ssbmtn.weebly.comssbmtn.weebly.com/.../0/9290410/ibm_unit_ii_final.docx · Web viewBA6221- INTERNATIONAL BUSINESS MANAGEMENT Unit - 2. 10. B.Narayanan, Assistant Professor, Shivani

BA6221- INTERNATIONAL BUSINESS MANAGEMENT Unit - 2

Promotion of Global Business

1. International Advertising: The term “advertising” is derived from the original Latin word ‘advertere’ which means ‘to turn’ the

attention. Every piece of advertising turns the attention of the readers or the listeners or the viewers or the onlookers towards a product or a service or an idea. Therefore, it can be said that anything that turns the attention to an article or a service or an idea might be well called as advertising.

2. International Sales Promotion:Sales and promotion are two different words and sales promotion is the combination of these two

words. Sales promotion is another important component of the marketing communications mix. It is essentially a direct and immediate inducement. It adds extra value to the product and hence prompts the dealer/consumer to buy the product.

3. Publicity: Publicity is a non-personal not paid stimulation of demand of the products or services or business units

by planting commercially significant news or editorial comment in the print media or by obtaining a favorable presentation of it upon radio, television or stage.

4. Public Relation:Most firms in today’s environment are not only concerned to customers, suppliers and dealers but also

concerned about the effect of their actions on people outside their target markets. It is a planned effort by an organization to influence the attitudes and opinions of a specific group bsy developing a long term relationship. There target may include a large number of interested public (customers, stock holders, government agencies, special interest groups). 5. Personal selling:

Selling may be personal or impersonal. Personal selling is a highly distinctive word and the only form of direct sales promotion involving face-to-face relationship between sellers and potential customers. 6. Direct Marketing :

1 B.Narayanan, Assistant Professor, Shivani School of Business Management


Direct marketing is a fast-growing and dominant domestic marketing instrument in many countries. Direct marketing follows the path of the rapid advances of globalization: international direct marketing (IDM) is already a multi-billion dollar business and an attractive instrument for foreign market entry and international customer communication. 7. Sponsorship Promotion :

Sponsorship promotion is practiced by organizations when an organization gives money for an event against promotion of its brand name. it is important that companies must fine-true their objectives to project a favorable image and survive in a turbulent environment. It is for these reasons that companies engage in sponsorship in fields which sometimes do not bear any relationship with their business. The types of sponsorship objectives formulated by companies include:

i. To increase awareness of the company.ii. To increase product or brand awareness.

iii. To counter adverse publicity.iv. To build goodwill among opinion formers and decision-makers.v. To identify with a particular market segment.

8. Brand Specific promotion:Brand building is one of the basic necessities of any organization. People believe in brands, what it

represents and who stand behind it. Marketing and promotion is as important as the internet provides hitherto unknown/unimagined potential in marketing with concepts like brand specific promotion. Brand – specific promotions are used to build demand for products and services and appropriate behaviors. Brand-specific promotion is targeted towards the general population to sustain market levels. 9.Generic Promotions in international marketing:

Stimulation of consumer demand is highly important for the entire range of commodities exported by developing countries. The competitive position of commodities in export markets can of course be strengthened by improving the quality of the products, developing new uses for them and reducing their unit costs in comparison with those of competing items. But a crucial factor for marketing success is the establishment of mechanisms to shift consumer preference to a given commodity.

GATT/ GENERAL AGREEMENT ON TARIFFS AND TRADE The General Agreement on Tariffs and Trade (GATT) was first signed in 1947. Was designed To provide an international forum That encouraged free trade between member states By regulating and reducing tariffs on traded goods Providing a common mechanism for resolving trade disputes Was the outcome of the failure of negotiating governments to create the ITO The Bretton Woods Conference introduced the idea for an organization to regulate trade as part of a larger plan

for economic recovery after World War II As governments negotiated the ITO(International Trade Organization) , 15 negotiating states began parallel

negotiations for the GATT as a way to attain early tariff reductions Once the ITO failed in 1950, only the GATT agreement was left.

Basic Principles of GATT Four Principles:



1. Member countries will consult with each other trade problems 2. Agreement provides legal instrument for negotiation 3. Countries should protect domestic industries through tariffs, no restrictive devices such as quotas 4. Trade should be conducted on a non-discriminatory basis

OBJECTIVES OF GATT 1. To provide equal opportunities to all countries in international marketing without any favour 2. To increase the effective demand for real income growth and goods 3. To minimize tariffs and other restrictions on trade for ensuring mutual benefits 4. To provide solution to the disputes by giving cooperation and advices to member countries 5. To ensure a better living standards in the world as a whole

Major Provisions of GATT- The rule of non-discrimination in trade relations between the participating countries- Commitment to observe negotiated tariff concessions- Prohibitions against use of quantitative restrictions (quotas) on exports and imports- Special provisions to promote the trade of developing countries

Defects of GATT:No Enforcement Authority:- Prescribe an international code of conduct in the sphere of trade- No enforcement authority to oversee the compliance of GATT regulations by contracting parties

