International ion

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ChapterChapter -- 2929International BusinessInternational Business

EnvironmentEnvironment



Nature of International Business Environmental

International business houses need accurate information to make appropriatedecisions. Europe was the most opportunistic market for leather goods, particularly

shoes. Based on the accurate date. The Bata shoe company make an appropriate

decision to enter various European countries.

International business houses need to have not only accurate but also timely

information. For e.g. Coca-Cola could enter the European market based on timely

information, whereas Pepsi entered later.

The size of international business should be large in order to have an impact the

foreign economies.

Most international business houses segment their markets based on the

geographical market segmentation. Daewoo, for instance, segmented its markets as

North America, Europe, Africa, Indian sub-continent, and Pacific.

International markets present more potential that the domestic markets.



Trends in the World Trade and Economics Growth

The Developing countries, which number about 170 and have about 85 percent of the world population, account for only about 20 percent of the world GDP and 22

percent of the export.

However, the projection are that in the next decade, the developing countries will

increase their share in the world income and trade.



General Agreement on Tariffs and Trade (GATs)GATT which originated in 1947 transformed into WTO with effect from January

1st, 1995

OBJECTIVES :The primary objective of GATT was to expand international trade by liberalising

trade so as to bring about an all-round economic prosperity. The preamble to the

GATT mentioned the follow :

1.Rising the standard of living.

2.Ensuring full employment and a large and steadily growing volume of real income

and effective demand.3.Developing full use of the resources of the world.

4.Expansion of production and international trade.

PRINCIPLES :

For the realisation of its objectives, GATT adopted the following principles.

Non-Discrimination :

Non-discrimination requires that no member country shall discriminate between

themselves in the conduct of international trade.

Prohibition of QRs. (Quantitative Restrictions) :

GATT rules prohibits QRs and limit restrictions on trade to the less rigid tariffs.

Consultation :

To resolve disagreements through consultation.



General Agreement on Trade in Services (GATs)

The General Agreement on Trade in Services (GATS) was introduced in 1995 underWTO to promote further liberalisation and globalisation of services

GATS defined services as occuring through for possible mode of supply :

Mode I :

Cross-border supply, that is, supply of a service from one country to another

country ; such as, provision of diagnosis via telecommunication.

Mode II :

Consumption, that is, the supply of a service in one country to the service

consumer of any other member country ; such as, through movement of patients.

Mode III :

Commercial presence, that is, supply of services by a service supplier of one

country through commercial presence in another country ; for example,

establishment of or investment in hospitals.

Mode IV :

Movement of natural persons, that is, temporary cross-border movement of

service providers ; for example, doctors, chartered accountants, and legal-and

managerial functionaries.



K ey Rules :

(Most Favoured Nations) MFN Treatment :

MFN treatment means treating trading partners equally.

National Treatment :

National Treatment, Equal Treatment of National Treatment for foreigners and

nationals.

Transparency :

Transparency means the governments must setup enquiry points within their

bureaucracies.

Regulations : Objective and Reasonable :Governments should regulate services reasonably, objectively and impartially.

Intellectual Property : Protectiona and Enforcement of Rights :

It is important that creators have the right to draw advantage from their

inventions, designs and other creations. These rights are known as ³Intellectual

Property rights´ They take number of forms. For e.g. books, paintings and filmscome under copyright protection, inventions can be patented and brand names and

product logos can be registered as ³Trademarks´.



TRIPS Agreement :

The TIRPS Agreement was constructed as an attempt to narrow the gaps in the way

these right are protected around the world and to bring them under common

international rules.

TRIPS Agreement covers five broad areas :

1.How basic principles of the trading system and other international intellectual

property agreement should be applied,

2.How to give adequate protection to intellectual property rights,

3.How countries should enforce those rights,4.How to settle dispute on intellectual property among members of the WTO, and

5.Special transitional arrangements during the period when the new system is

being introduced.



International Organisations

The following are International economic organisations

1. International Monetary Fund (IMF)

2. World Bank (WB)

3. World Trade Organization (WTO)

4. International Finance Corporation (IFC)

5. Asian Development Bank (ADB)

6. United Nations Conference on Trade and Development (UNCTAD)

7. United Nations Industrial Development Organisation (UNIDO)

8. International Trade Centre (ITC)

9. General System of Preferences (GSP)

10. General System of Trade Preferences among Developing Countries (GSTP)



International Monetary Fund (IMF)

The International Monetary Fund (IMF) was established on December 27, 1945,

with 29 member countries. It began financial operations on March 1, 1947.

OBJECTIVES :

The main objectives of IMF are as follows:

1.Promote international monetary cooperation.

