STRUCTURES OF GLOBALIZATION

• State


  A community of persons, more or less numerous, occupying a definite territory, possessing an organized government, and enjoying independence from external control
• Elements of the State

  • People
  • Territory
  • Government
  • Sovereignty
• People


  The entire body of those citizens of a state who are invested with political power for political purposes
• Territory


  A geographical area under the jurisdiction of another country or sovereign power state
• Modes of acquiring territory

  1. Discovery and occupation

  2. Prescription

  3. Cession

  4. Subjugation and annexation

  5. Accretion
• Government


  The totality of authorities which rule a society by prescribing and carrying out fundamental rules which regulate the freedom of its members
• Kinds of Government


  • De jure or legitimate government
  • De facto or illegitimate government
• Sovereignty


  The supreme, absolute and uncontrollable power by which an independent state is governed
• Types of Sovereignty


  • Internal sovereignty
  • External sovereignty
• In May 1998, India stunned the world by conducting nuclear weapon tests. Two weeks later, Pakistan responded by conducting several tests of its own
• Amidst widespread condemnation of the tests, several major trading partners moved swiftly to impose economic sanctions on India and Pakistan
• The world's response to the nuclear tests in India and Pakistan illustrates that the political, legal, and regulatory environments can have on international trade and global marketing activities
• Every country has its own legal and regulatory system that affects the operations and activities of the global enterprise, including the global marketer's ability to address market opportunities
• Laws and regulations constrain the cross-border movement of products, services, people, money, and technical know-how
• Every government should know that laws and regulations are frequently ambiguous and continually changing
• Political environment


  Governmental institutions, political parties, and organizations through which a country's people and rulers exercise power
• Every corporations doing business outside its home country should carefully study the political culture in the target country and analyze salient issues arising from the political environment
• Many governments in developing countries exercise control over their nations' economic development by passing protectionist laws and regulations
• When many nations reach advanced stages of economic development, their governments declare that any practice or policy that restraints free trade is illegal
• Advanced country laws often define and preserve a nation's social order: laws may extend to political, cultural and even intellectual activities and social conduct
• A program granted tax breaks and tariff privileges to a company established in South Korea by the president's youngest son. The United States, EU, and Japan responded by taking the matter to the World Trade Organization.
• When many nations reach advanced stages of economic development, their governments declare that any practice or policy that restraints free trade is illegal. Antitrust laws and regulations are established to promote fair competition.
• Advanced country laws often define and preserve a nation's social order: laws may extend to political, cultural and even intellectual activities and social conduct.
• Laws in France


  • Forbid the use of foreign words such as le weekend or le marketing in official documents
  • Require that at least 40 percent of the songs played by popular radio stations must be French
• Privatization


  Reduces direct governmental involvement as a supplier of goods and services in a given economy, moving a nation's economy further in the free-market direction
• Privatization in Mexico


  • The government controlled over 1,000 corporations, most of which were sold by the early 1990s including airlines, mines, and banks worth $23 billion
• In Europe, the individual EU countries are giving up the right to have their own currencies, ceding the right to set their own product standards, and making other sacrifices in exchange for improved market access.
• Political risk


  The risk of a change in political environment or government policy that would adversely affect a company's ability to operate effectively and profitably
• Sources of information on political risk

  • The Economist
  • Financial Times
  • Business periodicals
  • Economic Intelligence Unit (EIU)
  • Business Environment Risk Intelligence (BERI)
  • World Political Risk Group (PRS)
• Categories of political risk examined by BERI

  • Internal causes: Fractionalization of the political spectrum, Fractionalization by language/ethnic/religious groups, Restrictive or coercive measures required to retain power, Mentality (xenophobia, nationalism, corruption, nepotism)
  • External causes: International disputes, Dependence on or importance to a major hostile power
  • Symptoms: Societal conflict involving demonstrations, strikes, and street violence, Instability as perceived by assassinations and guerrilla war
• Causes of political risk

  Tension between residents' aspirations/goals and real conditions, Economic crises in lower-/lower-middle-income countries
• High taxes encourage many enterprises in Russia to engage in cash or barter transactions that are off the books and sheltered from the eyes of tax authorities, creating a liquidity squeeze that prevents companies from paying wages to employees, leading to potential political instability.
• Expropriation


  Government action to dispossess a foreign company or investor, generally with compensation although not often in the "prompt, effective, and adequate" manner provided for by international standard
• Nationalization


  Government taking control of some or all of the enterprises in a particular industry, which is generally recognized as a legitimate exercise of government power if it satisfies a public purpose and is accompanied by adequate payment reflecting fair market value
• Creeping expropriation


  Limitations on economic activities of foreign firms including restrictions on repatriation of profits, dividends, royalties, and technical assistance fees, increased local content requirements, price controls, and discriminatory tariffs/non-tariff barriers
• After the 1980s debt crisis and low GNP growth in Latin America, lawmakers reversed many restrictive and discriminatory laws to attract foreign direct investment and Western technology, contributed by the end of the Cold War and restructuring of political allegiances.
• International law


  The rules and principles that nation-states consider binding upon themselves, pertaining to property, trade, immigration, and other areas traditionally under the jurisdiction of individual nations
• The roots of modern international law can be traced back to the 17th century Peace of Westphalia, with early international law concerned with waging war, establishing peace, and other political issues.
• As trade grew among nations, order in commercial affairs assumed increasing importance in international law, which rejected the idea that only nations can be subject to it.
• International judiciary organizations


  • Permanent Court of International Justice (1920-1945)
  • International Court of Justice (ICJ), the judicial arm of the United Nations, founded in 1946
  • International Law Commission, established by the United States in 1947