OHT 5.1 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 The political, legal, economic and technological environment

OHT 5.2 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Political Risk (1) ‘Uncertainty that stems, in whole or in part, from the exercise of power by governmental and non-governmental actors’ (Zonis, M. 2000) Macropolitical risks Micropolitical risks

OHT 5.3 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Political Risk (2) Responses to political risks: –Improve relative bargaining power –Adopt integrative techniques –Adopt protective and defensive techniques Drivers of political risk: –External –Interaction –Internal

OHT 5.4 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Prioritising (political) risk

OHT 5.5 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 International Legal Environment Types of legal system –Common law –Statutory law –Code law –Religious law –Bureaucratic law

OHT 5.6 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Settling International Disputes Which country’s laws apply? In which country should the issue be resolved? What techniques to use: –Litigation –Arbitration or mediation –Negotiation?

OHT 5.7 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Intellectual Property Rights Patents Trademarks Copyrights TRIPS (Trade Related Intellectual Property Rights) –Developed countries (since 1 Jan 1996) –Developing/Transitional countries (since 1 Jan 2000) –Least developed countries (from Jan 2006)

OHT 5.8 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Free market economies Prices act as ‘signals’ to both consumers and producers Profits aid resource allocation –Direct resources to the most profitable activities –Reward risk-taking –Encourage productive efficiency (minimum costs) –Provide resources (e.g. ploughed-back profits)

OHT 5.9 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Command Economies Prices play little or no role in resource allocation National plan gives ‘road map’ with output targets for industries and firms Input-output analysis often used in devising the national plan Inconsistencies in plans and failure to anticipate real consumer wants often lead to unwanted production

OHT 5.10 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Price elasticity of demand (PED) (1) Measures the responsiveness of the quantity demanded (QD) of a product to a change in its own price PED = % change in QD of X % change in price of X

OHT 5.11 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 PED (2) Relatively elastic demand if PED >I (ignoring sign) –Fall in price: Total revenue rises –Rise in price: Total revenue falls Relatively inelastic demand if PED < I (ignoring sign) –Rise in price: Total revenue rises –Fall in price:Total revenue falls

OHT 5.12 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Cross elasticity of demand (CED) Measures the responsiveness of the quantity demanded (QD) of X to a change in the price of Y CED = % change in QD of X % change in price of Y Where X and Y are substitutes in consumption –CED is positive Where X and Y are complements in consumption –CED is negative

OHT 5.13 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Income elasticity of demand (IED) (1) Measures the responsiveness of the quantity demanded (QD) of X to a change in household or national income. IED = % change in QD of X % change in real income

OHT 5.14 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 IED (2) Some goods and especially services (e.g. education, health, leisure) have high positive IEDs IED may be negative over certain ranges of income for ‘inferior’ goods and services

OHT 5.15 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Economic variables and business Real income per head (standard of living) Economic growth (rate of increase of real income per head) Exchange rate Inflation rate Unemployment rate Tax and subsidy levels Technological change

OHT 5.16 Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004 Technical change and the level of employment