Problems in the formulation of general rules:- Much diversified in nature- Varied in economic and political motives- Different stages of development- Difficulty in framing and implementing uniform general rules of conduct concerning trade, tariffs and payments

Less benefits for the LCD’s- GATT has provided less benefit to these countries- Commodity -to- commodity based approach has proved to be determined to the interest of LCD’s- Creates difficulty in their planning of production and exports - Has not given any compensation to the less developed countries on account of damage to their caused by the actions of developed countries

Quantitative Trade Restrictions- Ensured sealing down of tariff structure - QTR remained for the long time out side scope of GATT- But developed countries has used QTR such as imports, exports, subsidies, VER etc.- It did not able to prohibit the contracting parties from taking resources to themHistory

HISTORY• 3 Phases– First Phase , from 1947 until the Torquay Round – A second phase, encompassing three rounds, from 1959 to 1979 – The Third phase, consisting only of the Uruguay Round from 1986 to 1994



First Phase– Commodities which would be covered by the agreement and freezing existing tariff levels

Second Phase– Focused on reducing tariffs

Third Phase– Extended the agreement fully to new areas such as intellectual property, services, capital, and agriculture.

Out of this round the WTO was bornYear Place/name Subjects covered

1986-1994

GenevaUruguay Round

Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc

TRADE RELATED INTELLECTUAL PROPERTY RIGHTS: (TRIPS) The main objective is providing protection to the holder of the intellectual property right, which can b claimed by an individual, company or even people of a geographical region.

Protection of patents Copyrights Design Trade marks Trade secrets

TRADE RELATED INVESTMENT MEASURES:(TRIMS) It is concerned with the removal of various controls imposed on the inflow of foreign capital into the third world

countries.The significant features of TRIMs include: Abolition of restrictions imposed on foreign capital Offering equal rights to the foreign investor equal to those of the domestic investor No restrictions on any area of investment No limitation or ceiling on the quantum of foreign investment. In other words participation of foreign equity

should be allowed upto 100%


Year Place/name Subjects covered 1947 Geneva Tariffs1949 Annecy Tariffs1951 Torquay Tariffs

Year Place/name Subjects covered 1960-1961 Geneva, Dillon Round Tariffs1964-1967 Geneva, Kennedy Round Tariffs and anti-dumping measures 1973-1979 Geneva, Tokyo Round Tariffs, non-tariff measures, “framework” agreements


Granting of permission without restrictions to import raw materials and other components No force on the foreign investors to use total products or materials Export of the part of the final product will not be mandatory Restriction on repatriation of dividend, interest and royalty will be removed.

GENERAL AGREEMENT ON TRADE IN SERVICES - GATS – Trade in services like insurance, travel, tourism, hotel, banking, maritime transportation, mobility of HR etc., has

been for the first time, brought within the purview of GATT.– Tariff reductions– Developed country tariffs reduced by a third within 5-10 years, to about 3%– Tariff binding -national lists to include almost all products– Eliminated tariffs

→ Pharmaceuticals→ Paper→ Steel→ Construction machinery→ Agricultural machinery

→ Medical equipment→ Furniture→ Toys→ Beer & brown alcohol

AGRICULTURE– Tariffization of agricultural protection– Tariff reductions

→ 36% average reduction in first round– Market access guarantees

→ imports at least 3% of domestic consumption– Reductions in public subsidies

→ cuts by 20-36 % of subsidy levelsTextiles and clothing– Phasing out of MFA over ten-year period– Integration of half of imports into GATT system during transition process– Liberalization of remaining quotas during transition process– The first step is to talk.

WORLD TRADE ORGANISATION The WTO was established on January 1, 1995 by the Final Act of the Uruguay Round of negotiations– The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade

between nations. – At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and

ratified in their parliaments. – The goal is to help producers of goods and services, exporters, and importers conduct their business.→ Location: Geneva, Switzerland → Established: 1 January 1995 → Created by: Uruguay Round negotiations (1986–94) → Membership: 148 countries (since 13 October 2004) → Budget: 169 million Swiss francs for 2005 → Secretariat staff: 630 → Head: Pascal Lamy (director-general)



In brief, the World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations.

Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The multilateral trading system–are the WTO’s agreements, negotiated and signed by a large majority of the

world’s trading nations and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit. The agreements were negotiated and signed by governments. But their purpose is to help producers of goods

and services, exporters, and importers conduct their business. The goal is to improve the welfare of the peoples of the member countries. Functions of WTO 1. Helping developing and transition economies:

• most of the developing countries in transition phase

• They are shifting from planned economic system to market based economic system

2. Specialized help for export

• It provides information and advice on export market and techniques

• It assist in establishing export promotion and marketing services and in training the personnel

3. WTO in Global Economic Policy Making:

•Co-operates with other Multilateral Institutions to achieve greater coherence in global economic policy making

•To carry out this objective separate declaration

4. Taking / Gathering information:

•Takes regular information from the member countries regarding the policies and tariffs

