International Business Chapter 4 Government and Global Business

4.1 Political Environment and Global Business Political system – means by which people in a society make the rules that control and influence their lives Democracy – all citizens have the opportunity to take part in making the rules that govern them Equal rights and freedoms Private businesses Typically market economies Totalitarian – government system in which political control is held by one person, a small group, or one political party Rights and freedoms restricted Government owns all large business (industries, farms, utilities, etc.)

Social Responsibility Social responsibility – process whereby people function as good citizens and are sensitive to their surroundings Host countries expect multinational companies to comply with societal expectations and standards Home countries expect multinational companies to comply with social, economic, and legal mandates

Teotihuacan video and responses (Google Classroom)

4.2 How Government Discourages Global Business Trade barriers – government actions or policies that make it difficult to trade across borders Protectionism – government policy of protecting local or domestic industries Tariffs (duty) – tax placed on products Quotas – limit on the quantity or monetary amount of a product Boycotts – absolute restriction on the import of certain products Licensing requirements – import license giving permission to import a product

4.2 How Government Discourages Global Business Political risk - possibility of government actions or political policies that could adversely affect foreign companies Trade sanctions: Trade embargo – a sanction imposed by a country that stops all trade with that country Expropriation - government takes control and ownership of foreign-owned assets and companies Economic nationalism – trend of some countries to restrict foreign ownership of companies and to establish laws that protect against foreign imports Civil unrest or war

4.2 International Taxes Customs duty – tax assessed on imported products Sales tax – tax on the sale of products Excise tax – tax levied on the sale or consumption of specific products or commodities Payroll-related taxes – withheld from employee and those paid by the employer based on employee earnings Value-added tax (VAT) – tax assessed on the increase in value of goods from each stage of production Income tax – tax on amount of income a person/company earns less allowable deductions and credits

4.3 How Government Encourages Global Business Establishing free-trade zones – designated area, usually around a seaport or airport, where products can be imported duty-free and then stored, assembled and used in manufacturing Most favored nation status – designation that 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

4.3 How Government Encourages Global Business Free-trade agreements – arrangement between countries that eliminates duties and trade barriers on products traded among members NAFTA (1993) USMCA (2018) 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

4.3 Government Protection Export-Import Bank of the United States (EXIM) Helps finance export sales of U.S. products Overseas Private Investment Corporation (OPIC) Investment insurance for U.S. companies establishing in developing countries

USMCA https://www.msnbc.com/stephanie-ruhle/watch/how-is-the-new- usmca-trade-deal-different-from-nafta- 1333748291747?v=raila&