2.Facilitate the expansion and balanced growth of international trade.

3.Promote exchange stability and maintain orderly exchange arrangements among

members.4.Assist in establishing a multilateral system of payments in respect of current

transactions among member countries, and also assist in eliminating foreign

exchange restrictions that hamper the growth of world trade.

5.Make available to members the general resources on a temporary basis to enable

them to correct BoP problems without resorting to measures that would harm

national- or international prosperity.6.Shorten the duration and lessen the degree of disequilibrium in the international

BoP of members.

ORGANIATIONS :

The IMF¶s organisations consiss of :

1.Board of Governors, 2. Executive Board 3. Managing Director

4. Staff of Internationals Civils Servants 5. Development Committee



Borrowings, Financing Facilities, and Policies :BORROWINGS :

A member can generally borrow up to 380 percent of its quota.

Contingent Credit Lines (CCL) access is in the range of 300-580 percent of quota.

Financing Facilities and Policies Landing facilities consist of EFF, SRF and CFF.

Emerging assistant through EFM. Technical Assistant. IMF Resources

Subscriptions by members.

FINANCING FACILITIES AND POLICIES :

1] Regular Lending Facilities :

Regular lending facilities consists of selling to the members the currencies of

other members of Special Drawings Rights (SDRs) in exchange for the own

currencies. Such drawings are normally associated with stand by and extended

arrangements.

Stand by arrangement :

Stand-by arrangements are to resolve BoP problems of a largely cyclical nature.

Extended Fund Facilities (EFF) :Extended Arrangements facilities are designed are designed to correct BoP

difficulties that stem largely from structural problems and take long period to

correct.



2] Special Lending Facilities :

Supplement Reserve Facility (SRF) :

Supplement reserve facilities are intended to help member countries

experiencing exceptional BoP problems created by a large short from a suddenand disruptive loss of market confidence

Contingent Credit Lines (CCL) :

The CCL is intended to be a preventive measure, solely for members

concerned about their potential vulnerability to contagion but not facing a

crises at the time of the commitment.

3] Concessional Lending Facilities :

Poverty Reduction and Growth Facility (PRGF) :

PRGF programmes are expected to be based on a strategy designed by the

borrowing country to reduce poverty.

4] Other IMF Policies :

Emergency Assistance :

The IMF provides emergency assistance to member facing BoP difficulties

caused by a natural disaster.

Emergency Financing Mechanism (EFM)

EFM to be used in rare circumstances representing or threatening a crises in a

member¶s external accounts.



World Bank (WB)

The International Bank for Reconstructions and Development (IBRD) or the World

Bank (WB) was established in 1945.

OBJECTIVES :

The objectives of the WB as noted down in its Articles of Agreement are as follows:

1. To assist in the reconstruction- and development of territories of the

members by facilitating the investment of capital for productive purposes.

2. To restore the economies of member counties destroyed or disrupted by

war, and the reconversion of production facilities to peacetime needs.

3. To encourage the development of productive facilities and resources in theless-developed countries (LDCs).

4. To promote private foreign investment by means of guarantees of

participation in loans and other investments made by private investors.

5. To supplement private investment on suitable conditions when private

capital is not available on reasonable terms.

6. Finance for productive purposes out of its own capital funds raised by iland other resources.

7. To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in the BoP.

8. To encourage international investment of the productive resources of

members, thereby assisting in raising productivity, standards of living, and

conditions of labour in their territories.



Financing Policies :

The WB finances all kinds of infrastructure development such as roads, railways

telecommunication, ports and power.

1. Structure Adjustment Lending (SAL) :

Structure adjustment lending is designed to achieve a more efficient use of

resources and contribute to a more sustainable BoP in the maintenance of growth in

the face of server constraints.

2.Special Action Programme (SAP)

The object of the SAP is to help countries implement adjustment measures

and high priority projects.



World Trade Organization (WTO)WTO came into force on January 1, 1995.

OBJECTIVES :

1. To help trade flow as freely as possible.2. To achieve further liberalisation gradually through negotiations.

3. To set up an impartial means of settling disputes.

In short, WTO is expected to:

1. Administer WTO trade agreements.

2. Provide a forum for trade negotiations.

3. Handle trade disputes.

4. Monitor national trade policies.

5. Provide technical assistance and training for developing countries.

6. Cooperate with other international organisations.

Areas of Negotiations

Broadly speaking, WTO has been set up to continue negotiations and bring agreements in the

following areas:

1. Basic telecommunications.

2. Maritime transport.3. Movement of natural persons.

4. Financial services.

5. General Agreement on Trade and Services (GATS)

6. A reaffirmation of the rule of the law in trade and economic relations.

7. A reversal of long- standing protectionist practices in agriculture, textiles and clothing.

8. An extension of multilateral rules to services and intellectual property rights.



WTO and India :

India became a founder member of WTO by ratifying the WTO agreement on

December 30, 1994.

