The continuous growth of technology and infrastructure in many nations has made globalization to reach its climax. Consequently, running international businesses has become significantly easier than ever before. Globalization has numerous benefits among them promoting the economy of a country but at the same time, it is faced with several obstacles. Some of these challenges are brought about by differences in legal, political and economic systems of different countries. This paper will compare two great countries the United States and China by looking in details how and why their legal and political systems differ, explain what determines the level of economic development in each country. Additionally, the paper will also give examples of economic and macro-political changes and show why market-based systems are being adopted by transition economies.
Why and How the Political Systems in US and China Differ
According to Hill (2017) "from time to time a nation will adopt a system that will merge collectivism and individualism alongside democracy". Therefore, a country's political system can be assessed effectively by using aspects such as collectivism or individualism and totalitarianism or democracy. The United States takes in with high respect the principles of democracy and individualism. The founding fathers of USA forecasted their nation to be one that respects and follow basic human rights and Biblical ideas as guidance. Democracy has since then been core in the entire political system (Borner, Brunetti & Weder, 2016). For international business management of doing business in a democratic country such as the US, it can be very comfortable for them since most barriers of trade have been removed and the political system is conducive.
China on the other hand practice totalitarianism and collectivism which is the opposite of democracy. In terms of political system, China is unique to all other countries in the world since up to date it is still run by a Communist party (Nolan, 2012). Collectivism means that the needs of an individual are not emphasized as compared to those of the society and not until recently, most rights of Chinese citizens were not realized. For international business management of doing business in a country like China, it can sometimes get hard since it is not possible to function liberally as in a democratic nation.
How China and US Legal System Differ
The legal system of a country establishes regulations and laws that maintain and indicate the basic values of an entire nation. The legal system of a country plays a key role in terms of its marketing and investment opportunities. In China, the legal system "is based on civil laws" (Nolan, 2012). In this system, the courts depend on the set legal codes by which the juries are only allowed to make their judgment basing on these codes. This means that business contracts are not usually detailed in China since the civil codes do not cover most laws. Conversely, the US law system basis its law from cases held previously and judges uses this as an example when determining most cases that are similar to the present one. Depending on the conditions surrounding a case, the law system allows special consideration to such as a case.
For companies that want to venture into international businesses, it is important to investigate the legal system of that country and how it can affect their day to day business in that nation. For instance, a business that wants to invest in China from the US, it must be prepared for more restrictions and should not expect Chines courts to consider the condition that leads to a certain situation since their law does not permit this. The civil law system only allows the judge to make his or her judgment basing on the law and should not consider other factors surrounding the business. Additionally, before starting a business internationally, it is important to consider additional factors that the law systems of that country do not consider since failure to do so can result in loss of profit.
Determinants of Level of Economic Development of a Nation
The well-being and economic development is another key branch of a political system that affects business operations (Solinger, 2016). A nation that practice individualism and democracy is more likely to have an economic system that is market-based and this is more desirable since it allows businesses to produce what their products maximally thereby making desirable profits. The only obligation they have is to follow the law that in most cases is straightforward. Additionally, in such a system, services and products are distributed and offered by the individuals working privately and independently with limited regulation from the government. Consequently, the freedom of running businesses without much obstacles leads to an increase in modernization and innovation increase and the country realizes better economic growth.
A command economy is the opposite of a free economy and it is usually dominated by the government which is always controlling major aspects of businesses. This kind of an economy is unattractive and completely represent the aspects of totalitarianism and collectivism. In such a system innovation is limited since people do don feel motivated to come up with brilliant business ideas because undesirable laws keep on blocking them. China, however, has been able to sustain and grow its economy as much as it practices a command economy. However, the long-term effects cannot be fully accessed at the moment.
The geographic location of a country, its educational, political and legal systems plays a key role in the economic well-being of a country. The geographic location factor is important since it dictates how well a country can be accessed to do business with and both China and United States have good locations since they are connected to water bodies. Nations without better access to such facilities depend on their agriculture and natural resources to enhance economic growth.
Additionally, human development is also key for countries to realize full economic growth. A country that provides its citizen with education produces better minds that can bring in better business ideas to the economy. Furthermore, it is important for nations to be flexible when it comes to global market system and change laws when necessary in order to attract investment and grow the economy like China did.
Economic and Macro-Political Changes Taking Place Globally
World economies keep on changing and countries are also made to change for them to remain competitive. Countries with command economic systems are now changing their laws to become democratic and allow free-enterprise after realizing benefits it can bring in (Cavusgil, Ghauri & Akcal, 2012). After observing how other nations are doing well under democracy in the international market, countries with command systems are now doing all they can to change this even if it means giving up some of their traditions.
According to Nolan (2012) "as for the number of democrat countries, 123 of the 196 countries are exercising democracy as compared to only 69 countries in 1987" (p. 101). Additionally, the continued flourishing of various technological advancements has allowed nations to grow by accessing the information from other nations and comparing it with what they have and consequently making changes where necessary. China is a great example of a country undergoing a transition as not many years ago it used to practice socialism but now it has transitioned to a dynamic market making it have a second largest economy in the entire world overtaking many great nations. Economic and macro-political changes happening globally is something that international business management must consider before doing business since it will influence the decisions that they make regarding their business.
The transition of Economies to Market Based Systems
Majority of China's production companies are owned and managed by the government. The Communist Party of China does not give the citizens any chance to question the existing and it has total control of everything going on in the state (Solinger, 2016). However, as the world is constantly moving towards a market-based system, the country had to switch to this system that allowed it to increase economic and still maintain its communist status. Considering that China adopted the system of the dynamic market much later than other nations, it has done remarkably well to have such a positive impact on its economy.
In conclusion, it is not possible to have a unanimous decision on which political and economic practice is best for the entire universe. However, it is important to compare and contrast countries to see which policies are working in the best way and what can be changed. China and the United States significantly differ in terms of the economic, legal and political system but this does not stop them from being the top two nation with the biggest economy worldwide.
Borner, S., Brunetti, A., & Weder, B. (2016). Political credibility and economic development. Springer.
Cavusgil, S. T., Ghauri, P. N., & Akcal, A. A. (2012). Doing business in emerging markets. Sage.
Hill, C. (2017). Globalization. In International Business: Competing in the global marketplace (11th ed.). New York: McGraw Hill/Irwin.
Nolan, P. (2012). China and the global economy. In Charting China's Future (pp. 55-64). Routledge.
Solinger, D. J. (2016). China's Transition from Socialism?: Statist Legacies and Market Reforms, 1980-90: Statist Legacies and Market Reforms, 1980-90. Routledge.
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