The International Business

Environment
Modules 1

Globalization

Globalization is the process of

interaction and integration among
people, companies and governments
of different nations.
It is a process driven by international
trade, investment and aided by
information technology.

Liberalization

Liberalization (Liberalisation) is relaxation

of government restrictions, in the areas of
Social
Political
Economic policy.
for international trade & investments.

In some contexts this process or concept is

often, but not always, referred to as
deregulation.

International Business

Operations of the firms with Interests

in Several countries
All commercial transactions (Pvt. &
Govt.) between two or more countries
may or may not be for profit
Sales, Investment & Transportation

Scope
To Attain
Competitiveness
Successful Global Presence
Growth & Stability in Global Market

Why International Business ?

To Expand Sales
To Acquire Resources
To Minimize Risks

Drivers of Globalization

Rapid Increase in the Expansion of

Technology
Liberalization of Cross-border
movements
Development of Supporting Services
Consumer Pressures
Increase in Competition (Local &
Global)

External Influences on IB
Objectives
Physical & Social
factors

Strategy
Means

Countervailing
Forces

Competitive
Environment

Means

Modes
Import & Export, Tourism & Transport, Licensing
& Franchising, Turnkey operations,
Management Contracts, FDI/FII

Functions
Marketing, Global Manf. Hub, SCM, Accounting
& Finance, HR

Alternatives
Choice of countries, Organization & Control
Mechanism

Physical & Social Factors

Political Policies & Legal Practices

Cultural Factors
Economic Forces
Geographical Influences

Competitive Environment

Major Advantage in Price, Marketing,

Innovation and other factors
Number & Comparative capabilities of
competitors
Competitive differences by countries

Countervailing Forces

Global v/s National Standards

Country v/s Company competitiveness
Sovereign v/s Cross-National relationships

Emergence of Global Institutions

International Monetary Fund (IMF)

World Bank (WB)
International Trade Organization (ITO)
International Trade Center (ITC)
International Standards Organization (ISO)

General Agreements on Tariffs & Trade (GATT)

World Trade Organization (WTO)

The Bretton Wood Conference

Bretton Wood
Conference
1944

International
Monetary Fund

World Bank

International
Trade
Organization

International Monetary Fund (IMF)

The IMF, also known as the Fund.

It was conceived at a UN conference in Bretton
Woods, New Hampshire, US, in July 1944.
It came to formal existence on 27 December 1945
The 44 countries at that conference sought to build a
framework for economic cooperation.
To avoid a repetition of the competitive devaluations
that had contributed to the Great Depression of the
1930s.

International Monetary Fund (IMF)

Countries contribute funds to a pool through a

quota system.
From which countries experiencing balance of
payments difficulties can borrow money.
IMF works to improve the economies of its
member countries.
IMF was performing Three Primary functions
1.

2.
3.

Help the Governments to manage the exchange

rates by providing short term financial loans
Preventing the spread of economic crises
Provide loans for economic & infrastructure growth

IMF Facts Sheet

Membership: 188 countries

Headquarters: Washington, D.C. USA
Executive Board: 24 Directors each representing a
single country or a group of countries
Staff: Approximately 2,600 from 147 countries
Total quotas: US$327 billion (as of March 2015)
Biggest borrowers: Portugal, Greece, Ireland,
Ukraine
Biggest precautionary loans: Mexico, Poland,
Colombia, Morocco

Functions of IMF as on Today

Surveillance

Monitoring the international monetary system

and the economic and financial policies of
member countries,
Both at the global level and in individual
countries,
Identifying possible risks to stability and
advising on needed policy adjustments.

Functions of IMF as on Today

Lending

To provide loans to member countries to

solve actual or potential BOP problems.
To help rebuild their

International reserves
Stabilize their currencies
Continue paying for imports
Restore conditions for strong economic growth

Unlike development banks, the IMF does

not lend for specific projects.

Functions of IMF as on Today

Technical Assistance

Helping member countries to design

economic policies to manage their financial
affairs more effectively
Helps in strengthening their human and
institutional capacity through technical
assistance and training.

IMF Management & Key Terms

Management

IMF has a Managing Director, who is head of the

staff and Chairperson of the Executive Board
Term 5 years (Renewable).
Assisted by One First Deputy Managing Director
and Three Deputy Managing Directors.

Staff

IMFs employees come from all over the world

They are report to the IMF and not to the authorities
of the countries of their citizenship.

IMF Management & Key Terms

IMF Resources

Quotas

Most resources for IMF loans are provided by member

countries, primarily through their payment of quotas.
Quota subscriptions are a central component of the IMFs
financial resources.
Each member country is assigned a quota, based on its relative
position in the world economy.

Special Drawing Rights (SDR)

It is an international reserve asset, created by the IMF in 1969

to supplement its member countries official reserves.

IMF Management & Key Terms

Gold

Gold remains an important asset in the

reserve holdings of several countries
IMF is still one of the worlds largest official
holders of gold.

World Bank (WB)

The World Bank is an international financial

institution that provides loans to developing
countries for capital programs.
The World Bank's official goal is reduction of
poverty.
However, according to its Articles of Agreement,
all its decisions must be guided by a
commitment to Promotion of Foreign Trade &
Investment.