•It keeps as updated regarding developments and disseminates information to the member countries , help them

to increase exports

5. Giving /Disclosing information to public:

•Also disclose to the general public about the developments of the WTO and also the member countries through

its publications and websites

6. Encouraging development and Economic reform:

•To adjust to the more unfamiliar and difficult framework

•At the end of the rounds, better off countries should accelerate implementing market access countries on goods

exported by LDC’s



MINISTERIAL CONFERENCES

The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years. It brings together

all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters

under any of the multilateral trade agreements

• Highest Hierarchy level in the structure• All the member countries of WTO are the representatives of MC• Has to make decisions on all matters• Meets at least once in 2 years• Policies and strategies are implemented and executed in GC First Ministerial Conference 1996:• Inaugural MC held in Singapore• Initiate an international effort• Overhaul the structure and mechanism of GATT• Preserve the considerable progress and success achieved by that system since inceptionSecond Ministerial Conference 1998: Held in Geneva in Switzerland Common issuesThird MC 1999: Held at Seattle, Washington Common issues

Forth ministerial conference (2001):


Structure of WTO

General Conference(GC)

Ministerial Conference(MC)

Director General(DG)

Secretariat of WTO

Dispute Settlement Body(DSB)Councils I,II,IIII. Trade in GoodsII. Trade in ServicesIII. Trade related

aspects of intellectual rights

Trade Policy Review Body(TPRB)Councils I,II,IIII. On Trade & DevelopmentII. On BOP RestrictionsIII. On Budget Finance

& Admn


Fourth ministerial conference was held in Doha in Persian Gulf nation of Qatar. The Doha development round was launched at the conference. The conference also approved the joining of china, which became the 143 member to join.

Fifth ministerial conference (2003)

The ministerial conference was held in cancun, Mexico, aiming at forging agreement on the Doha round. An alliance of 22 Southern states, the G20 (led by India, china and Brazil), resisted demands from the North for agreements on the so-called “Singapore Issues” and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress.

Sixth Ministerial conference (2005):

The sixth WTO ministerial conference was held in Hong Kong from 13.Dec.-18 Dec.2005. it was considered vital if the four-year-old Doha Development Agenda negotiations were to move forward sufficiently to conclude the round in 2006.in this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006.

Seventh WTO ministerial conference (2009):

The seventh session of the WTO ministerial conference in Geneva, Switzerland, took place from 30.Nov.to 2.Dec.2009. the general theme for discussion was “the WTO, the multilateral trading system and the current Global economic Environment”.

2) General council:

General council is the executive body of the WTO. General council reports its decisions and activities to the ministerial conference. All the members of the WTO are also the representatives in the General council.

3) Councils:

The third level in the hierarchy is councils. There are three councils,

Council for trade in Goods : This council supervises the implementation and functioning of all agreements relating to trade in goods.

Council for trade in services : This council overseas the implementation of all the agreements relating to trade in services.

Council for trade related Aspects of Intellectual Property Rights : This council oversees the implementations and functioning of all the agreements relating to this area.

4) Committee and Management Bodies :

The General council delegates powers, responsibilities and authorities to these bodies. These committees and bodies include:

i) Committee on Trade and Development:



Various councils specified earlier, constitute committees for administering the arrangement. Ministerial conference constituted three committees,

a) Committee on Trade and Developmentb) Committee on balance of Payments c) Committee on Budget, Finance and Administration

ii) Management Bodies : Plurilateral agreements of the WTO have their management bodies. These management bodies report to the General Council. Some of the plurilateral agreements having management , dairy products, bovine-meat,etc.,

URUGUAY ROUND (VIII Round)

The Uruguay Round is the name given to the eighth round of international talks and agreements on economic issues undertaken by the General Agreement on Tariffs and Trade (GATT). The Uruguay Round was the replacement for the earlier meeting of the GATT that took place in Geneva in 1982.

The General Agreement on Trade and Tariff (GATT) Trade-Related Aspects of Intellectual Property Rights (TRIPs) was completed in 1994 during the Uruguay round of the World Trade Organization (WTO) trade talks. It is the most significant international agreement regarding Intellectual Property (IP) rights, introducing IP laws into the international trade arena for the first time.

“The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations”, signed by ministers in Marrakesh on 15 April 1994 is 550 pages long and contains legal texts which spell out the results of the negotiations since the Round was launched in Punta del Este, Uruguay, in September 1986. In addition to the texts of the agreements, the Final Act also contains texts of Ministerial Decisions and Declarations which further clarify certain provisions of some of the agreements.

