Professional Documents
Culture Documents
Presentation 1
Presentation 1
E.g.: A redundant plant in Belgium cannot shift the work to a France plant of the
same company only thirty miles away, but on the other side of the national border.
At the one end, there are the free market economies or the capitalist economies
and at the other are the centrally planed economies or communist countries.
In between these two are the mixed economies.
For E.g. Prohibition of alcohol is a political decision- but it affects the alcohol
and related industries.
The economic system and policy are very important external constrains
on business.
The rules and regulations created by the politicians, have significant
influence on the cost of running a business and the way it can market
products and services – for example in India there are severe regulations
about advertising for alcohol and tobacco
Mixed economy is a economy where both the public and the private sector
co-exists. The extend of state participation various widely between the
mixed economies. E.g.. India, Turkey, Syria…
The freedom of private enterprise is the greatest in the free market
economy, which is characterized by the following assumptions.
Private enterprises were very limited and state trading, particularly counter
trading, was the rule.
In the past , the public sector was assigned a very important role in many non-
communist, particularly developing countries too.
For E.g.. in India before the policy changes of 1991, 17 of the most important
industries were exclusively reserved for the public sector. It was also to play a
leading role in another 12 important industries.
Even in areas where foreign capitals were allowed , there was ceiling on the
foreign equity participation. E.g.. Coca-Cola.
Now the situation is not the same in most of the countries.
More than 8500 SOEs in over 80 countries are privatized in the 12 Years ending
in 1991 and the trend continues.
Ideology:
A country's ideological leaning may be capitalism, socialism, a mixture or
other form. In the last years remarkable changes have been taking place in the
ideologies of many countries. The most dramatic example has been the
collapse of the communist USSR and Eastern Europe and its replacement with
market led policies and ideologies. Similarly, many African countries are
abandoning their centrist leanings in favour of market led economies, for
example, Zimbabwe and Tanzania.
Nationalism:
Much was said about nationalism in the previous section. Whilst, primarily a
phenomenon of the developing countries, Yugoslavia has shown it is not
entirely so. Nationalism can lead to expropriation of foreign held assets.
Stability:
Changes in regime, violence and cultural divisions based on language or other
factors can lead to a very uncertain environment in which to conduct business.
The current uncertainty in Liberia and Rwanda, the violence of Somalia and
Yugoslavia increase the risk and diminish the confidence of doing business in
these countries.International relations: In general international relations
have improved over thelast twenty years. The development of GATT, NATO and
the EU have gone a long way to reduce the element of "foreigness".
Expropriation:
Expropriation is an extreme form of political action. It may occur for a number
of reasons, including the desire to retain national assets, as a "hostage"
situation in international disputes, for example the seizure of Union Carbide's
assets after the Bhopal disaster in India. Other government activity, which
affects capital investment includes joint venturing insistence and repatriation
of funds. "Partnering" remains widespread (inward investment in tandem with
a domestic company) as does restrictions on repatriation of funds. In
Zimbabwe, for example, HJ Heinz, the multinational food agent,
has entered into partnership with Olivine industries. Over time, even if
initially the investment is not favourable, the Government may relax its
conditions as it sees the benefits.
Nepal’s business environment: Stained by political uncertainties
• In the past couple of years, whole world has hailed an improvement in Nepal ’s
political performance. But sustained political development is impossible without
greater economic stability.
•Rationally speaking, for the business to flourish in Nepal the political change
needs to be institutionalized at the earliest possible but looking at the current
political chaos in Nepal, it seems we will remain in doldrums till the next election
of the parliament under the new constitution. Time has come for the political
parties to unite for a common minimum economic program but that looks just a
forlorn reverie judging by the ongoing political battle amongst the Nepalese
political parties.
•Finally, if peace and political stability is established in Nepal , then its business
sector too, would blossom.
Incentives
Many countries try to reduce perceived risk by promoting inward investment
through the provision of tax breaks, free ports, enterprise zones etc., which are
not tied as in partnering. The key is to look at what the disadvantages are. If the
government mainly wishes to attract the mobile investor, or overcome say poor
local skills, one has to assess what would happen if the scheme was withdrawn
once the capital had been committed. Similarly if viability depends on incentives
rather than real return on investment, the question is, is the venture really worth it?