Notes

Question 2
In international business there are many things to be considered when establishing a business venture. One of those things that you should know is the environment or more precisely what kind of economic system in your trade environment exists.
Write an essay about and elaborate these different kinds of Economic Systems in brief and describe the main points and principle differences they have. Why, in your opinion, it is important to know and understand the functions and principles of these different systems (you may add to your answer as many attachments (pictures, graphs, tables, figures, etc.) to support your findings), when governing or steering an international business?

Answer:
There are main three types of economic system in the environment. They are planned, free market and hybrid system. In planned system, government plays a very active role in the market. An example of this is countries where government sets prices of goods, labor and the consumers. In free market, it is the opposite of planned system. Government does not involve itself in any aspect of the market where the market itself decides prices of good, labor and consumers. An example of free market system is countries where there the market fully dictates prices of goods, wages and market could pick any consumers they wish such as children etc. The last system is called hybrid system where government’s influence on the market it limited. An example of this system is countries where government only interferes in the market when laborers are abused, to protect consumer rights and monopoly etc. In my opinion, it is important to understand these functions and principles of these different systems because when establishing an international business, it is very important to know the economic system of the country of operation. This is because in free market system, high entry barrier, monopoly, abuse of labor rights etc might exist. In these situations, business have a lower ethical standard and heavily relies on the “invisible hand” to create balance. On the other hand, in planned system, business need approval of the government to operate. State monopoly is to be expected and business that wish to thrive in such system must ensure a positive relationship with the state. Countries like North Korea have planned economy where the state fully controls the economy. Last of all, in hybrid system, best of both system is applied. Countries like Finland, USA, Germany etc have hybrid system where market is freely allowed to operate without government intervention. However, in important situations, government intervenes such as to anti-monopoly laws, anti-child labor laws, laws to prevent tobacco and alcohol from being sold to minors, maximum prices for necessary goods such as bread etc. From understanding all this, I understand that hybrid systems are the best system to operate in as government tries to maintain level playing field for business while protecting rights of consumers. Hence in hybrid system, it is very important to conduct business ethically as both consumer and government group will add pressure.