1. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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 state- owned factories and farms.  Labor unions are government-controlled 9-3

2. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

3. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

4. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

5. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Socialism  Socialism in Developing 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 9-7

6. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

7. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

8. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

9. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Countermeasures by Industry K&R Insurance The world’s largest kidnapping and extortion underwriting firm is located in London Antiterrorist Schools Companies to handle negotiations with kidnappers Checklists for executives 9-17

10. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

11. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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

12. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved 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 Credited with having influenced the International Monetary Fund to ease its restrictions on loans to developing countries. 9-21

13. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Country Risk Assessment (CRA) Types of Country Risks Political Wars, revolutions, coups Economic Financial BOP deficits Labor Low productivity, militant unions Legal Laws may be changed Terrorism 9-23 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.