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8/6/2019 M 2 - International Business - International Business Environment
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4.2 International Business
Ashish J. Shah
8/6/2019 M 2 - International Business - International Business Environment
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Module 2 Agenda
� International Business Environment:
± Globalisation of Business
±
WTO and Trade Liberalisation ± Emerging Issues
± Implications for India
± Regional Trade Blocks
± Inter-Regional Trade among Regional Groups
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Globalisation of Business
� Pls. see case on The Globalisation of Health Careon P 4
� Has led to fundamental shift in world economy
� Countries have reduced trade barriers; no longercontent with self-sustenance concept
� A manufactured product or service today unlikelyto have components from one country alone
� Our breakfast is an international potpourri of ingredients too
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Globalisation of Business
� Amazon, eBay deliver from the US to yourdoorstep
� DHL, TNT become your international value-chain partners
� Collapse of communism and environmentalconcerns in the West sped up globlsn
� $ 1 billion of currency exchange/day� $ 10 trillion worth of products and $ 3 trillion
worth of services transacted annually
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Globalisation of Business
� However, fears of job security are high
� Influx of immigrants into the EU, South Pacificand North America creating nervousness
� More Asian companies beginning to dominatecar industry now; GM finding it difficult toprotect market share
� Globalisation thus refers to the shift to a moreintegrated and interdependent worldeconomy
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Globalisation of Business
� Globalisation of markets merging of historicallydistinct markets into one, global market
� Increasingly firms are talking less of country
markets and more of the global market as awhole
� Globalisation of production sourcing of goodsand services from locations around the globe to
take advantage of national differences in cost andquality of factors of production (labour, energy,land and capital) e.g. Airbus
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Globalisation of Business
� Dimensions of Globalisation
± Disembedding/delocalisation
± Acceleration
± Standardisation e.g. The English language
± Interconnectedness
±Movement
±Mixing
± Vulnerability e.g. AIDS, avian flu
± Re-embedding
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Globalisation of Business
� Drivers of Globalisation
± Increase and Expansion of technology
± Liberalisation of cross-border trade and resource
movements because governments find:� Their citizens want so
� Manufacturers will become more competitive
� May induce other countries to lower barriers
±
Development of services that support internationalbusiness e.g. SEZs
± Growing consumer pressures
± Increased global competition
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Globalisation of Business
± Changing political situations e.g. Collapse of communism
± Expanded cross-national cooperation:� To gain reciprocal advantages
� To solve problems jointly that one country alone cannot solve
� To deal with concerns outside the territory of all countries
� Stages in Globalisation
1. Domestic company (ethnocentric)
2. International company (ethnocentric)
3. MNC (polycentric)4. Global company (Regiocentric)
5. Transnational company (Geocentric)
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Globalisation of Business
� Levels of Globalisation
1. World-level globalisation
2. Country-level Globalisation
3. Industry-level Globalisation4. Firm-level Globalisation
� Components of Globalisation
± Globalisation of markets e.g. Coca Cola
± Globalisation of production e.g. Hyundai
± Globalisation of investment e.g. FDI
± Globalisation of technology
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Globalisation of Business
� Implications of Globalisation
± Implications of the globalisation of:� Markets
�Production e.g. Dell
� Investment e.g. FDI
� Technology
� Trends in Globalisation
±
Cooperation among countries ± Liberalisation of cross-border movements
± Transfer of technology
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Globalisation of Business
� Obstacles to Globalisation ± Government policies and procedures
± High cost
± Poor infrastructure
± Obsolescence ± Resistance to change
± Poor quality image
± Supply problems
± Small size
± Lack of experience ± Limited R & D and marketing research
± Growing competition
± Trade barriers e.g. Non-tariff barriers
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WTO
� WTO: organisation meant to monitor
international trade amongst its member states
�
Birth of WTO: ± GATT (1947) mainly host to developed nations
± UNCTAD (UN conference on trade and
development): estd. in response to US reluctance
in 1963
± WTO: 1995 Uruguay round
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WTO
� Differences between GATT and WTO and
features of WTO?
± GATT:
� more of a provisional agreement among exclusive
states
� Less scope under agreement to decide on disputes
� Applied to merchandised goods, not services
� Multilateral, WTO more plurilateral; many new
agreements were signed in 80s
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WTO
� Objectives of WTO:
± Improve standard of living of people in membercountries
± Ensure full employment and broad increase ineffective demand
± Enlarge production and trade of goods
± Realising these aims consistently with sustainable
development and environmental protection
± Ensuring that developing countries secure aproper share in the growth of international trade
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WTO
� Principles of WTO: ± Transparency
± MFN (Most favoured Nation) treatment
±
National treatment: non-discrimination within acountry
± Free trade principle: optimal utilisation of resources
± Dismantling trade barriers
± Rule-based trading system
± Treatment for LDCs ± Competition principle
± Environment protection
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WTO
� Structure of WTO:
1. Ministerial conference
2. General council� Dispute settlement body
� Trade policy review body
3. Councils� Council for trade in goods
� Council for trade in services
� Council for trade related aspects of intellectualproperty rights
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WTO
4. Committee and management bodies
± Committees
� Committee on trade and development
� Committee on balance of payments
� Committee on budget, finance and administration
±Management bodies in plurilateral agreements:
civil aircraft, government procurement...