Uruguay Round Protocol GATT 1994 The Protocol has five appendices: Appendix I Section A: Agricultural Products — Tariff concessions on a Most-Favoured Nation basis; Appendix I Section B: Agricultural Products — Tariff Quotas; Appendix II: Tariff Concessions on a Most-Favoured Nation Basis on Other Products; Appendix III: Preferential Tariff — Part II of Schedules (if applicable); Appendix IV: Concessions on Non-Tariff Measures — Part III of Schedules; Appendix V: Agriculture Products: Commitments Limiting Subsidization — Part IV of Schedules, Section I: Domestic Support: Total AMS Commitments, Section II: Export Subsidies: Budgetary Outlay and Quantity, Reduction Commitments Section III: Commitments Limiting the Scope of Export Subsidies. Agreement on Agriculture The negotiations have resulted in four main portions of the Agreement; the Agreement on Agriculture itself; the concessions and commitments Members are to undertake on market access, domestic support and export subsidies; the Agreement on Sanitary and Phytosanitary Measures; and the Ministerial Decision concerning Least-Developed and Net Food-Importing Developing countries.

Agreement on Sanitary and Phytosanitary Measures This agreement concerns the application of sanitary and phytosanitary measures — in other words food safety and animal and plant health regulations. The agreement recognizes that governments have the right to take sanitary and phytosanitary measures but that they should be applied only to the extent necessary to protect human, animal or plant life or health and should not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail.



Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries It is recognized that during the reform programme least-developed and net food importing developing countries may experience negative effects with respect to supplies of food imports on reasonable terms and conditions. Therefore, a special Decision sets out objectives with regard to the provision of food aid, the provision of basic foodstuffs in full grant form and aid for agricultural development. It also refers to the possibility of assistance from the International Monetary Fund and the World Bank with respect to the short-term financing of commercial food imports. The Committee of Agriculture, set up under the Agreement on Agriculture, monitors the follow-up to the Decision.

Agreement on Technical Barriers to Trade This agreement will extend and clarify the Agreement on Technical Barriers to Trade reached in the Tokyo Round. It seeks to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. However, it recognizes that countries have the right to establish protection, at levels they consider appropriate, for example for human, animal or plant life or health or the environment, and should not be prevented from taking measures necessary to ensure those levels of protection are met. The agreement therefore encourages countries to use international standards where these are appropriate, but it does not require them to change their levels of protection as a result of standardization. Agreement on Trade Related Aspects of Investment MeasuresThe agreement recognizes that certain investment measures restrict and distort trade. It provides that no contracting party shall apply any TRIM inconsistent with Articles III (national treatment) and XI (prohibition of quantitative restrictions) of the GATT. To this end, an illustrative list of TRIMs agreed to be inconsistent with these articles is appended to the agreement. The list includes measures which require particular levels of local procurement by an enterprise (“local content requirements”) or which restrict the volume or value of imports such an enterprise can purchase or use to an amount related to the level of products it exports (“trade balancing requirements”). Agreement on Implementation of Article VI (Anti-dumping) Article VI of the GATT provides for the right of contracting parties to apply anti-dumping measures, i.e. measures against imports of a product at an export price below its “normal value” (usually the price of the product in the domestic market of the exporting country) if such dumped imports cause injury to a domestic industry in the territory of the importing contracting party. More detailed rules governing the application of such measures are currently provided in an Anti-dumping Agreement concluded at the end of the Tokyo Round. Negotiations in the Uruguay Round have resulted in a revision of this Agreement which addresses many areas in which the current Agreement lacks precision and detail. Agreement on Implementation of Article VII (Customs Valuation)The Decision on Customs Valuation would give customs administrations the right to request further information of importers where they have reason to doubt the accuracy of the declared value of imported goods. If the administration maintains a reasonable doubt, despite any additional information, it may be deemed that the customs value of the imported goods cannot be determined on the basis of the declared value, and customs would need to establish the value taking into account the provisions of the Agreement. In addition, two accompanying texts further clarify certain of the Agreement’s provisions relevant to developing countries and relating to minimum values and importations by sole agents, sole distributors and sole concessionaires. Agreement on Pre shipment Inspection Preshipment inspection (PSI) is the practice of employing specialized private companies to check shipment details — essentially price, quantity, quality — of goods ordered overseas. Used by governments of developing countries, the purpose is to safeguard national financial interests (prevention of capital flight and commercial fraud as well as customs duty evasion, for instance) and to compensate for inadequacies in administrative infrastructures. Agreement on Rules of OriginThe agreement aims at long-term harmonization of rules of origin, other than rules of origin relating to the granting of tariff preferences, and to ensure that such rules do not themselves create unnecessary obstacles to trade.



The agreement sets up a harmonization programme, to be initiated as soon as possible after the completion of the Uruguay Round and to be completed within three years of initiation. It would be based upon a set of principles, including making rules of origin objective, understandable and predictable. The work would be conducted by a Committee on Rules of Origin (CRO) in the WTO and a technical committee (TCRO) under the auspices of the Customs Cooperation Council in Brussels.

Agreement on Import Licensing ProceduresThe revised agreement strengthens the disciplines on the users of import licensing systems — which, in any event, are much less widely used now than in the past — and increases transparency and predictability. For example, the agreement requires parties to publish sufficient information for traders to know the basis on which licences are granted. It contains strengthened rules for the notification of the institution of import licensing procedures or changes therein. It also offers guidance on the assessment of applications. Agreement on Subsidies and Countervailing MeasuresThe agreement establishes three categories of subsidies. First, it deems the following subsidies to be “prohibited”: that contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance; and those contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. Prohibited subsidies are subject to new dispute settlement procedures. The main features include an expedited timetable for action by the Dispute Settlement body, and if it is found that the subsidy is indeed prohibited, it must be immediately withdrawn. If this is not done within the specified time period, the complaining member is authorized to take countermeasures. (See the section on “Dispute Settlement” for details on the procedures).

