international business chap 2 – Flashcards
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formal and informal rules of the game
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institutions
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fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect firms as players
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institutional transitions *results of institutional being dynamic
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a leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions *how firm can play the game (understand n take advantage of the rule
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institution-based view
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formal and informal institutions governing individual and firm behavior
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institutional framework
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institutional framework's pillars?
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-regulatory -normative -cognitive
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institutions represented by laws, regulations, rules
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formal institutions
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coercive power of governments
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regulatory pillar --> formal institutions *people pay tax not only out of patriotic duty, but also in fear of coercive power of gov if they are caught not paying
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institutions represented by culture, ethic, norm
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informal institutions -two main supportive pillars: normative and cognitive
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the mechanism through which norms influence individual and firm behavior -
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normative pillar
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how the values, beliefs, actions of the relevant players that influence the focal individuals and firms
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norm
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the internalized (r taken-for-granted) values and beliefs that guide individual and firm behavior
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cognitive pillar *@whistle blower: what do they think is right or wrong, make them report if there's a crime
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what do institutions do?
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-reduce uncertainty by signaling which conduct is legitimate and which is not, constraining the range of acceptable actions
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the cost associated with economic transactions or, more broadly, the costs of doing business *may be caused by uncertainty surrounding economic transactions
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transaction cost
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important source of transaction cost def= act of seeking self-interest with guile
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opportunism e.g. cause transaction cost -> misleading, cheating to reduce it-->
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to reduce transaction cost-->
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spell out the rules of the games (increase certainty) so that violations can be mitigated
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institution-based view focuses on..
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-dynamic interaction between institutions and firms -outcome of such interaction = firm behavior (reflection of the formal and informal constraints of a particular institutional framework)
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core propositions of the institution-based view 1
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managers and firms RATIONALLY pursue their interests and make choices within the formal and informal constraints in a given institutional framework
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core propositions of the institution-based view 2
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while formal and informal institutions combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a LARGER role in reducing uncertainty and providing constancy to managers and firms
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proposition one specifically concerns? *necessity of making rational decisions in the absence of complete information
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bounded rationality
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chief among formal institutions
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1. political systems 2. legal systems 3. economic systems
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rules of the game on how a country is governed politically
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political system
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a political system in which citizens elect representatives to govern the country on their behalf
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democracy
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a political system in which one person or party exercises absolute political control over the population
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totalitarianism (dictatorship)
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risk associated with political changes that may negatively impact domestic and foreign firms
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political risk *experienced by totalitarian countries more than in democratic country
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rules of the game on how a country's laws are enacted and enforced
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legal system
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a legal tradition that uses comprehensive statues and codes as a primary means to form legal judgments
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civil law *from roman law and strengthened by napoleon's france *oldest, most influential *based on applying of law
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a legal tradition that is shaped by precedents and traditions from previous judicial decisions
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common law *origin=english *more flexible *based on judge's interpretation of law
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a lega system based on religious teachings
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theocratic law e.g. Jewish law and Islamic law
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the legal rights to use an economic property (resource) and to derive income and benefits from it
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property rights *property = home, office *property rights--> property can be used for collateral (make funds)
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intangible property that is the result of intellectual activity
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intellectual property
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rights associated with the ownership of intellectual property
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intellectual property (IP) rights
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exclusive legal right of investors of new products or processes to derive monopolized income from invention e.g. manufacturing, licensing, selling
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patent
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exclusive legal right of author and publishers to publish and disseminate their work
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copy right
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exclusive legal right of firms to use specific names, brands, and designs to differentiate their products from others
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trademark
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rules of the game on how a country is governed economically
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economic system
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an economy that is characterized by the "invisible hand" of market forces
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market economy *first noted by adam smith *all factors of production should be privately owned
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the government takes a hands-off approach
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laissez faire *in market economy *gov only perform functions that the private sector cannot perform (e.g. providing roads and defense)
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an economy that is characterized by government ownership and control of factors of production
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command economy *all factors of production are government-owned/state-owned *all supply, demand, pricing are planned by gov
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an economy that has elements of both a market economy and a command economy
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mixed economy
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is there any ideal free market economy? or 100% command economy?
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none even HK has some notieable government intervention in the economy
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a firm owned and controlled by the state (government) *at least 10% owend by the state
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state-owned enterprise SOE *e.g. bank --> to bail it out from having share price that is too low
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most country has a
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mixed economy
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a country with "market economy" =
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-a country that organizes its economy mostly by market forces and that still has certain elements of a command economy
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a view centered on the unquestioned belief in the superiority of private ownership over state ownership in economic policy making -often spearheaded (led) by two ____ based international organization : IMF and World bank
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Washington consensus *championed the privatization global movement
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IMF=
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international monetary fund
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GSE=
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government-sponsored enterprises *what US have now; only a different term with the same meaning w/ SOEs
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recklessness when people and org (firms+gov too) do not have to face the full consequences of their actions
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moral hazard *encouraged by government bailouts
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a view that questions Washington Consensus' belief in the superiority of private ownership over state ownership in economy policy making *often associated with the position held by the chinese gov (80% of stock is SOEs, which increases china's GDP 9.5% per year)
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beijing consensus
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a state-owned invetment fund composed of financial assets such as stocks,bonds,real estate, or other financial instruments funded by foreign exchange assets
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sovereign wealth funds (SWFs) *more in emerging economies
