Chapter 4

Government and
Global Business
 Types of Political Systems
Democracy Totalitarian
system 
All citizens take part in Most people are excluded from
making the rules that govern making the rules by which they live;
them; people have equal political control is held by either
rights, including the right to one person or a small group of
vote for political leaders.  people
There are different types (e.g.
Emphasis on individual rights military dictatorship, pure
and freedoms extends to its monarchy, etc.)
economy They tend to have command
economies.
Mixed system 
Most economies are
considered mixed as in reality,
there is no pure form of either
a democracy or totalitarian
system.
Economic systems are also
considered mixed systems:
the majority of businesses are
privately owned, and some
businesses are owned and run
by the government.
 Political Relationships in Business
Host country  Social responsibility Home country
Is the country in Is the process Is the country in
which a multinational whereby people which a multinational
enterprise is a guest function as good enterprise is
citizens and are headquartered
sensitive to the
surroundings
What social, economic, and legal
standards must a multinational
company meet in its home country and
in a host country?
POLITICAL RISKS IN
INTERNATIONAL
BUSINESS
Political risks are changes in
government actions or
political policies that could
adversely affect foreign
companies.
EXAMPLES OF POLITICAL RISKS
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• Trade Sanctions is what governments
impose against another country to protest
that country’s behavior. This use of trade
barriers is usually the direct result of
political disputes between countries.
• Expropriation occurs when a government
takes control and ownership of foreign-
owned assets and companies.
• Economic Nationalism refers to the trend
of some countries to restrict foreign
ownership of companies and to establish
laws that protect against foreign imports.
• Civil Unrest or War
 INTERNATIONAL TAXES
 • A customs duty, or import tax, is a tax assessed on imported products.
 • A sales tax is a tax on the sale of products.
 • An excise tax is a tax levied on the sale or consumption of specific products or commodities
—such as alcoholic beverages, tobacco, telephone service, air- line tickets, gasoline, and motor
vehicles.
 • Payroll-related taxes are those taxes that are automatically deducted from an employee’s pay. 
 • A value-added tax (VAT) is a tax assessed on the increase in value of goods from each stage
of production to final consumption.
 • An income tax is a tax on the amount of income a person or corporation earns, minus
allowable deductions and credits.
Law that protect workers and consumers
Law is a system of rules created and enforced through social or governmental
institutions to regulate behavior, with its precise definition a matter of
longstanding debate. It has been variously described as a science and the art of
justice
.

Why do governments regulate businesses?

To protect the health and safety of the workers.In many

countries law requires factory workers to wear safety
equipment such as protective eye goggles, hard hats and
earplugs
 Equal Work Opportunities for All

The State shall protect labor, promote full employment, provide equal work
opportunity regardless of gender, race, or creed; and regulate employee-
employer relations.
 Male and female employees are entitled to equal compensation for work of
equal value and to equal access to promotion and training opportunities.
Discrimination against female employees is unlawful. It is also unlawful for an
employer to require a condition of employment that a woman employee shall
not get married, or to stipulate expressly or tacitly that a woman employee shall
be deemed dismissed upon marriage.
 The minimum age of employment is 18 years for hazardous jobs, and 15
years for non-hazardous jobs. But a child below 15 maybe employed by parents
or guardians in a non-hazardous job if the employment does not interfere with
the child's schooling.
Weekly Rest Day

A day-off of 24 consecutive hours after 6 days of work should be scheduled by the employer upon consultation with the workers.

Work Days and Work Hours

Work Day refers to any day during which an employee is regularly required to
work. Hours of Work refer to all the time an employee renders actual work, or is
required to be on duty or to be at a prescribed workplace. The normal hours of work
in a day is 8 hours. This includes breaks or rest period of less than one hour, but
excludes meal periods, which shall not be less than one hour.
Benefits of workers
 Medical benefits for sickness/injuries
 Disability benefits
 Rehabilitation benefits
 Death and funeral benefits
 Pension benefits
Trade Barriers
Government actions or policies that make it difficult to trade across borders.

Protectionism
refers to government policies that restrict international trade to help domestic industries.
Protectionist policies are usually implemented with the goal to improve economic activity
within a domestic economy but can also be implemented for safety or quality concerns.

 Tariffs, import quotas, product standards, and subsidies are

some of the primary policy tools a government can use in
enacting protectionist policies.
Tariff is a tax imposed by one country on the goods and services imported from another country.

Tariffs are used to restrict imports by increasing the price of goods and
services purchased from another country, making them less attractive
to domestic consumers.
There are two types of tariffs:
 A specific tariff is levied as a fixed fee based on the type of item,
such as a $1,000 tariff on a car.
 An ad-valorem tariff is levied based on the item's value, such as
10% of the value of the vehicle.
Quota is a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period.
Countries use quotas in international trade to help regulate the volume of trade between them and other countries.
Countries sometimes impose them on specific products to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition.

Example:
When a farmer puts grain in a silo, they can keep adding more and more grain, up
to a point. Eventually, there is no more space in the silo because the grain is
stacked up to the roof. Quotas are similar. Without them, foreign companies can
import goods to another market without volume limits. Placing a quota on imports
is like putting a ceiling on the silo. They can import until they hit the limit —
when there stops being room to import more.
 Boycott is an act of nonviolent, voluntary and intentional abstention from using, buying, or dealing with a person,
organization, or country as an expression of protest, usually for moral, social, political, or environmental reasons.

Example:
not buying paper products made with rainforest wood to
protest deforestation.
Licensing requriment some governments control import by requiring companies have a government import license. the
license grants permission to import a product, and it can be withdrawn any time.
 HOW GOVERNMENT ENCOURAGES
GLOBAL BUSINESS

Encouraging International Business

• Specific actions by governments can directly encourage and promote
international business. Governments view exporting as an effective
way to create jobs and foster economic prosperity. Governments
encourage business through a number of techniques.
1. Establishing free-trade zones
2. Granting most-favored-nation status
3. Establishing free-trade agreements
4. Providing export insurance to exporters
5. Providing free or subsidized export marketing assistance to exporters
6. Providing tax incentives for foreign companies
7. Reducing or eliminating trade barries
Free-Trade Zones
A free-trade zone is a designated area, usually around a seaport or airport, where products can be imported duty-free and then stored,
assembled and used in manufacturing .

Most Favored Nation

Most-favored nation (MFN) status allows a country to export into the granting country
under the lowest customs duty rates. Products imported from countries without MFN
status are charged a higher rate.
Free Trade Agreements
Under free trade agreement, member countries agree to eliminate duties and trade barries
on products traded among members. This results in increase trade between the members.
Common Markets
In a common market, members eliminate duties and other trade barriers, allow companies
to invest freely in each member's country, and allow workers to move freely across
 Tax incentives
What is tax incentives?
Tax incentives are ways of reducing taxes for businesses and individuals in exchange for
specific desirable actions or investments.

Tax incentives generally take one of three forms:

 Tax deductions
 Tax credits
 Tax reduction or forgiveness
Typical incentives
•Tax holidays
•Special zones
•Investment tax credits / allowances
•Accelerated depreciation
•Reduced tax rates
•Exemptions from various taxes
•Financing incentives