Political & Economic Systems in Global Business

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  • 0:01 International Business
  • 1:00 Democracy
  • 1:55 Comparative Political Systems
  • 3:05 Comparative Economic Systems
  • 3:38 Global Solutions for Companies
  • 4:07 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Understanding the different political and economic systems in global business can be a difficult task. We will identify the major types of political and economic systems in which companies operate across the world and the special challenges posed by doing business in diverse settings.

International Business

Companies that operate globally have an enormous challenge in conducting business in countries with varying political and economic systems. Pear Products is a manufacturer of high technology products such as tablets, computers and smart phones. The company's international business, or business transactions that take place between two or more countries outside their political boundaries, is growing exponentially each year.

The company's new expansion is in Saudi Arabia, but they are facing a tremendous challenge. Saudi Arabia does not grant women equal rights, so should Pear Products hire and promote women at work, even if it violates local laws and customs?

Let's take a look at the major types of political and economic systems in which companies operate across the world and the special challenges posed by doing business in diverse settings. We will first examine the political systems that Pear Products is exposed to globally.

Democracy

Pear Products is the most familiar with democracy, or the presence of political freedom, from all of their business in the United States. Democracy has flourished in other parts of the world, such as Germany, Poland, and South Africa. There are four elements of a democratic nation, which are:

  1. Fair elections
  2. A free media
  3. Separation of powers in branches of government
  4. A society where people can have freedom of choice in their religious, social, and cultural beliefs.

In this type of political system, Pear Products has grown their business easily with minimal regulation and challenges. For example, Pear Products was able to protect their technological ideas through patents and develop new ideas without government intervention, such as the Health Tracker that monitors vitals through your smartwatch. Pear Products has run into some difficulty with their global expansion into countries with different political systems.

Comparative Political Systems

One of the most difficult political systems to conduct business with are countries that have military dictatorships, which are repressive regimes that are governed by dictators who maintain control through the military. Pear Products usually avoids this type of business environment as it is difficult to flourish with a dictator and military intervention. For example, Pear Products was considering expanding into Thailand, but after a military coup in 2014, they decided to avoid the country for now.

Another challenge to Pear Products is when they have established business in a democratic country, but then it reverts to authoritarian rule, such as Pakistan. Countries in this system block society's right for cultural and religious freedom. This, in turn, can be a difficult environment for companies to flourish due to lack of human rights. The United Nations' Universal Declaration of Human Rights of 1948 was adopted by half of the countries in the world. Companies tend to look for countries that offer its citizens equality and fair treatment. Economic systems also impact the development of Pear Products' global business.

Comparative Economic Systems

Pear Products prefers to conduct business in free enterprise systems with countries that offer minimal regulatory restrictions and limited government ownership, such as the U.S. Pear Products is able to develop new innovations without government ownership and can sell their products directly to consumers.

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