1-1

4-1

Influence of Institutions on Influence of Institutions on Firms, Managers Firms, Managers and Firm Behaviorand Firm Behavior

InstitutionsInstitutions

Formal Formal and

Informal Constraints

Formal Formal and

Informal Constraints

Informal Normative &

Cognitive Constraints

Informal Normative &

Cognitive Constraints

FirmsFirms

ManagersManagers

Firm BehaviorFirm Behavior

© J. McNett, Influenced by W. R. Scott (2008) and M. W. Peng (2002, 2009) LO1LO1

1-2

4-2

Global Level InstitutionsGlobal Level Institutions

United Nations Bretton Woods Institutions

International Monetary Fund World Bank

World Trade Organization

1-3

4-3

Global Level InstitutionsGlobal Level InstitutionsThe United NationsThe United Nations

Promotes peace and global stability 192 member-nations Has many functions related to business

General Assembly Deliberative body of the UN All member-nations, each with one vote

Security Council Responsible for peace and security 5 permanent members with veto power(U.S., Russia,

China, France, UK) 10 elected members

LO3LO3

1-4

4-4

Global Level Institutions Global Level Institutions Bretton WoodsBretton Woods

Meeting in Bretton Woods New Hampshire, U.S. at end of World War II (July 1944)

44 Allied Nations Established Monetary Institutions

International Monetary Fund (IMF) World Bank

Established a Monetary System

LO4LO4

1-5

4-5

Global Level Institutions Global Level Institutions International Monetary FundInternational Monetary Fund

Promotes international monetary cooperation Coordinates multilateral monetary rules and their

enforcement 185 members who contribute funds on quota

base Quota determines the country’s number of votes IMF lends out these funds to members

LO4LO4

1-6

4-6

Global Level Institutions Global Level Institutions International Monetary FundInternational Monetary Fund

Facilitates expansion and balanced growth of international trade

Promotes exchange stability and orderly exchange arrangements among members

Establishes a multilateral system of payments Makes funds available for balance of payments

corrections

LO4LO4

1-7

4-7

Global Level Institutions Global Level Institutions International Monetary Fund International Monetary Fund

Current IssuesCurrent Issues

Convince rising economies to accept multilateral responsibilities beyond their economies

Prevent protectionism in U.S. and Europe as Asian economies grow

Become action-prone as financial crises become global and more complex

Support the process of regionalization of currencies Help financial markets spread risk from ecological

issues

LO4LO4

1-8

4-8

Global Level Institutions Global Level Institutions World Bank’s Major InstitutionsWorld Bank’s Major Institutions

The World Bank funds development projects Comprised of two major and three smaller

institutions International Bank for Reconstruction and

Development (known as the World Bank) Funds development loans to middle income,

credit-worthy countries International Development Association

Funds poorer nations’ developmentLO4LO4

1-9

4-9

Global Level InstitutionsGlobal Level InstitutionsThe World Trade OrganizationThe World Trade Organization

The World Trade Organization (WTO) provides and helps implement rules of trade 151 member nations; began in 1995 Negotiates core agreements among member

nations Establishes rules for trade Helps settle trade disputes

Outgrowth of General Agreement on Tariffs and Trade (GATT) Induced trade liberalization from 1947 to 1995

LO4LO4

1-10

4-10

Global Level InstitutionsGlobal Level InstitutionsThe World Trade OrganizationThe World Trade Organization

Uruguay Round Established the WTO The last extended conference of GATT

negotiations WTO Principles

1. Trade without discrimination (MFN principle)2. Freer trade, gradually, through negotiation3. Predictability, through “binding” and transparency4. Fair competition5. Encouragement of development and economic

reformLO5LO5

1-11

4-11

Global Level InstitutionsGlobal Level InstitutionsThe World Trade OrganizationThe World Trade Organization

ChallengesChallenges

WTO talks in Doha, Qatar (2001): members agreed to work on implementing present agreements

Developing nations face unique constraints that limit their ability to benefit from WTO trading system

Aid-for-trade initiative (2008) Major problem: Agricultural subsidies and tariffs Trade-related intellectual property rights (TRIPS):

protection of copyrights, trademarks, trade secrets, other intellectual property matters

LO5LO5

1-12

4-12

Regional InstitutionsRegional InstitutionsCooperative Military Cooperative Military

and Security Agreementsand Security Agreements

1-13

4-13

Regional InstitutionsRegional InstitutionsOrganization For Economic Organization For Economic

Cooperation and DevelopmentCooperation and Development

Organization for Economic Cooperation and Development (OECD) Group of developed countries dedicated to

promoting economic expansion in its member-nations

Provides information on economic and other activities within its member nations

Provides setting for discussion of shared economic policy issues

LO6LO6

1-14

4-14

Regional InstitutionsRegional InstitutionsOther Economic InstitutionsOther Economic Institutions

Organization of Petroleum Exporting Countries (OPEC) Cartel of 12 petroleum exporting countries

The Group of Eight (G8) Group of government leaders from major

industrialized nations that meets regularly to discuss issues of concern

LO7LO7

1-15

4-15

The G8 Members (The G8 Members (www.undp.org))

http://atlas.nrcan.gc.ca/site/english/maps/reference/international/g8/map.jpgLO7LO7

1-16

4-16

Regional Economic InstitutionsRegional Economic Institutions

NAFTA Established January 1, 1994 Agreement creating a free trade area among

Canada, Mexico, and the United States EFTA

A free trade area between Norway, Iceland, Liechtenstein, Switzerland

LO8LO8

1-17

4-17

Regional InstitutionsRegional InstitutionsThe European UnionThe European Union

1-18

4-18

Regional Institutions Regional Institutions The European UnionThe European Union

European Commission Runs day-to-day operations

European Court of Justice (ECJ) Rules on policy issues

European Monetary Union Established use of euro in the 15-country euro

zone Three “old EU” countries do not participate:

Denmark, Sweden, and the United Kingdom The single currency reduces the cost of doing

business across EMU country bordersLO8LO8