Agreement on Safeguards The agreement breaks major ground in establishing a prohibition against so-called “grey area” measures, and in setting a “sunset clause” on all safeguard actions. The agreement stipulates that a member shall not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. Any such measure in effect at the time of entry into force of the agreement would be brought into conformity with this agreement, or would have to be phased out within four years after the entry into force of the agreement establishing the WTO. An exception could be made for one specific measure for each importing member, subject to mutual agreement with the directly concerned member, where the phase-out date would be 31 December 1999.

General Agreement on Trade in Services The Services Agreement which forms part of the Final Act rests on three pillars. The first is a Framework Agreement containing basic obligations which apply to all member countries. The second concerns national schedules of commitments containing specific further national commitments which will be the subject of a continuing process of liberalization. The third is a number of annexes addressing the special situations of individual services sectors. Agreement on Trade Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods The agreement recognizes that widely varying standards in the protection and enforcement of intellectual property rights and the lack of a multilateral framework of principles, rules and disciplines dealing with international trade in counterfeit goods have been a growing source of tension in international economic relations. Rules and disciplines were needed to cope with these tensions. To that end, the agreement addresses the applicability of basic GATT principles and those of relevant international intellectual property agreements; the provision of adequate intellectual property rights; the provision of effective enforcement measures for those rights; multilateral dispute settlement; and transitional arrangements. Understanding on Rules and Procedures Governing the Settlement of Disputes The dispute settlement system of the GATT is generally considered to be one of the cornerstones of the multilateral trade order. The system has already been strengthened and streamlined as a result of reforms agreed following the Mid-Term Review Ministerial Meeting held in Montreal in December 1988. Disputes currently being dealt with by the Council are subject to these new rules, which include greater automaticity in decisions on the establishment, terms of reference and composition of panels, such that these decisions are no longer dependent upon the consent of the parties to a dispute. The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) will



further strengthen the existing system significantly, extending the greater automaticity agreed in the Mid-Term Review to the adoption of the panels’ and a new Appellate Body’s findings. Moreover, the DSU will establish an integrated system permitting WTO Members to base their claims on any of the multilateral trade agreements included in the Annexes to the Agreement establishing the WTO. For this purpose, a Dispute Settlement Body (DSB) will exercise the authority of the General Council and the Councils and committees of the covered agreements. Trade Policy Review MechanismAn agreement confirms the Trade Policy Review Mechanism, introduced at the time of the Mid-term Review, and encourages greater transparency in national trade policy-making. A further Ministerial decision reforms the notification requirements and procedures generally. Decision on achieving greater coherence in global economic policy-making This will set out concepts and proposals with respect to achieving greater coherence in global economic policy-making. Among other things, the text notes that greater exchange rate stability based on more orderly underlying economic and financial conditions should contribute to “the expansion of trade, sustainable growth and development, and the timely correction of external imbalances”. It recognizes that while difficulties whose origins lie outside the trade field cannot be redressed through measures taken in the trade field alone, there are nevertheless interlinkages between the different aspects of economic policy. Therefore, WTO is called upon to develop its cooperation with the international organizations responsible for monetary and financial matters. In particular, the Director-General of WTO is called upon to review, with his opposite numbers in the World Bank and the International Monetary Fund, the implications of WTO’s future responsibilities for its cooperation with the Bretton Woods institutions. Government ProcurementThe Final Act contains an agreement related to accession procedures to the Government Procurement Agreement which is designed to facilitate the membership of developing countries. It envisages consultations between the existing members and applicant governments. These would be followed by the establishment of accession working parties to examine the offers made by applicant countries (in other words, the public entities whose procurement will be opened up to international competition) as well as the export opportunities for the applicant country in the markets of existing signatories.

DOHA ROUND - IX ROUND – At the fourth WTO MC held in Doha, Qatar on 9-14 November2001– The 9th round of the multilateral trade negotiations started in 2001 and continues today– Doha round talks are overseen by the Trade Negotiations Committee(TNC) – WTO’s Director general – Pascal Lamy– Selected topics under negotiations are five groups

Market Access Development Issues WTO Rules Trade Facilitation Other Issues

Before Doha RoundEstablished permanent working groups on four issues:

Transparency in government procurement Trade facilitation (Custom issues) Trade and Investment Trade and Competition ISSUES OF DOHA ROUND AGRICULTURE– Most important and controversial issue



