M 2 - International Business - International Business Environment

8/6/2019 M 2 - International Business - International Business Environment

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4.2 International Business

Ashish J. Shah

[email protected] 11



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



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




� 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




� 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




� 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




� Dimensions of Globalisation

± Disembedding/delocalisation

± Acceleration

± Standardisation e.g. The English language

± Interconnectedness

±Movement

±Mixing

± Vulnerability e.g. AIDS, avian flu

± Re-embedding




� 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




± 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)




� 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




� 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




� 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



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



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



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



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



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



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...



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



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)



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)




� 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




� 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



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?




� Types of Regional Trade Blocks

± Preferential trading agreement

± Free trade area

± Customs union

± Common market

± Economic union

± Political union




� 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




� 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)




� 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




± Scope of NAFTA

� Market Access

� Trade rules

�

Services� Investment

� Intellectual Property

� Dispute settlement

±

ASEAN� Vision 2020

� AFTA ASEAN Free Trade Agreement




±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!




± 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




± 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)




� Andean pact (69)

� Bolivia, Chile, Ecuador, Colombia Peru signed the

Cartagena Agreement

� Based on the EU model� Collapsed in the 80s

M 2 - International Business - International Business Environment

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