Question: 3-1: Identify three compelling economic reasons to invest in China.

Then identify three

compelling political reasons to avoid doing so. Recommend a criterion one could use to trade off the
opportunities of operating in China versus the risks of doing so.
Answer: Three compelling economic reasons to invest in China.
Businesses see stunning opportunities like,

Market Potential: With 1.34 billion citizens

Market Performance: Rapid economic development catapulted China from an also-ran in 1980 to the
worlds second largest economy in 2012,

Infrastructure: In a multiyear program, China is investing trillions on housing, offices, highways, airports,
seaports, waterways, dams, power grids, high-speed trains and communication networks.

Resources: Chinas well-educated population creates an immense pool of productive labor. Wage rates for
unskilled labor are less those in many other countries.

Strategic Positioning: China represents the biggest growth opportunity in the history of capitalism. The
country is experiencing roughly ten times the economic acceleration, on more than 100 times the scale,
resulting in an economic transformation that carries over 1,300 times the force of change than seen during
the Industrial Revolution.
Three compelling political reasons to avoid investment in China.

China practices State Capitalism whereby the government manipulates market activities to achieve
political goals. Consequently, MNEs doing business in China often find themselves at a disadvantage.

Western firms purchased big stakes in Chinese companies. Political problems and legal difficulties shortcircuited their plans. Eventually, like many others, they sold their stakes and reset their strategies.

Political risk is the likelihood that political decisions, events, or conditions will affect a countrys business
environment in ways that,
1. Cost investors some or all of the value of their investments,
2. Force them to accept lower-than-projected rates of return, and
3. Threaten the sustainability of local activities.
Question: 3-2: What sort of operational safeguards would you advise a company to adopt in order to
better manage the risks of Chinas legal environment?
Answer: China practices State Capitalism whereby the government manipulates market activities to achieve
political goals. Consequently, MNEs doing business in China often find themselves at a disadvantage. Western firms
purchased big stakes in Chinese companies. Political problems and legal difficulties short-circuited their plans.
Eventually, like many others, they sold their stakes and reset their strategies.
Political risk is the likelihood that political decisions, events, or conditions will affect a countrys business
environment in ways that,

Cost investors some or all of the value of their investments,

Force them to accept lower-than-projected rates of return, and

Threaten the sustainability of local activities.

Question: 3-3: Collectivism and individualism, democracy and totalitarianism, rule of law and rule of
man: What do these concepts say about IPRs and the legitimacy of protection?
Answer: Theoretical positions can be used to take a position on the issue of protection but the reality still remains
that no region of the world is exempt from piracy and in 2009 it continued to rise. The pervasiveness and tenacity
of software piracy shines a light on the most basic issues such as the accepted legitimacy of piracy. Even with
increased criminalization and transnational institutions focusing on piracy, it has not slowed.
Question: 3-4: What is the relationship among governments, transnational institutions, and MNEs
fighting piracy? Do they share similar or different motivations?
Answer: Technically, the standards of software piracy are unequivocal. Thus, parties have been hopeful that
collective political arrangements and legal actions by companies, associations, governments, and institutions would
lead to a decline in global software piracy. However, coordinated anti-piracy initiatives such as high-profile legal
proceedings against companies using illegal software, increased government cooperation in providing legal
protection for intellectual property, and the criminalization of software piracy have proven to be largely ineffective.
Even efforts at the transnational level to get nations to sign treaties and to
require them to protect and enforce intellectual property rights according to global, not local, standards have not
yielded the desired results. Unfortunately, the ease with which software can be duplicated, sold, and distributed
continues to baffle the industry.
Question: 3-5: Can MNEs stop piracy without government help? Why would they prefer greater
government assistance? Why would they oppose it?
Answer: If the software industry could successfully develop technical and business measures to thwart
counterfeiters, government intervention would be unnecessary. Thus far, the industrys best efforts have been
unsuccessful. Given the value of the products involved, the global appeal of pirated software, and the relative
ease with which counterfeiting occurs on a worldwide basis, the temptation for counterfeiters to continue their
activities is irresistible. In spite of the need for assistance and cooperation from all stakeholders, the software
industry could presumably object to greater government regulation; while innovation moves at lightning speed,
regulation tends to lag well behind technological developments and market realities.

Question: 3-6: Do you think consumers in wealthier countries versus those in poorer countries justify
piracy with similar rationalizations? Why?
Answer: Consumers in high theft countries tend to share a collectivist mindset; they see property as being
common to all and existing for the benefit of alloften they do not understand the basic concept of intellectual
property rights. As with many other products, they want to acquire them at the lowest possible cost. On the other
hand, consumers in lower theft countries tend to share an individualist mindset; the concept of intellectual property
rights is well understood and long established within their countries and cultures. IPRs are seen to be a necessity for
economic development and growth; royalties and profits are seen as the just fruits of creativity and investment.
Question: 3-7: Can you envision a scenario where developers and consumers of IP develop a
relationship that eliminates the profitability of piracy?
Answer: A great example that can serve as a basis for discussion is the evolution of music piracy. Napster and
other sites were eventually shut down for making illegal piracy of music available. Consumers will find what they
want and use it often even if it is illegal. The industry solved the problem with alternative technology that benefited
both the companies and the consumers, for example iTunes. Consumers are willing to pay the 99 cents for the
benefit and availability of a song. So when the conditions are right for both the companies and the consumers,
solutions that protect IBRs can be agreed upon.