International Business and Trade CH. 4

• Political systems around the world are the means by which people in a society make the rules that control and influence their lives
• Types of political systems include democracy, totalitarianism, and mixed systems
• Democracy:

  • All citizens have the opportunity to take part in making the rules that govern them
  • Emphasizes the importance of the individual's needs and interests
  • People have equal rights, including the right to vote for political leaders
  • Includes freedoms such as freedom of speech, religion, and the freedom to own and operate private businesses
• Totalitarianism:

  • People are excluded from making the rules by which they live
  • Political control is held by one person, a small group of people, or one political party
  • People's rights and freedoms are restricted
  • Examples include monarchy and dictatorship
• Mixed system:

  • Countries possess characteristics of both democracy and totalitarianism
  • Most political systems are considered mixed
  • Most countries are mixed systems
  • Most businesses are privately owned, but key industries are owned and run by the government
• Political relations of a company's host and home countries:

  • Host country is where a multinational enterprise is a guest
  • Home country is where a multinational enterprise is headquartered
  • Multinational enterprises fulfill positive roles in both host and home countries by stimulating economic activity, providing employment, introducing advanced technology, and complying with societal expectations and standards
• How government discourages global business:

  • Laws and trade barriers can make it difficult to trade across borders
  • Political risk can affect investment returns due to political changes or instability
  • Major types of taxes imposed around the world include customs duty, sales tax, excise tax, value-added tax, income tax, and payroll-related tax
• How government encourages global business:

  • Governments can directly encourage and promote international business through actions such as providing counseling, training, insurance, subsidies, and tax credits
  • Governments promote international business through free trade, most favored nations status, free trade agreements, and common markets
• Government protection from international risk:

  • Organizations engaging in international financing activities take on additional risks such as foreign exchange risk and political risk
  • Tax incentives are government measures intended to encourage individuals and businesses to spend or save money by reducing the amount of tax they have to pay