCES

POLITICS LAWS ECONOMICS

 POLITICAL
ENVIRONMENT
 DEFINITION
Political system = The system of a
country’s government
A set of legal institutions that make up a
government
A country's political system will shape its
economic and legal systems (Charles.W.Hills)
The political system includes:
- Legal agencies
- Ministries
- Political parties
- Lobbying groups
- Trade Unions
 FUNCTION
An effective political
• Ensuring the stability of the system must unite diverse
country based on the rule of law viewpoints in society
• Protect the country from
external threats
• Regulate social activities
 WHY STUDY?
Each country has a political system
Politics and laws fluctuate
All countries have political risks
=> Businesses need to study different
political environments
DEGREE OF SYSTEM STABILITY
 THE BASIS OF BUILDING
THE POLITICAL SYSTEM
INDIVIDUALISM COLLECTIVISM
DEMOCRACY TOTALITARIANISM
 THE BASIS OF BUILDING
THE POLITICAL SYSTEM
INDIVIDUALISM COLLECTIVISM
DEMOCRACY TOTALITARIANISM
Emphasizes the superiority of individual freedom,

An individual must be free to pursue economic and political

opinions

United States, Canada, Australia, New Zealand, Switzerland,

Netherlands, Hungary,...

The squeaky wheel gets the grease

There is no I in a team
No matter how important the individuals are, the collective as
a whole is better than the individuals.

Upholding the superiority of the collective over the individual

China, North Korea, Peru, Pakistan, Indonesia,...

Levels of individualism in the world, 2022
 Democracy Totalitarianism

Democracy and individualism Authoritarianism and

are inherently related and collectivism are inherently
mutually reinforcing related and mutually
reinforcing;
 Democracy
A government "of the people, by the
people, for the people"

Private Ownership
Limited powers of government

Officials see a business environment that maximizes

freedom of operation, investment, and trade as the path
to economic, social, and political progress.
 Totalitarianism
The state holds the power to regulate almost every aspect of society

Over time, most authoritarian states have disappeared or

transferred to democratic or socialist

Private enterprises will support the state when allowed

WHAT IS VIETNAM’S REGIME?
 Some political risks
Possession of
Trade
corporate assets of Economic War, terrorism
Sanctions
countries’ boycott
governments Often enacted Voluntary refusal
during war, or to participate in a For example:
Confiscation/
increased tensions trade transaction Russia-Ukraine
expropriation/
between countries for a country or a war, IS terrorists
nationalization
company
Provide a legal framework of regulations and rules
that govern behavior, allow, or restrict specific
relationships between people and organizations, a
country's law enforcement processes, and provide
penalties for violations of regulations and rules
Common Law
Legal systems

Civil Law

Religious Law
The basis of Common law is to monitor the practice of
past cases and legal precedents, whereby the State
recognizes court judgments and decisions as a
template and basis for making rules for similar cases
afterwards

More flexible than other legal systems

COUNTRIES UNDER COMMON LAW: Australia, New

Zealand, UK, Ireland, Canada, USA, India, Pakistan, Malaysia
 The civil law system is based on legal documents,
including codes, resolutions, decrees, etc. These
legal documents are considered the most important
source of law in civil law, and the courts in this
system are obliged to follow the legal documents
that have been enacted.

For example, countries under civil law: with about 150 countries, the
majority of Western European countries and Turkey, Japan, Mexico
 The theocratic legal system is a legal system that is
markedly influenced by religion, moral principles, and
moral values that are seen as a supreme embodiment

Supreme power belongs to religious leaders

There is no separation between the church and the State;

Government, law, and religion are one
Question 1: Find out and compare the differences
in international business activities of enterprises
between common law and civil law

Question 2: Learn more information and examples

about Islamic Law (especially those applicable in
international business)
Basis of rule
Rule of law

Rule of man

Assessing the gap between principle and practice requires an

assessment of the legal context in terms of the basis of rule in a
country.
 RULE OF LAW
The rule of law affirms that no
individual, from the president to the
prosecutor, stands above laws that are
clearly defined, universally understood,
and fairly enforced.

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Goddess of Justice
 RULE OF MAN
Given that the supreme power lies in a
person whose words and will are the law,
regardless of unreasonable or unfair.

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 ECONOMIC
ENVIRONMENT
 A set of conditions and factors related to economic
ECONOMIC activities: economic growth, inflation, exchange rate,
unemployment rate, import and export status,
ENVIRONMENT technological and production development level, fiscal
policy, monetary policy, foreign investment attraction,
etc. ...
WHY STUDY?

Countries are different in the

rate of development

The business environment of

countries around the world is
different
Economic freedom

Economic freedom means that people

have the right to work, produce, consume,
save, and invest the way they want

The greater the degree of economic freedom in

the economy, the greater the freedom of each
individual to decide how to work, produce,
consume, save, invest and innovate

Economic freedom helps businesses believe in

the legitimacy of ownership, the freedom to
use the factors of production, flexibility in the
organization of goods and services, and
protection from excessive political
interference.
ECONOMIC
SYSTEMS
Market economy

In a pure market economy,

all production activities are
owned by individuals, not
managed by the state.

The market economy is based on the

principle of allowing the private sector to
do business freely and should let the
market decide for itself.

Production is determined by the relationship between supply and

demand and signals to the producer through the price system.
 Private ownership of resources:
The market economy will depend on
individuals and businesses owning
and controlling resources rather than
the government.

The role of the government:

depends very little on government
regulations. The more the state
intervenes, the less efficient the
market will be.
Command economy

The government will plan the goods and

services that the country will produce as
well as the quantity and price of those
products and services

Performing well in the short term,

especially in the development process of
the country because the state has the
ability to move untapped or inefficiently
exploited resources to create growth
Mixed Economy

A mixed economy is one that combines

aspects of both market economy and
command economy, with private property
and economic freedom, but also
government intervention for social aims.

In reality, there is no economic model

that is completely free or centralized,
most economies can be considered
mixed economies
 Important economic indicators for business managers

01 Balance of payments (BOP) 06 Misery Index

02 Deflation 07 Poverty
03 Foreign Direct Investment (FDI)
08 Public Debt
04 Inflation
09 Unemployment
05 Income Distribution
Economic risks

04 Global recession
01 High inflation

02 Protective measures 05 The spiral of public debt

out of control

03 Unstable exchange 06 Trade deficit

rates