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Chapter 02 - National Differences in Political, Economic, and Legal Systems
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protection of intellectual property. The site is: {http://www.wipo.int/portal/index.html.en}.
Another Perspective: The World Intellectual Property Organization offers suggestion on how
exporters can avoid common pitfalls when exporting intellectual property. More details can be
found at: {http://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_exports.pdf}.
Product safety laws set safety standards for products and manufacturing processes. Product
liability involves holding a firm and its officers responsible for product safety standards.
Slide 2-23 Focus on Managerial Implications
All else being equal, countries with democratic political institutions, market-based economies,
and legal systems that protect property rights and limit corruption will be more attractive than
nations that lack these characteristics.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Free market economies stimulate greater economic growth, whereas state-
directed economies stifle growth. Discuss.
ANSWER 1: In a market economy, private individuals and corporations are allowed to own
property and other assets. This right of ownership provides a powerful incentive for people to
work hard, introduce new products, develop better advertising campaigns, invent new
QUESTION 2: A democratic political system is an essential condition for sustained economic
progress. Discuss.
ANSWER 2: Although you can always find examples of totalitarian regimes that have
achieved rapid economic growth, it seems fair to say that sustained, decades-long periods of
Chapter 02 - National Differences in Political, Economic, and Legal Systems
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QUESTION 3: What is the relationship between corruption in a country (i.e., bribe-taking by
government officials) and economic growth? Is corruption always bad?
ANSWER 3: In the United States, we show public contempt for the practice of bribery
although evidence suggests that bribery is not uncommon in the United States. When
government officials engage in corruption, they subordinate the interest of their country to
their personal gain. They also reduce the level of transparency in business interactions. Many
QUESTION 4: You are the CEO of a company that has to choose between making a $100
million investment in Russia or Poland. Both investments promise the same long-run return,
so your choice is driven by risk considerations. Assess the various risks of doing business in
each of these nations. Which investment would you favor and why?
ANSWER 4: When assessing the risks of investment, one should consider the political,
economic, and legal risks of doing business in both Russia and Poland. The political risk in
Russia is still high but it is undergoing continual governmental changes under Putin’s
QUESTION 5: Read the Management Focus feature titled Did Walmart Violate the Foreign
Corrupt Practices Act? What is your opinion? If you think it did, what do you think the
consequences will be for Walmart?
ANSWER 5: Responses to this question will vary by student, but many will probably agree
that Walmart did indeed violate the Foreign Corrupt Practices Act when its executives bribed
local officials to redraw zoning maps so that the company could gain approval to build a new
Chapter 02 - National Differences in Political, Economic, and Legal Systems
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
are available at {https://www.bloomberg.com/news/articles/2017-05-09/wal-mart-said-close-
to-resolving-bribery-probe-for-300-million}.
CLOSING CASE: Economic Transformation in Vietnam
Summary
The closing case describes Vietnam’s economic transformation since the end of the Vietnam
War when the north and south were reunited under Communist rule. After a decade of
watching the country slide into economic crisis, in 1986 the Communist Party made the
decision to introduce a series of reforms designed to move the economy away from the then
centrally planned socialist economy toward a market economy. Reforms were introduced to
privatize agricultural land and dismantle farm collectives. Then, policies that restricted free
enterprise were relaxed and price controls were dropped. In addition, Vietnam reached out to
other countries for investment and entered into trade agreements with neighboring countries
and with the United States. The country even joined the World Trade Organization in 2007.
Vietnam’s efforts at economic reform proved to be hugely successful. In 1986, the country
was one of the poorest in the world with a per capita income of just $100, inflation was at 700
percent, and economic and political life was tightly controlled by the government. By 2016,
GDP per capita on a purchasing parity basis was $6,400, economic growth rates were 6-7
percent annually, and the country was a major exporter of textiles and agricultural goods.
Despite these gains though, the country’s significant problems remain. Corruption is
widespread, the country is dependent on the export of a few commodities, and high levels of
debt plague remaining state-owned enterprises. In addition, the country’s political system
continues to suppress independent political parties, human rights organizations, and labor
unions. A discussion of the case can begin with the following questions:
QUESTION 1: Why did Vietnam experience a low economic growth rate in the decade after
the end of the Vietnam War in 1976?
ANSWER 1: At the end of the Vietnam War that served to reunite the north and south,
Communist rule was imposed across Vietnam. With that rule came tight control over
QUESTION 2: Vietnam now has an economy that is growing strongly with low
unemployment and rising living standards. What changes in economic policy have been
responsible for this economic transformation?
ANSWER 2: After sinking to its economic low in 1986, Vietnam made the somewhat
surprising decision to abandon many tenants of a centrally planned socialist economy and
Chapter 02 - National Differences in Political, Economic, and Legal Systems
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introduce a series of reforms designed to move the country toward a market economy. The
reforms included policies to privatize agricultural land, dismantle farm collectives, and
QUESTION 3: The level of public corruption in Vietnam is high. Why is this the case? How
do you think this affects Vietnam’s economic performance? What should the government do
about this?
ANSWER 3: While Vietnam has moved toward a more market-based economy, its political
system is still firmly under the leadership of the Communist Party. Labor unions, human
rights organizations, and independent political parties are all banned. Courts have no
QUESTION 4: How do you think a shift toward more democratic institutions will affect
economic progress in Vietnam?
ANSWER 4: Most students will probably agree that if Vietnam can introduce policies
designed to complement the move toward a market economy, economic progress will likely
Teaching Tip: To learn more about Vietnam, consider Would You Ever Eat a Rat? Vietnamese
Food from the Bizarre to the Upscale in the International Business Library
at http://bit.ly/MHEIBVideo. Click “Ctrl+F” on your keyboard to search for the video title.
Chapter 02 - National Differences in Political, Economic, and Legal Systems
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MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library which provides an ongoing
stream of updated video suggestions correlated by key concept and major topic. Every new
clip posted is supported by teaching notes and discussion questions. Please feel free to leave
comments in the library that you feel might be helpful to your colleagues.
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
The definition of words and political ideas can have different meanings in different contexts
worldwide. In fact, the Freedom in the World survey published by Freedom House evaluates
the state of political rights and civil liberties around the world. Provide a description of this
survey and a ranking (in terms of “freedom”) of the world’s leaders and laggards. What
factors are taken into consideration in this survey?
Exercise 2
As the chapter discusses, differences in political, economic, and legal systems have
considerable impact on the benefits, costs, and risks of doing business in countries around the
world. It also has a considerable impact on how easy it is to do business in these countries.
The World Bank Doing Business Indicators measure the extent of business regulations in
countries around the world. Compare the Brazil, Ghana, India, New Zealand, the United
States, and Turkey in terms of how easily contracts are enforced, how property can be
registered, and how investors can be protected. Identify in which area you see the greatest
variation from one country to the next.
Chapter 02 - National Differences in Political, Economic, and Legal Systems
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