1. Formal
Institutions

2. Understanding Institutions
Formal Institutions
Laws
Regulatory bodies
Rules
Informal Institutions
Norms
Cultures
Ethics

3. Formal Institutions
What formal institutions (authoritative mechanisms of social order) do you think are most consequential to MNCs?

4. Legal Environment Common Law Civil Law Bureaucratic Law Religious Law
Property rights, Intellectual property

5. Regulatory Environment
Laws affecting international trade
Laws directed at foreign firms
Privatization
Foreign ownership
Dispute resolution

6. Political Environment
Democracy
Totalitarianism
Political risk

7. Economic Systems
Market economy
Command economy
Mixed economy

8. World Marketplaces
North America: U.S., Canada, Mexico, the countries of Central America
US: 24% of world’s GDP, Exports are 12% of U.S. GDP, 133 of 500 of world’s largest MNCs
Canada: Only 34 mil. People, but 80% of population in 100-mile band along southern border
Mexico: Most populous Spanish-speaking nation, NAFTA & EU free trade agreements have brought many new factories
Others: 83 mil people, but only one quarter of the size of Canada in GDP

9. South America 13 countries with common political history.
Considerable economic & social problems
Chile is one of most free-market economies in the world, Venezuela is the opposite.
Brazil has had fast growth and a rapidly expanding middle class

10. World Marketplaces Western Europe
EU: 27 countries (17 use the Euro), 500 mil people, $17t GDP, Germany world’s 4th largest economy,
UK/France/Spain/Italy are other major players
Newest members come from former Soviet Union
Iceland/Norway/ Switzerland are not EU.

11. World Marketplaces Eastern Europe Central Asia
Russia: 9th largest population,
GDP increasing by 6%/year since 2000,
3rd largest currency reserves
Other CIS states are much smaller markets
Central Asia
Five republics with much in common. Muslim faith is dominant, fossil fuels extensive

12. World Marketplaces Asian Kingpins
China: 1.4B people, communist but adopting market policies, steady 10% growth, exploding FDI
India: 1.3B people, diverse sub-economies, cumbersome bureaucracy, overburdened institutions
Japan: 126 mil people, $5t GDP. Keiretsu are large families of interrelated companies, cross-ownership, slow growth

13. Southern Asia
Four Tigers: South Korea, Taiwan, Singapore, Hong Kong. Rapid industrialization, massive exporting (half of GDP), high incomes.
Southeast Asia: Mix of growth/risk, poverty/high-earners, stability/intermittent turmoil
Aus/N.Z: Concentrated populations, agriculture & tourism, common culture

14. Africa
1B people in 55 countries. $2 tril GDP all together, mostly from South Africa, Nigeria, Egypt, & Algeria.
Commodities boost some countries: Algeria, Angola, Libya, Nigeria, Zambia Botswana
Many poor agricultural nations
South Africa may become a dominant force in coming years owing to its minerals exports

15. Middle East Saudi Arabia has largest economy, $1t GDP
Israel highest income, $25K/year
Oil exports account for most of GDP in the petro-states. Trying to diversify for “life after oil”
High cultural distance from U.S. deters initial investments
Sovereign wealth funds invest abroad