World Bank (WB)

It comprises two institutions

International
Bank
for
Reconstruction
Development (IBRD).
International Development Association (IDA).

and

The World Bank is not to be confused with

the World Bank Group
The World Bank was created at the 1944 Bretton
Woods Conference, Washington, D.C. USA
The president of the World Bank is, traditionally, an
American (USA)

World Bank (WB)

World Bank provides low-interest loans, zero to lowinterest credits, and grants to developing countries.
These support a wide array of investments in such areas
as

Education
Health
Public administration
Infrastructure
Financial and private sector development
Agriculture, Environmental Natural resource management

International Trade Organization (ITO)

Formation of ITO was led by the United States in

collaboration with its allies
ITO was the proposed name for an international
institution for the regulation of trade
The Bretton Woods Conference of 1944,
established IMF & WB for monetary policy
This conference recognized the need for an international
institution for trade to complement IMF & WB
Bretton Woods was attended by representatives of
finance ministries and not by representatives of trade
ministries

International Trace Organization (ITO)

The ITO Charter, however, never entered into force

even after USA forcing in United Nations to get
involved.
ITO proposal was repeatedly submitted to the US
Congress, it was never approved.
The effort to form ITO from 1945-1948, eventually failed
due to lack of approval by the US Congress.

International Trade Center (ITC)

It is a subsidiary organization created by (GATT)

Now World Trade Organization (WTO) & United
Nations
Conference
on
Trade
and
Development (UNCTAD)
ITC's is solely concerned with developing and
transition economies to promote their exports
Formation

1964

Headquarters

Geneva, Switzerland. (One Field office in Mexico)

Official language English, French, Spanish

Website

www.intracen.org

Objectives of ITC

Assisting the export promotion efforts of the

developing countries
Providing them with information on export
markets and marketing
Help them develop their export promotion
services and train the personnel needed for
these services

Governance at ITC

ITC's Executive Director is a senior

international civil servant of the United Nations
with the level of Assistant Secretary-General.
ITC's Executive Director as well as the DeputyExecutive Director are appointed by the heads
of its two parent organizations WTO &
UNCTAD

International Standards Organization (ISO)

ISO is an international standard-setting body

It is composed of representatives from various
national standards organizations
Founded on 23 February 1947
Promotes worldwide proprietary, industrial and
commercial standards
It is a Non Government Organization
It is headquartered in Geneva, Switzerland
Works in 164 countries.

Membership

ISO member countries with a national standards body and ISO voting rights.
Correspondent members (countries without a national standards body).
Subscriber members (countries with small economies).
Non-member countries with ISO 3166-1 codes.

General Agreements on Tariffs &

Trade (GATT)

1946 London England: 50 countries met to

discuss
creating
an
international
trade
organization as a third world economic power
along side IMF & World bank, but failed.
1947 Havana, Cuba 23 countries met &
negotiated more than 45,000 reductions in their
custom duties that affected $10B of trade, then
about 1/5th of worlds total trade.
These agreements were codified into the
General Agreements on Tariffs and Trade

General Agreements on Tariffs

& Trade (GATT)

1947 Geneva Switzerland: The same 23

countries met for the first official meeting of
founding members of GATT.
1949 Annecy France : 13 Member countries
negotiated more than 5,000 tariff concessions.
1951/1956 Torquay, England and Geneva :
38 Member nations negotiated additional tariff
reductions and concessions.

General Agreements on Tariffs

& Trade (GATT)

1960 1961 The Dillon Round : 26 countries

additional tariff reductions and concessions
1964 1967 The Kennedy Round Geneva:
Membership increased to 62 countries and
discussion expanded to review new trade rules
and passed an anti-dumping agreement
1973 1979 The Tokyo Round : 102 member
countries, reduced custom duties. Reached a
series of agreements on various non tariff
barriers. But these agreements were signed by
only few. Failed to reform agricultural trade and
emergency import measures.

General Agreements on Tariffs

& Trade (GATT)

1986 1994 The Uruguay Round : 123 nations,

Majority were developing nations, tariffs were
reviewed, on tariff measures, trade rules,
services,
Intellectual
property,
dispute
settlements, textiles and agriculture.
WTO was formed on 1st Jan 1995.

World Trade Organization (WTO)

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 WTO Secretariat, based in Geneva, has around 600
staff and is headed by a Director General. Its annual
budget is roughly 160 million Swiss francs.
It does not have branch offices outside Geneva.
Since decisions are taken by the members themselves,
the Secretariat does not have the decision making
role that other international bureaucracies are given.

Councils of WTO

Ministerial conferences
The WTOs top decision-making body. Meets
at least once every two years.
General Council
Top day-to-day decision-making body. Meets
regularly, normally in Geneva.
The WTO and other organizations
Cooperation between multilateral institutions
on global economic policy-making.

Objectives of WTO

To raise standards of living

To ensure full employment
Growing volume of real income & effective
demand
Expanding the production of & trade in goods
& services
Sustainable development & environmental
protection
Developing countries

WTO - Agreements

Agreements on Agriculture
Agreements on Textiles & Clothing
Agreements on GATS
Agreements on TRIMS
Agreements on TRIPS

End of Module 1

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