Download (July 2003 est.) Capital

This chapter covers:
9
•Ideological forces
that affect business
•Privatization
•Sources and reasons
for terrorism
Political Forces
•Steps a traveling
business executive
should take
•The importance of
government stability
•Power sources of
international
organizations
•Country risk
assessment
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
 Identify the ideological forces that affect business
 Understand that although most governments own businesses,
they are privatizing them in growing numbers
 Explain the changing sources and reasons for terrorism
 Explain steps that traveling international business executives
should take to protect themselves from terrorists
 Understand the importance to business of government
stability and policy continuity
 Discuss the power sources of international organizations,
labor unions, and international companies
 Understand country risk assessment
9-2
Ideological Forces
 Communism
 The belief that the
government should own
all the major factors of
production.
 With exceptions, all
production in these
countries is done by stateowned factories and
farms.
 Labor unions are
government-controlled
9-3
Communism



Conceived by Karl Marx as
“classless society”
Typically involves seizure of
power and maintenance of
power by stern suppression
Government will take over
private business
 Compensation for
expropriated property
rare
 Generally confiscated
versus expropriated
9-4

Basic reasons for collapse of
communism include
 production focused on
military not consumer
needs
 Centrally planned
production goals not
related to customer
demand
 Enterprises lied regularly
to report desired outputs
Ideological Forces

Capitalism
 The capitalist, free enterprise ideal is that all the factors of
production should be privately owned.
 Under ideal capitalism
 Government is restricted to those functions that the
private sector cannot perform.
 National defense.
 Police, fire, and other public services.
 Government-to-government international relations
9-5
Ideological Forces

Socialism
 Advocates government ownership or control of
the basic means of production, distribution, and
exchange
 Profit not an aim
 Socialist governments frequently perform in ways not
consistent with the doctrine
 Many European countries have practiced socialism
 Great Britain, France, Spain, Greece, Germany
9-6
Socialism
 Socialism in Developing
9-7
Countries
 Government typically
owns and controls most
of the factors of
production
 Shortages of capital,
technology, and skilled
management and labor
are common
 Many of the educated
citizens connected with
government
Conservative or Liberal
 Conservative
 A person who wishes to
minimize government
activities and maximize
private ownership and
business.
 Right wing is a more
extreme conservative
position.
9-8
 Liberal
 In the U.S., a person who
urges greater government
involvement in most
aspects of human
activities.
 Left wing is a more
extreme liberal.
 Terms have entirely
different or opposite
meanings outside the
U.S.
Government Ownership
of Business
 Why Firms are Nationalized






9-9
To extract more money from the firms.
The government suspects that the firms are concealing
profits
The government believes it could run the firms more
efficiently and make more money
Ideological—when left-wing governments are elected,
they sometimes nationalize industries
To save dying industries and maintain jobs
Because government money has been put into the firm
Unfair Competition?
 Private-owned companies
complain that government
owned companies
 Can cut prices unfairly.
 Get cheaper financing.
 Get government
contracts.
 Get export assistance.
 Can hold down wages
with government
assistance.
 Receive direct subsidies.
9-10
Privatization
Britain’s Margaret Thatcher leader of privatization
movement
 Airports, Garbage, Postal Services frequent
examples
 Even China is allowing state-run enterprises to
diversify ownership
 Trend all over the world – except in the United
States
 In most cases the buyers have financial success

9-11
Privatization Anywhere
Any Way
 Privatization does not always involve ownership
transfer from government to private entities.
 Activities previously conducted by the state may
be contracted out.
 Governments may lease state-owned plants to
private entities.
 Governments may combine a joint venture with a
management contract with a private group to run
a previously government-operated business
9-12
Privatizations by Region
9-13
Government Protection
 Terrorism
 Since the 1970s, the world
has been plagued by
terrorism.
 A common
denominator of these
terrorist groups has
been hatred of the
social, religious,
economic, and
political orders they
find in the world.
9-14
Government Protection
 World Wide Terrorist Groups
 Al Qaeda, IRA, Hamas, ETA, Japanese Red Army,
German Red Army Faction
 Government-Sponsored Terrorism: An Act of War
 In addition to the Soviet Union and its European
satellites, other countries have financed, trained,
and protected terrorists