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WTO
� Role of WTO
± Helping developing and transition economies
±
Specialised help for exports ± WTO in global economic policy making
± Taking information
± Giving information to public
± Encouraging development and economic reform
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WTO
� Key subjects in WTO ± Agriculture
± Health and safety measures
± Helping least developed and food importing countries
± Textiles and clothing
± TRIPS
± TRIMS (Trade Related InvestmentMeasures)
± GATS (General Agreement on Trade in Services); coversfour modes of international service delivery:
� Cross-border supply (data flow)
� Commercial presence (FDI...)
� Consumption abroad (tourism)
� Movement of personnel (foreign consultants)
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WTO and Trade Liberalisation
� WTO and India: ± No commitment made for agri sector w.r.t.:
� Market access
� Reduction of tariffs
�
Amount of subsidies attached� WTO and Trade Liberalisation in India
± Reduction in excise and customs duties
± Peak customs duty reduced from 220 % in 91 to 30 % in 02(EPCG)
± Lowering corporate tax (35 % + 5 % vs. 40 % + 5 %)
± Widening of tax base and toning-up the tax administration:� equity (ability-to-pay),
� efficiency (against market failure) and
� simplicity (compliance and admin costs to be minimised)
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WTO and Trade Liberalisation
� Advantages of WTO to India ± Boost to exports
± Security and predictability
±
Policy assistance ± Trade links
± Settlement of disputes
± Special concessions
± Promotion of competition
± Technical assistance
± Sustainable development
± Policy review mechanism
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WTO and Trade Liberalisation
� Disadvantages of WTO to India
± No export push
± Prominence to developed nations
± Price rise
± Danger to services sector
± Not really free trade
± Erosion of autonomy
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Regional Trade Blocks
� Characteristics of Regional Trade Blocks :
1. Implies a reduction or elimination of trade
barriers
2. Are discriminatory and applies only to member
countries
� Importance of Regional Trade Blocks :
± Discussion?
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Regional Trade Blocks
� Types of Regional Trade Blocks
± Preferential trading agreement
± Free trade area
± Customs union
± Common market
± Economic union
± Political union
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Regional Trade Blocks
� Impact of Regional Trade Blocks on
International Business
± Trade creation and trade diversion
± Prices and competition
± Economies of scale
± Dynamic effects of integration
± Impact of opportunities
± Impact of threats
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Regional Trade Blocks
� Factors responsible for Regional Trade Blocks: ± Emphasis on removal of trade barriers
± Feeling of comfort to trade among countries close toeach other
± Improve bargaining power against other strongerblocks
� Trade among regional groups ± Intra-regional e.g. EEC
± Inter-regional e.g.� 7 groups identified: EAP, ECA, LAC,MNA, SAS, SSA,
developed regions (Nam, EUR, AAs)
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Regional Trade Blocks
� Major Regional Trade Blocks
± EU
� European Commission
� European Council
� European Parliament
� European Court of Justice
� Benefits of the EU and challenges faced
± NAFTA
� US, Canada andMexico
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Regional Trade Blocks
± Scope of NAFTA
� Market Access
� Trade rules
�
Services� Investment
� Intellectual Property
� Dispute settlement
±
ASEAN� Vision 2020
� AFTA ASEAN Free Trade Agreement
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Regional Trade Blocks
±Mercosur (South America)
� Brazil, Argentina, Paraguay and Uruguay
± EFTA European Free Trade Association (1959)
� Austria, Norway, Portugal, Sweden and Switzerland� Enable free trade in Western Europe
± CARICOM: Central American CommonMarket(early 60s)
�Costa Rica, El Salvador, Guatemala, Honduras,Nicaragua
� Collapsed in 69 after war broke out between Hondurasand El Salvador after a soccer match riot!
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Regional Trade Blocks
± South Asian Association for Regional Cooperation
(SAARC)
� SAPTA: SAARC Preferential Trading Agreement
� SAFTA: South Asian Free Trade Agreement
± Asia Pacific Economic Cooperation (APEC)
� 18 countries
± Latin American Integration Association (LAIA)
� Argentina, Brazil, Chile,Mexico, Paraguay, Peru,
Uruguay, Colombia, Ecuador, Venezuela, Bolivia
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Regional Trade Blocks
± Economic and Social Commission for Asia and ThePacific (ESCAP)� 48 members and 10 associate members
�
Subdivided into:1. Pacific island countries
2. Developing ESCAP countries
3. ASEAN 4 nations
4. Developed ESCAP countries
5. China and new industrialising countries6. South Asian countries
� Extends to: Cook Islands (E), Azerbaijan (W),Mongolia(N), Aus and NZ (S)
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Regional Trade Blocks
� Andean pact (69)
� Bolivia, Chile, Ecuador, Colombia Peru signed the
Cartagena Agreement
� Based on the EU model� Collapsed in the 80s