CHAPTER Government and Global Business 4 1 Political

CHAPTER Government and Global Business 4 -1 Political Environment and Global Business 4 -2 How Government Discourages Global Business 4 -3 How Government Encourages Global Business 4

LESSON 4 -1 GOALS • Discuss various political systems around the world. • Explain the political environment for a company’s host and home countries. 4 Political Environment and Global Business SLID E 2

Types of Political Systems • Totalitarianism—political control is held by one person or a small group 4 • Democracy—all citizens take part in making the rules that govern them • Mixed systems—characteristics of both systems SLID E 3

• Global companies operating in host countries offer: • *employment for citizens of Host country • *more advanced technologies to help economic development. • Global companies’ relationships with home countries: • *A multinational enterprise is expected to comply with the Home Country’s social, economic, and legal mandates. 4 Political Relations with Host and Home Countries SLID E 4

LESSON 4 -2 How Government Discourages Global Business 4 GOALS • Describe laws and trade barriers that can discourage global business. • Explain how political risks can disrupt global business activities. • Identify the major types of taxes that governments impose around the world. SLID E 5

• Laws that protect workers and consumers **Child Labor Laws, Product Safety Laws. • Trade barriers- government actions or policies that make it difficult to trade across borders. • Tariffs(Duty) - a tax placed on products that are traded internationally • Quotas- a limit on the total number, quantity or monetary amount of a product that can be imported from a given country 4 Government Activities Influence Business SLID E 6

Government Activities Influence Business 4 • Boycotts- absolute restriction on the import of certain products from certain countries • Licensing requirements- control imports by requiring that companies have a government import license…it can be revoked at any time. SLID E 7

• Trade sanctions- governmental trade restrictions imposed against another country to protest that country’s behavior. • Expropriation- when a government takes control and ownership of foreign-based assets and companies • Economic nationalism- a policy of restricting foreign ownership of local companies and hindering foreign imports • Civil unrest or war- curfew, destruction of goods 4 Political Risks in International Business SLID E 8

International Taxes • Customs duty(Import Tax)- a tax assessed on imported products. Used as trade barrier and to pay for government programs. • Excise tax- tax on the sale or consumption of specific products…alcholic beverages, tobacco, telephone services, airline tickets, gas, and motor vehicles. 4 • Sales tax- tax on the sale of products • Payroll-related tax- taxes withheld from employee pay and taxes paid by the employer based on employee pay. • Value-added tax (VAT)- tax assessed on the increase in value of goods from each stage of production to final consumption. • Income taxes- tax on the amount of $ an individual or company earns minus any allowable deductions or credits. SLID E 9

LESSON 4 -3 GOALS • Explain government actions that can encourage global business activities. • Discuss U. S. government agencies that can help reduce international risk. • Describe how tax incentives encourage global business. 4 How Government Encourages Global Business SLID E 10

Encouraging International Business • Most favored nation (MFN)- designation that allows a country to export into the granting country under the most favorable trade conditions that the importing country offers to any of its trading partners • Free-trade agreements • Common markets 4 • Free-trade zones- a designated area where products can be imported duty-free SLID E 11

• Free-trade agreements- an arrangement between countries that eliminates duties and trade barriers on products traded among themselves • Common markets- an agreement among countries that eliminates trade barriers, encourages investment, and allows workers to move freely across borders 4 Encouraging International Business SLID E 12

• Export-Import Bank of the United States (EXIM) **The U. S. government agency that helps to finance the export sales of U. S. products. It provides export loans, export loan guarantees, and export credit insurance. • Overseas Private Investment Corporation (OPIC) **Provides investment insurance to U. S. companies that establish operations in developing countries…this shields the company from several types of Political Risks 4 Government Protection from International Risk SLID E 13

Tax Incentives 4 • Corporate tax deduction- on income earned by foreign subsidiaries…eliminating the possibility of the company being taxed twice on income from foreign operations. • Double-taxation avoidance treaties- these treaties provide relief from double taxation of U. S. multinational corporations…it is a tax incentive used to attract investors. • Tax holiday- situation where a corporation does not pay corporate income taxes to a foreign government if it invests in their country SLID E 14