The critics believe that the new policies have developed a dependency syndrome

on the international market and the Indian economy¶s fortunes have been geared

to it.



International Finance Corporation (IFC)IFC was established in 1956.

MISSION :

Its mission was contributed for reducing poverty and improving living standards to the WBgroups and over all purpose.

OBJECTIVES :

The objectives of IFC are to assist the economic development of LDCs by promoting growth in

the private sector of their economies and help to mobilise domestic and foreign capital for this

purpose.

MAIN FEATURES OF ASSISTANCE :

The main features of IFC¶s assistance are as follows :1.The IFC makes its investments in partnership with private investors from the capital-

exporting country or from the country in which the enterprise is located, or both.

2.It is envisaged that the Corporation's investments will never be more than half of the capital

requirements of the enterprise.

3.The minimum investment the IFC will make in an enterprise is fixed at $10,000 or its

equivalent, but no upper limit is fixed.

4.The enterprises eligible for loans from the Corporation should be predominantly industrialand contribute to the economic development of the country.

5.The rate of interest in each case would be a matter of negotiation depending on the risks and

other investments.

6.The IFC will not seek or accept a government guarantee for the repayment of any of its

investment, nor will it seek formal government approval of any proposed financing, except

when such approval is required by law in any country.



IFC and India :

The IFC has identified five priority areas in India for its activities, which are capital

market development, FDI, access to foreign markets, equity investments and

infrastructure.



Asian Development Bank (ADB)A.D.B was set up in December 1966 under the auspices of the United Nations -

Economic Commission for Asia and Far East (ECAFE) to foster the economic

development of Asian countries. Its headquarters are in Manila.The funds of the ADB are contributed by developed countries such as Japan, the

United States, Canada, West Germany, Australia, and others.

The main objectives of the ADB are:

1.To promote investment in the ESCAP (Economic and social Commission for Asia

and the Pacific) region of public- and private capital for development; and

2.To utilise the available resources for financing development, giving priority tothose regional, sub-regional, as well as national projects and programmes which

contribute more effectively to the harmonious economic growth of the region as a

whole.

At the 23rd Annual Meeting of the Board of Governors of the ADB, the President

pointed out that the Bank's most appropriate response to Asian- and Pacific

development in the future lies in following three board directions:1.Greater priority must be placed on alleviating poverty and protecting the

environment;

2.The Bank must strengthen its assistance to the private sector to improve

productivity and efficiency; and

3.The Bank must work with its developing members to create a policy framework

that makes the most efficient use of human- and capital resources.



United Nations Conference on Trade and

Development (UNCTAD)

UNCTAD was established in 1964 as a permanent organ of the UN General Assembly.FUNCTIONS :

The principal functions of UNCTAD are as follows :

1.To promote international trade with a view to accelerate economic development.

2.To formulate principles of and policies on international trade and related problems of

economic development.

3.To negotiate multinational trade agreements.

4.To make proposals for putting its principles and policies into effects.

BASIC PRINCIPLES :

UNCTAD's action programme and priorities have been laid down in various

recommendations adopted by the first conference in 1964. These recommendations are

based on the following basic principles:

1.Every country has the sovereign right to freely dispose of its natural resources in theinterest of the economic development and well-being of its own people and to freely trade

with other countries;

2.Economic relations among countries, including trade relations, shall be based on

respect for the principles of sovereign equality of states, self-determination of people, and

noninterference in the internal affairs of other countries; and

3.There shall be no discrimination on the basis of differences in socio-economic systems,

and the adoption of various trading methods and trading policies shall be consistent withthis rinci le.



United Nations Industrial Development

Organization (UNIDO)

UNIDO was established in January 1967 with an objective to promoteindustrialization in developing countries. The major activities of UNIDO are direct

technical assistance to industries research and co-ordination.

International Trade Centre (ITC)

ITC is directly responsible for implementing UNDP- financed projects related to

trade promotion in developing countries.

The ITC assists developing countries by working with them in :

1.Developing a national promotion strategy.

2.Establishing appropriate government institutions and services.

3.Finding marked opportunities for current export products.

4.Training government trade officials, businessmen and instructors in export.

5.Improving import operations and techniques.



Generalised System of Preferences (GSP)

The GSP is a scheme designed by the UNCTAD to encourage exports of developingcountries. Under this scheme. Developed countries grant duty concession on

imports of specified manufactures and semi-manufactures from developing

countries.

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International ion