oht 5.1 wall and rees: international business, 2nd edition © pearson education limited 2004 the...

OHT 5.1

Wall and Rees: International Business, 2nd edition © Pearson Education Limited 2004

The political, legal, economic and technological environment

OHT 5.2


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


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


Prioritising (political) risk

OHT 5.5


International Legal Environment

• Types of legal system– Common law– Statutory law– Code law– Religious law– Bureaucratic law

OHT 5.6


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


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


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


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


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


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


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


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


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


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


Technical change and the level of employment

oht 5.1 wall and rees: international business, 2nd edition © pearson education limited 2004 the...

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