9-15
These countries include Iran, Iraq, Libya, Syria,
Afghanistan, Cuba, Lebanon, North Korea, and Sudan
Government Protection
 Kidnapping for Ransom
 By 1986, Colombia and Peru had become the most
dangerous places for American executives.
 Top executives from the U.S. practice “commando
management” to avoid the risk of being
kidnapped.
 They arrive in Bogota or Lima as secretly as possible,
meet for a few days with local employees, and fly off
before kidnappers learn of their presence.
 Possible protection being tried in Mexico is a chip
implant
9-16
Countermeasures by Industry

K&R Insurance

Antiterrorist Schools
 Companies to handle
negotiations with
kidnappers
 Checklists for
executives

9-17
The world’s largest
kidnapping and extortion
underwriting firm is
located in London
Terrorism Changes


Ethnoterrorism
 Tribe against tribe, race
against race, religion
against religion
Nuclear Terrorism
 Failing security standards
at former Soviet
installations permit
uranium to be stolen,
then sold to terrorists
9-18


Chemical and Biological
Terrorism
 Recipes can be
downloaded from the
internet
Islamic Fundamentalist
Terrorism
 Hatred of Christians,
Hindus, Jews, secularists,
democrats and the West is
unrelenting
Government Stability
 Stable Government
 Maintains itself in power and its fiscal, monetary,
and political policies are predictable and not
subject to sudden, radical changes.
 Unstable Government
 Cannot maintain itself in power or makes
sudden, unpredictable, or radical policy changes
 Instability can be caused by revolution, invasion
from abroad, or racial conflict
Traditional Hostilities
 Long-standing enmities between tribes, races,
religions, ideologies, or countries.
 Arab Countries—Israel
 Hutus and Tutsis in Burundi and Rwanda
 Tamils and Sinhalese in Sri Lanka
 Albanians, Bosnians, Croats, and Serbs in the
Former Yugoslavia
 South Africa
9-20
International Organizations
 United Nations (UN)
 UN personnel advise member-countries on such
matters as tax, monetary, and fiscal policies.
 The UN is active in the harmonization of laws
affecting international trade.
 The UN has drafted a code of conduct for
multinational business.
 The UN Conference on Trade and Development

9-21
Credited with having influenced the International
Monetary Fund to ease its restrictions on loans to
developing countries.
International Organizations

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
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
IMF
 Influence on fiscal and
monetary policies
WTO
 Lowered barriers to trade
OPEC
EU
Organization for Economic
Cooperation and
Development (OECD)
Labor Unions
9-22
Country Risk Assessment
(CRA)

Types of Country Risks



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

9-23
Political
 Wars, revolutions, coups
Economic
Financial
 BOP deficits
Labor
 Low productivity,
militant unions
Legal
 Laws may be changed
Terrorism


Information for CRA
depends on
 Nature of business
 Length of time required
Consulting and Publishing
firms perform CRA





BERI
Control Risks Information
Services
EIU
Euromoney
Strategic Forecasting, Inc.
Country Risk
Lessons of International Debt Crisis

First, many developing countries are vulnerable to external
shocks.

Second, the development of the debt crisis has shown that the
economic polices of debtor countries have a decisive impact on
default risk.

Third, sustained economic growth is a major requirement for
high-debt countries to service their debt and reduce its
burden.
Fourth, the social and potential political costs of
overindebtedness combined with austerity are proving high.
Fifth, is the global ripple effect of seemingly independent
risks of economic shock.


9-25
Current Communist Countries

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China - Population: 1,286,975,468 (July 2003 est.) Capital:
Beijing; GDP per capita: purchasing power parity - $4,400
Cuba – Population: 11,263,429 (July 2003 est.) Capital: Havana;
GDP per capita: purchasing power parity - $2,300
Laos - Population: 5,921,545 (July 2003 est.) Capital: Vientiane
GDP per capita: purchasing power parity - $1,700
North Korea - Population: 22,466,481 (July 2003 est.) Capital:
Pyongyang GDP per capita: purchasing power parity - $1,000
Vietnam - Population: 81,624,716 (July 2003 est.) Capital:
Hanoi GDP per capita: purchasing power parity - $2,250
9-26
Privatization Revenues in Developing Countries, by Region,
1990-99 ($US billions)
9-27
Privatization Revenues in Developing Countries, by Sector,
1990-99 ($US billions)
Motivations for Bioterrorism
10 countries which are the locations for 90
percent of all executive kidnappings
Colombia
 Italy
 India
 Mexico
 Pakistan
 Peru
 Philippines
 Spain
 Brazil
 Venezuela

9-30