– Particularly for developing country where 75% of population lives in rural areas – Majority are dependent on agriculture as livelihood – to make a generous offer for reducing trade distorting domestic support for agriculture– US is insisting to special products – those exempt from both tariff cuts and subsidy reductions because of

development, food security or livelihood considerations– India insisted on a large number of special products that would not be exposed to wide market openingACCESSED TO PATENTED MEDICINES– Regarded the TRIPs– Issue involves the interest between the pharmaceutical companies in developed countries for the need of

developing countries– Allowing the member country to export pharmaceutical products – where offered a interim waiver under the compulsory license– to make a generous offer for reducing trade distorting domestic support for agriculture– TRIPs was flexible enough to address the health emergencies

SPECIAL AND DIFFERENTIAL TREATMENT– treatment for developing countries and agreed provisions– Developing countries wanted to negotiate on changes to S&D provisions and set shorter deadlines– Developed countries can leave the deadlines open– At the December 2005 Hongkong Ministerial agreed to five S&D provisions for LDC’s including the duty-free

and quota free access (DFQFA) – Everything But Arms (EBA) initiate

IMPLEMENTATION ISSUES– treatment for developing countries and agreed provisions– Developing countries wanted to negotiate on changes to S&D provisions and set shorter deadlines– Developed countries can leave the deadlines open– At the December 2005 Hongkong Ministerial agreed to five S&D provisions for LDC’s including the duty-free

and quota free access (DFQFA) – Everything But Arms (EBA) initiate

SIGNIFICANCE OF DOHA ROUND – All countries participating will believe some economic

benefit– A study proved all the trade barriers were reduced by

33% in agriculture, service , mfg etc increase the global welfare of $574 billion

– Kenya has see gains in exports of flowers, tea, coffee and oil seeds, lose market in tobacco, grains, textile, machinery and equipment

– Evaluate the solutions for global problems regarding the cost-benefit ratio

– World net welfare gains from $84 billion to $287 billion by the year 2015

CHALLENGES FOR GLOBAL BUSINESS



• Global Business take care of challenges at various parts• Some of the risk and challenges faced by a local business but others are unique to the international business

scenario• First challenge for a global enterprise is to formulate an international approach• Decision making positions often find hard • Numerous worldwide business but only few have accepted as good international approach

MARKETING • Countries have different taste and preferences• To conduct extensive market research• Pitching a new products to their taste• Based on the failure the companies have to make the strategy effective to the international approach

FINANCE • Challenges safeguarding transactions in global level• Including the transactions in foreign currency• Learning the country’s financial regulations and tax laws• Allocating enough capital to expand a new market• Reduce the risk of currency exchangeSUPPLY CHAIN • Many countries outsourcing the labour, production and manufacturing as well as customer service • Some countries have a poor-roads, non-existent of ware housing and few distribution system• Engaging in developed countries is more expensive• State enforcement is reliable and production standards are much higherECONOMICS • Economic conditions overseas can challenge business• China’s weak currency compelled to purchase more goods because of low cost of import• Other economic problems

- terrorism- military insurgents- unstable currency

FOREIGN POLITICS• Political expertise is must for everyone, vital when working at global level• Changing in ruling government • Political disarray will bring down the financial system and that can effect your business• To avoid safeguard business from such unhelpful bangs• One need to make sound decisions

NATURAL CATASTROPHE, ENVIRONMENT AND WAR OR TERRORISM • MNC have to countenance severe opposition by some environment friendly organizations• Citizens are more worried about water and air pollution cause danger to health• Natural calamity such as earthquake and floods • Danger of bombing, violence and terror campaigns



FDI BASED EXPLANATIONSMONOPOLISTIC ADVANTAGE THEORY • The firm controls one or more resources• Offers relatively unique products and services • Provide it a degree of monopoly power relative to foreign market and competitors• Firm can operate foreign subsidiaries more profitably than the local compete in their own markets• Advantages must be economies of scale, superior technology in marketing, management or finance• FDI as an internationalization strategy tend to control certain resources and capabilities that give the power of

monopoly INTERNALIZATION THEORY • The firm acquires and retains one or more value-chain activities within the firm• Minimizes the disadvantages of relying on intermediaries , collaborations and other external partners• Ensures greater control over foreign operations • Helping to maximize product quality, reliable manufacturing processes and sound marketing practices

DUNNING ECLECTIC PARADIGM • Ownership Specific Advantage

- The firm own knowledge, skills, capabilities, processes or physical assets - To ensure international success, substantial enough to offset the cost in establishing and operating foreign operations

- Must be specific to the MNE that possess and not readily transferable to other firms - Unique to the firm, successful to enter and conduct business in a foreign market •Location Specific Advantage

- Comparative advantage that exist in individual foreign countries - Each country possess a unique set of advantages from which companies can derive specific advantages

- For example natural resources, skilled labour, low- cost labour and inexpensive capital - It must be profitable for the firm to locate abroad, to utilize its ownership specific advantage

• Internalization Advantage- The firm benefits from internalizing foreing manufacturing, distributing or other value-chain activities

- advantages include the ability to control how the firm’s products are produced or marketed - ability to reduce buyer uncertainty about the value or products the firm offers



NON-FDI BASED EXPLANTIONS • International Collaborative Ventures

- A collaborative venture is a form of cooperation between two or more firms. - the firm may gain access to foreign partners know-how, capital, distribution channels, marketing assets

- By partnering, the firm can better position itself to create new products and enter new products- Willingness to cooperate in R&D, manufacturing , design or other value adding activites

• Network and Relational Assets - represents the stock of the firm’s economically beneficial long-term relationship

- with other business entities such as manufactures, distributors, suppliers, retailers, consultants, banks, transportation suppliers., governments and other orgn. Provide needed capabilities.

