Political risk the likelihood that political forces will cause drastic changes

Political risk the likelihood that political forces

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Political risk - the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise Economic risk - the likelihood that economic mismanagement will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise Legal risk - the likelihood that a trading partner will opportunistically break a contract or expropriate property rights
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The players in the political system Government Labour unions Environmental activist organisations Special interest groups Religious organisations International organisations (WTO, IMF, WB and UN)
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Political, legal and economic dimensions The political, legal and economic dimensions tend to co-evolve and are closely intertwined. E.g.: Political ideologies (see next slide) invariably have an economic component, i.e. views about the role of the state in the economy. America’s liberal democracy associated with market capitalism North Korea’s communism coincides with extensive public ownership and government intervention Political leaders enact laws and control the bureaucratic apparatus which enforces laws, thereby shaping the legal system.
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1) Political Dimension Political ideology/philosophy A collection of concepts (i.e. complex ideas), theories and aims that constitute a political and economic program. Libertarianism (“Individualism”) Communitarianism (“Collectivism”) S p e c t r u m Political system A set of formal institutions that constitute a government. It includes legislative bodies, political parties, lobbying groups, and trade unions. The system also defines how these groups interact with each other. - Cavusgil et al, pg 183
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Political systems Examples of countries in each political system: However, these categories aren’t mutually exclusive E.g. today, most democracies contain socialist elements and most former totalitarian regimes are a mix of socialism and democracy
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The interaction b/w politics and economics Totalitarianism: The state attempts to regulate most aspects of public and private behaviour (theocratic or secular) Low tolerance for labour representation (e.g. via labour unions) Strong government presence in business Socialism: Based on collectivist ideology that the welfare of the state outweighs the welfare of the individual; government should control the basic means of production, distribution and commercial activity. Government intervenes in the private sector and in business activities Corporate income tax rates are higher and business regulations more extensive than in democracies
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The interaction b/w politics and economics Democracy: characterised by private property rights and limited government intervention (performs only essential functions e.g. national defence, law and order, foreign relations, basic infrastructure..)
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