Impact of Different Economic & Political Systems When Doing Business

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Economic and political systems impact business operations significantly, although the risks and opportunities differ widely depending on the country. Economic systems range from planned economies (communism) to market economies (capitalism). Doing business in a planned economy entails a higher risk, as the government has more power to exert control. The freedoms of a country’s political system mostly -- but not always -- reflect those of its economic system.

Venezuela: A Planned Economy Under an Authoritarian Regime

  • The Fraser Institute ranked Venezuela as the country with the least amount of economic freedom of the 152 countries studied over a period of 20 years. Doing business in Venezuela requires multiple permits and expensive setup costs. For businesses that build there, obtaining electricity can be a prohibitively expensive process, as Venezuela does not have a reliable utility infrastructure. Most companies must provide it themselves. Venezuela does, however, have entrepreneurial potential. It was rated among the top 10 countries in total entrepreneurial activity by the Global Entrepreneurship Monitor, according to Carlos H. Brandt, an expertise venture adviser and mentor for entrepreneurs in Venezuela. “I recommend validating any business contacts through your clients, allies and providers,” Brandt told The International Entrepreneur. The Venezuelan-American Chamber of Commerce of the United States and the U.S. embassy in Venezuela may provide valuable information for would-be entrepreneurs.

New Zealand: A Market Economy in a Democracy

  • New Zealand was ranked third for economic freedoms by the Fraser Institute. Its government is rated as a “full democracy” by the Economist Intelligence Unit, an independent business that provides country, industry and management analysis worldwide. In comparison to Venezuela, building and operating a business in New Zealand is simple and inexpensive. It is ranked first by the World Bank Group for ease of starting up a business, which only requires registration with the Companies Office online. Because of the ease of setup, competition is stiff because entrepreneurial activity is high, so only half of new businesses in New Zealand survive past the first three years, according to Entrepreneur.com. Thorough market research is necessary.

Russia: A Market Economy in an Semi-authoritarian State

  • Russia’s foray into capitalism resulted in an economic crisis because privatization benefited mostly those that had close ties to the government. Russian citizens, having depended on a planned economy, did not have the means to support a market economy. Without a solid infrastructure, privatization gave rise to organized crime. Business ventures in Russia are still exposed to corruption, but this risk can be mitigated by developing personal relationships with local business partners. Because land ownership is difficult for non-Russians, it may be preferable to establish a business as a subsidiary to a Russian company or pursue a joint venture.

China: A Market Economy Under Communism

  • While China has made significant progress toward a market-oriented economy, the economy still shows characteristics of a planned economy. The biggest issue in China is the lack of transparency. Laws are difficult to interpret and often applied arbitrarily. Intellectual rights are particularly at risk, as China’s laws do not offer protection. Entrepreneurs may see their ideas, designs, patents and investments in research & development blatantly stolen without legal consequences. Assessing the risk of intellectual property exposure is a critical need when considering doing business in China, according to Helping U.S. Companies Export at Export.gov.

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