- Network linkages represent a key route for many firms expand their business abroad, develop new markets and new products

- mutually beneficial and enduring strategic relationships provide real advantages to partners and reduce uncertainty and transactions costs

GLOBAL COMPETITIVENESS • Competitiveness is the contribution of a country’s assets either inherited (eg. Natural resources) or created (eg.

Infrastructure) and the processes (eg. Manufacturing) which transform them into economic results• A nation’s competitiveness is the degree to which it can under free and fair market conditions, produce goods

and services• Simultaneously expanding the real income of the citizens• Superior productivity performance and the economic ability to shift output to high productivity levels which in

turn generate high level of real wages

Institutions • Institutional Environment forms the framework within which the individuals, firms and government to interact

to generate income and wealth in the economy• Plays a central role in which societies distribute the benefits and bear the cost of development strategies and

policies• Influences investment decisions and the organisation of production



Infrastructure • Essential driver for the competitiveness• Well developed infrastructure reduces the effect of distance between regions • Result of truly integrating the national market and connecting markets to other countries• Impact in economic growth and reduce income inequalities and poverty in variety of ways

Macro Economic Stability • IS important for the overall competitiveness of the country• Macro economic disarray harms the economy• Firms cannot make informed decisions when inflation raging out of control• Cannot provide services efficiently, it has to make high interest payment of past debts• In sum, the economy cannot grow unless the macro-environment is stable

Health and Primary Education • Health force is vital to a country’s competitiveness and productivity• Workers who are ill cannot function to their potential and will be less productive• Poor health leads to significant costs to business as sick workers are often absent or operate lower levels of

efficiency• Investment in the provision of health services is thus crucial for clear economic as well as moral considerations

Higher Education and Training • Economic requires of well educated workers who are able to adopt rapidly to the changing environment• Constant upgrading of worker’s skill needs for evolving economy

Labour Market Efficiency • Efficiency and flexibility of the labour market are allocated to their most efficient• Provided with incentives for their best effort• Best use of the available talent of both sex in equity

Goods Market Efficiency • Positioned to produce the right mix of products and services • given supply and demand conditions as well as to ensure that these goods can be most efficiently traded in the

economy Market Size

• Large Market allow firms to exploit economies of scale• Trade has a positive effect on growth, especially for the small domestic markets• Financial Market Sophistication • Necessary allocation of resources• Channel resources – investment project – highest expected returns – risk is the key ingredient

Business Sophistication • Conducive to higher efficiency in production of goods and services• It concerns the quality of country’s overall business network • Financial Market Sophistication • Necessary allocation of resources• Channel resources – investment project – highest expected returns – risk is the key ingredient

Technological Readiness • Enhance the productivity of the industries• To compete and prosper• Information and Communication Technologies (ICT) access are essential component of economies

Innovation



• Substantial gains can be obtained by improving institutions, building infrastructure, reducing macro economic instability or improving human capital

• All these factors eventually seem to run into diminishing returns• They approach the frontiers of knowledge and the possibility of integrating and adapting

Regional Trade Blocs What is regional trade block? → Intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to

trade (tariffs and non-tariff barriers) are reduced or eliminated among the participating states→ Bilateral agreements can occur either between neighbours or between countries that are far removed from one

another→ Near 50%t of world trade is now conducted within these preferential trade arrangements, the most significant

exception to the WTO's principle of non-discrimination → Governments have often entered regional economic agreements primarily motivated by political rather than

economic considerations

A hierarchy of regional economic arrangements→ A free trade - ccountries remove tariffs and non-tariff barriers to the free movement of goods and services

between them (90% of RTB)→ A customs union includes agreement on a common external tariff on all extra-regional imports → A common market includes a CU plus free movement of labour and capital→ An economic union - a common market plus a common currency and/or the harmonization of monetary, fiscal,

and social policies.

Why do RTB exist?→ An economy's welfare can be maximized, if governments lower trade barriers on a non-discriminatory basis

(through unilateral action or through negotiations at the global level) → RTAs can reduce global welfare by distorting the allocation of resources, and may lead to welfare losses for

members → The costs and benefits of preferential trade agreements: trade diversion and trade creation (J. Viner, 1950) → Trade creation - imports from a regional partner displace goods that have been produced domestically at higher

cost→ Trade diversion occurs when imports from a regional partner displace those originated outside the regional

arrangement.→ If trade diversion outweighs trade creation then the net effect of RTB on its members' welfare can be negative.

