© 2010 Cengage Learning. All rights reserved. CHAPTER 2 GLOBAL  PENG

© 2010 Cengage Learning. All rights reserved. Chapter 2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Identify two types of institutions. 2.Explain how institutions reduce uncertainty. 3.Identify the two core propositions underpinning an institution-based view of global business. 4.List the differences between democracy and totalitarianism.

© 2010 Cengage Learning. All rights reserved. Chapter 2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 5. List the differences among civil law, common law, theocratic law. 6. Articulate the importance of property rights and intellectual property rights. 7. List the differences among market economy, command economy and mixed economy. 8. Explain why it is important to understand the different institutions, both formal and informal, when doing business around the world.

© 2010 Cengage Learning. All rights reserved. LO1: TWO TYPES OF INSTITUTIONS

© 2010 Cengage Learning. All rights reserved. LO2: HOW DO INSTITUTIONS REDUCE UNCERTAINTY? …institutions constrain the range of acceptable actions and provide certainty by spelling out the rules of the game.

© 2010 Cengage Learning. All rights reserved. LO3: INSTITUTION-BASED VIEW OF GLOBAL BUSINESS

© 2010 Cengage Learning. All rights reserved. LO3: TWO PROPOSITIONS

© 2010 Cengage Learning. All rights reserved. LO4: POLITICAL SYSTEMS Democracy - citizens elect representatives to govern the country on their behalf. Totalitarianism - one person or party exercises absolute political control over the population. Communist Totalitarianism Theocractic Totalitarianism Right-wing Totalitarianism Tribal Totalitarianism

© 2010 Cengage Learning. All rights reserved. LO5: LEGAL SYSTEMS The rules of the game on how a country’s laws are enacted and enforced. The first, regulatory pillar that supports institutions. Civil LawCommon LawTheocratic Law

© 2010 Cengage Learning. All rights reserved. LO6: PROPERTY RIGHTS Legal rights to use an economic property (resource) and to derive benefit from it.

© 2010 Cengage Learning. All rights reserved. LO6: INTELLECTUAL PROPERTY RIGHTS Rights associated with the ownership of intellectual property, intangible property that results from intellectual activity, such as books, videos and websites. PatentsCopyrightsTrademarks

© 2010 Cengage Learning. All rights reserved. LO7: ECONOMIC SYSTEMS Rules of the game on how a country is governed economically. Market Economy Command Economy Mixed Economy

© 2010 Cengage Learning. All rights reserved. DEBATE: WHAT DRIVES ECONOMIC DEVELOPMENT?

© 2010 Cengage Learning. All rights reserved. DEBATE: WHAT DRIVES ECONOMIC DEVELOPMENT?  Culture?  Geography?  According to institution-based view… Formal institutions encourage firms to grow and specialize. Absence of formal institutions forces firms to remain small. Protection of property rights fuel innovation, entrepreneurship and thus economic growth.

© 2010 Cengage Learning. All rights reserved. LO8: UNDERSTANDING DIFFERENT INSTITUTIONS