Global Business M2

BRICS

• Brazil, Russia, China, South Africa

• originally international investment strategies 

• today supranational institution

• geopolitical counterpart to G7 (rich countries: USA, Russia…)

• begin 2024: Egypt, Ethiopian, Arab, Iran joined BRICS Plus 

• stronger geopolitical voice to global south 

• more than 40 nations interested to join

Deglobalization

• trade wars

• populism politicies

• (radical) movement 

• COVID-19 

• wars and armed conflicts

what are the effects of deglobalization?

• increases in trade tariffs 

• populist policies: trigger negative perception of international trade/investment 

• radical movements increase risks and costs of global businesses

• supply chain resilience/early warning systems 

• divestment (deinvestment)

formal institutions

• explicit and codified rules, laws and regulations 

• organized structures (tax regulations, curfews)

informal institutions 

• unwritten norms, traditions, social practices

• normative: social norms, values, beliefs

• cognitive: shared beliefs, assumptions, mental models (Brille)

Barrick Gold and JV in Tanzania

• disputes according taxes, export, significant fine

• 2017 banned gold/silver export and demand 190 billion 

• Verbesserung:

• environmental conservation

• community development 

• responsible resource extraction

political systems

political organization of country (democracy…)

Venezuela

• nationalizing ressource (Staat kontrolliert)

• primary oil exporters worldwide

• PDVSA parter for incoming FDI

• Bolvarian Revolution (1998): increased nationalization 

J-Curve

• Ian Bremmer

• openness not linear to stability 

• consolidated/closed countries exhibit high levels of stability 

• closeness to openness can face deteriorating levels

Importance political systems for MNCs

determines

• where policy-makings happens

• which regulations are established 

• which interests these regulations reflect 

how MNCs can influence policy-making legal and illicit (illegal)

political systems determines how frequent regimes are changing (Präsidentenwechsel)

democratic vs. authoritarian 

• most countries hard to classify 

• russia: nominally democracy, but authoritarian style

• china: authoritarian, but sometimes democracy at local levels 

• competing political and bureaucratic interests (innerhalb Konflikte) 

• China, Japan, France no monoliths (divers)

• government support domestic firms 

• local/bureaucratic support foreign firms 

political risks

• macropolitical: affect all firms in country

• war, change government 

• micropolitical: only specifc firms/venture types 

• regulations, taxes 

negative effects on national levels

• government stability

• policy changes

• geopolitical tension

• changes in rules of game

methods to measure political risks

• POLCON: likelyhood to change in the policy regime

• ICRG (International Country Risk Guide): 22 variables (political, economic, financial risk)

checks and balances

• =”first order” safeguards

• democratic countries

• protect from risks

Henisz

• developed a framework for assessemnt POLCON

• counterbalancing (prevent one power becoming too strong) powers lead to reduction in risks

• foreign firms like checks and balances for international investments 

elections

• clearly timed events with hetereogenous and uncertain outcomes

• have relevant implications for firm operations, investment, financing

heterogenous event effects

• elections

• financial crises 

homogenous event effects

• christmas

• pandemics, terrorism, diasters

fixed event timing

• elections

• seasonal events 

flexible event timing

• financial crises

• pandemics, terrorism, disasters

analyzing politic systems

• who are the relevant actors?

• how is power distributes? (centralized: one makes the rule or federals: locals have different)

• how much power do regional governments have?

• (heaven is high, emperor is far away)

• how stable is a state?

• changes happen more in developing countries

• how stable is policy? (POLCON)

• what is the capacity of government to create and executive policy? if no then corruption

how are political, legal, economic systems connected?

political: make rules

legal: enforcement

economic: produce wealth

National legal systems affecting international firms?

because nationals sometimes have different laws than internationals (in/direct effects)

Civil Law

• codified statues and comprehensive legal codes

• Europe, Latin America, Asia, parts of Africa 

• restriction role of judges: only interpretation and application of statues 

• binding precedent not as central 

• contracts/agreements by MNCs by legalcodes 

Common Law

• development of legal principles/judicial decisions

• England, US

• interpret laws and apply legal principles based on past ruling 

• doctrine of stare decisis: must follow precents (consistency and predictability)

• doctrine of faith and fair dealing

US entering Civil Law countries?

• must adhere local legal principles

• predictability/clarity 

• navigate legally and resolve disputes using explicit provisions in lega codes

US entering Common Law countries?

• rely on Common Law countries

• adaptility allow to

1. diverse legal landscapes 

2. use established principles for agreement

3. risk mitigation 

4. dispute resolution

Investor protecion

• strongest in Common Law countries (US)

• lowest in French

• stronger protection with bigger/stronger financial market

Global Minimum Tax

OECD/G20 legal framework steblished 15% minmum effective tax rate for MNCs to ensure fair allocation of tax revenues across jurisdiction

GMT: legal principles

• implementation in progress

• through domestic legislation in both law systems

• relies on international coordination (Zusammenarbeit)

GMT: implications

• profit shifting to low-tax jurisdiction less effective

• transparent reporting and compliance with global standards

• help countries to protect tax base from erosion

market economies 

• Anglo Saxon capitalism

• (neo)liberal

• free market economy 

• country trade/industry control by private owners

• (UK, US)

mixed economies

• european social democratic models 

• marked-driven + state-let 

• European states 

state-led-economies 

• command

• planned

• centralized 

• form statistic economy 

• government control

• Cuba, Singapore, Japan

pure forms don’t exist

US GDP on healthcare, defense, education