Advantages of RTB Transaction costs will be eliminated Price transparency Uncertainty caused by exchange rate fluctuations eliminated Single currency in single market makes sense Prevent war Increased trade and reduced costs to firms Protection against an aggressive global market

Disadvantages of RTB the instability of the system overestimation of trade benefits loss of sovereignty countries which are left out of the block can obtain lower welfare



trade deflection will lead to a loss of tariff revenue for the economies with higher tariffs. To prevent FTA from trade deflection their members typically adopt rules of origin

Regional Trade Blocks Across the Globe – Brief History1. Economic Integration2. European Union3. Nafta 4. Asean 5. European Free Trade Association6. Latin American Integration Association7. Saarc 8. Escap 9. Apec 10. Mercosur

European Union (EU) Countries - France, West Germany, Netherlands, Belgium, Italy, Luxembourg In 1952EU consists of 3 Organizations

1. ECSC – European Coal and Steel Community2. EEC – European Economic Community3. Euratom – European atomic energy community• Elimination of customs duties• Formulation of common customs tariffs• Formulation of common policy in the area of agriculture• Formulation of common policy in the area of transport• Formulation of common commercial policy with regard to non member countries

North Americal Free Trade Agreement (NAFTA) Countries - USA, Canada & Mexico - 1st Jan 1994

• To create new business opportunities particularly in MEXICO• To reduce the prices of the products and services by enhancing the competition• To enhance industrial development and thereby employment throughout the region• To provide stable and predictable political environment for the investors• To enhance the competitive advantage of the companies operating in the USA, Canada and Mexico in wider

international markets• To improve and consolidate political relationship among member countries• To develop industries in Mexico in order to create employment and to reduce migration from Mexico to the

USA.

European Free Trade Association (EFTA) Member Countries - Australia, Norway, Portugal, Sweden and Switzerland, the associate member countries are Finland, Iceland, great Britain and Denmark - 1959

• To eliminate almost all tariffs among member countries• To abolish the trade restrictions regarding imports and exports of goods among member countries• To enable free trade in western Europe• To enhance economic development, employment, incomes and standard of livings of the people of the member

countries

Latin American Integration Association(LAIA) Countries - Argentina, brazil, Chile, Mexico, Paraguay, Peru, Uruguay, Colombia, Ecuador, Venezuela and Bolivia.

• To eliminate restrictions on trade among the member countries • To reduce the customs and tariffs and eliminate them gradually

South Asian Association For Regional C0-0peration (SAARC)



Countries - India, Bangladesh, Bhutan Pakistan, the Maldives, Nepal, Srilanka – 8 th Dec 1985, and Afghanistan joined SAARC Apr 2007 consists of 3 Organizations

• To improve the quality of life and welfare of the people of the SAARC member countries• To develop the region economically, socially and culturally• To provide the opportunity to the people of the region to live in dignity and to exploit their potentialities• To enhance the self –reliance of the member countries jointly• To extend co-operative to other trade blocks• To have unity among the member countries regarding the issues of common interest in the international

forums.• To enhance the mutual assistance among the member countries in the areas of economic, social, cultural,

scientific and technical fields.

The Economic and Social Commission for Asia and the Pacific (ESCAP) 48 Member Countries and 10 Associate members - the original name of ESCAP was the Economic Commission for Asia and the Far East (ECAFE). It is Regional arm of UNOEast - Cook IslandsWest - AzerbaijanNorth - Mangolia South – Australia and New Zealand

• Promoted regional co-operation remarkably• Helped in creating an integrated communication infrastructure in the Asian region• Promoted inter-regional trade and investment, transfer of technology, privatization, urbanization, poverty

alleviation, social and cultural developments• Established Asian and pacific centre for transfer of technology

Helped regional economic co-operation, environment, sustainable development, poverty alleviation etc



Asia Pacific Economic Co-operation (APEC)21 member - Australia, Brunei Darussalam, Canada, Chile, Peoples Republic Of China, Hong Kong, china, Indonesia, Japan, Republic Of Korea, Malaysia, Mexico, New Zealand, Papua new Guinea, Peru, The Republic Of The Philippines, the Russian Federation, Singapore, Chinese Taipei, Thailand, USA and Vietnam – 1989

1. To create an environment for the safe and efficient movement of good, services and people across borders in the region through policy alignment and economic and technical co-operation.

2. To create jobs, create greater opportunities for international trade and investment.

MERCOSUR Argentina, Brazil, Paraguay and Uruguay on march 26, 1991 created MERCOSUR, Chile and Bolivia became associate members in 1996 and 1997. it is a customs union.

• Free transit of production goods, services and factors between the member states with inter alia, the elimination of customs rights and lifting of non tariff restrictions of goods or any other measures with similar effects.

• Fixing of Common external tariff (TEC).


Documents

ssbmtn.weebly.comssbmtn.weebly.com/.../0/9290410/ibm_unit_ii_final.docx · Web viewBA6221- INTERNATIONAL BUSINESS MANAGEMENT Unit - 2. 10. B.Narayanan, Assistant Professor, Shivani