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Chapter 9 Political and Economic Factors Affecting International - PowerPoint


									              Chapter 9
Political and Economic
       Factors Affecting
International Business
                      Political Risk
 refers to political decisions,
  conditions, events, or activities in a
  country that affect the business
                  Types of Political
 Democracy
    provides government for and by the people
    general population has the right to vote in
     free elections
    decide on the rules that will govern them
    individuals can own property and run
    free press and freedom of speech
    capitalist economy, market allocates
     available resources
                Types of Political
 Totalitarian Systems
    centralize power and often use the military
     to control the state
    single party governments or dictatorships
    no elected representatives in government
    command economy, gov’t allocates
     available resources
    North Korea, Cuba
               Types of Political
 A purely democratic or totalitarian
 political system is theoretical; most
 countries have a mixed economy,
 showing characteristics of both
  Political Interdependence
 countries start to feel pressure to
  change their political, economic, and
  cultural practices
                        Trade War
 governments act aggressively in
 international markets and other
 forums to promote their own
 countries’ trading interests
       Economic Imperialism
 exploitation of developing countries
 by more developed countries
  Types of Political Risk
Risk of General Political
Ownership risk
Operation risk
Transfer risk
    Evaluating Political Risk
Need to answer the following questions:
     What are the chances of political and
      economic instability in the next 3-5 years?
     What agreements are in place to protect
     How committed is the government to the
      rules of ownership rights?
     How long will the current government stay in
     Would a new government propose changes
      that would affect you?
         Business Cycles
           The World Economic
                Freedom Index
 a measure of a country’s economic
  performance based on the following
      Size of government
      Structure of the economy and use of markets
      Monetary policy and price stability
      Freedom to use alternative currencies
      Legal structure and property rights
      International exchange (freedom to trade)
      Freedom of exchange in capital and financial markets
   Strategies to Manage
          Financial Risk
Foreign Exchange Management
Credit control
Open accounts (transactions
 stopped if payment not received)
              Analyzing Foreign
            Investment Climates
 General political stability
 Government policies towards foreign
 Policies and legal factors
 Economic factors
 Economic environment
 International payments (exchange rates)

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