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UNIT 4 International Institution


UNCTAD, which is governed by its 194 member States, is the United Nations body
responsible for dealing with development issues, particularly international trade – the main
driver of development.

Established in 1964, and is headquartered in Geneva, Switzerland

The organisation grew from the view that existing institutions like GATT (now replaced by
the World Trade Organization, WTO), the International Monetary Fund (IMF), and World
Bank were not properly organized to handle the particular problems of developing


The two main tenets were: (1) that prices of primary commodities (staple foodstuffs and
raw materials), which form the main exports of developing countries, have declined relative
to the prices of manufactured exports and that this was an inevitable and continuous

(2) as a result of this tendency most of the gains from international trade accrue to
developed and industrialized countries, while developing countries gain relatively little
from their participation in existing international trade relations.


UNCTAD assists developing countries in promoting the development of their enterprises,

especially small and medium-sized enterprises (SMEs), so that they are able to grow and
compete in the global economy.

UNCTAD is the United Nations focal point for trade and development, and for interrelated
issues in the areas of finance, technology, investment and sustainable development.

Its objective is to assist developing countries, especially the least developed countries, and
countries with economies in transition, to integrate beneficially into the global economy.

It also seeks to help the international community promote a global partnership for
development, increase coherence in global economic policymaking, and assure development
gains for all from trade.

International Monetary Fund (IMF)

The International Monetary Fund (IMF) is an international organization created for the
purpose of standardizing global financial relations and exchange rates

 monitors the global economy, and its core goal is to economically strengthen its
member countries. Specifically, the IMF was created with the intention of:
 Promoting global monetary and exchange stability.
 Facilitating the expansion and balanced growth of international trade.
 Assisting in the establishment of a multilateral system of payments for current


The work of the IMF is of three main types.

 Surveillance involves the monitoring of economic and financial developments, and

the provision of policy advice, aimed especially at crisis-prevention.
 The IMF also lends to countries with balance of payments difficulties, to provide
temporary financing and to support policies aimed at correcting the underlying
problems; loans to low-income countries are also aimed especially at poverty
 Third, the IMF provides countries with technical assistance and training in its areas
of expertise. Supporting all three of these activities is IMF work in
economic research and statistics.


The International Bank for Reconstruction and Development (IBRD) is

an international financial institution that offers loans to middle-income developing
countries. The IBRD is the first of five member institutions that compose the World
Bank Group and is headquartered in Washington, D.C., United States. It was
established in 1944 with the mission of financing the reconstruction of European
nations devastated by
World War II.

The main objectives of the world bank are -

 The IBRD provides financial services as well as strategic coordination and

information services to its borrowing member countries

 The Bank offers flexible loans with maturities as long as 30 years and custom-
tailored repayment scheduling. The IBRD also offers loans in local currencies

 The Bank provides an array of financial risk management products

including foreign exchange swaps, currency conversions, interest rate
swaps, interest rate caps and floors, and commodity swaps.

 To promote private investment by means of guarantees on participation in
loans and other investment to private members.

 To assist in reconstruction and development of the territories of its members.

 To encourage the development of productive resources in developing

countries by supplying their capital.

 To promote long term balanced growth of international trade.

The WTO was born out of the General Agreement on Tariffs and Trade (GATT),
which was established in 1947. A series of trade negotiations, GATT rounds began at
the end of World War II and were aimed at reducing tariffs for the facilitation of
global trade on goods. The rationale for GATT was based on the Most Favored
Nation (MFN) clause, which, when assigned to one country by another, gives the
selected country privileged trading rights. As such, GATT aimed to help all countries
obtain MFN-like status so that no single country would be at a trading advantage
over others.

The purpose of the WTO is to ensure that global trade commences smoothly, freely
and predictably. The WTO creates and embodies the legal ground rules for global
trade among member nations and thus offers a system for international commerce.
The WTO aims to create economic peace and stability in the world through a
multilateral system based on consenting member states (currently there are slightly
more than 140 members) that have ratified the rules of the WTO in their individual
countries as well. This means that WTO rules become a part of a country's domestic
legal system.

The benefits

 The system helps promote peace

Disputes are handled constructively

Rules make life easier for all

Freer trade cuts the costs of living

It provides more choice of products and qualities


Trade raises incomes

Trade stimulates economic growth

The basic principles make life more efficient

Governments are shielded from lobbying

The system encourages good government


Regional Economic Integration: agreements between groups of countries in a geographic

region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of
goods, services, and factors of production between each other. By entering into regional
agreements groups of countries aim to reduce trade barriers more rapidly than can be
achieved under the auspices of the WTO .


Free Trade Area : In a free trade area all barriers to the trade of goods and services
among member countries are removed. In the theoretically ideal free trade area, no
discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to
determine its own trade policies with regard to nonmembers. Ex : EFTA and NAFTA
Customs Union : eliminates trade barriers between member-countries and adopts a
common external trade policy. Ex : Andean Pact

Common Market : The theoretically ideal common market has no barriers to trade
between member-countries and a common external trade policy. Unlike in a customs
union, in a common market factors of production also are allowed to move freely
between member-countries. Thus, labour and capital are free to move, as there are no
restrictions on immigration, emigration, or cross-border flows of capital between

Economic Union : An Economic Union involves the free flow of products and factors of
production between member-countries and the adoption of a common external trade
policy. A full economic union also requires a common currency, harmonization of the
member-countries tax rates and a common monetary and fiscal policy.


Unrestricted free trade will allow countries to specialize in the production of goods and
services that they can produce most efficiently Asian, Russian, and Latin American
Crisis: Questioning liberalization of financial markets!!! Opening a country to free trade
stimulates economic growth in the country, which in turn creates dynamic gains from
trade. Flows of FDI can transfer technological, marketing and managerial know-how to
host nations. Stimulates Economic Growth

Incentives are created or political cooperation between neighboring states By grouping
their economies together, the countries can enhance their political weight in the world. B
– POLITICAL CASE FOR INTEGRATION Costs, painful adjustments Concerns over
national sovereignty C – IMPEDIMENTS TO INTEGRATION


Occurs when high-cost domestic producers are replaced by low-cost external suppliers
within the free trade area. B - TRADE DIVERSION Occurs when lower-cost external
suppliers are replaced by higher-cost suppliers within the free trade area. A regional free
trade agreement will benefit the wold only if the amount of trade exceeds the amount it
diverts. In theory, GATT and WTO rules should ensure that a free trade agreement does
not result in trade diversion.


The EU is the product of two political factors:
a) Devastation of two wars
b) Desire to hold their own on the world’s political and economic stage TREATY OF
ROME – 1957 IN1973, first enlargement of the EC .Other additions, Greece in 1981, Spain
and Portugal in 1986, and in 1996 by Finland, Austria and Sweden .With a population of
350 million and a GDP greater than that of the United States, these enlargements made
the EU a potential global superpower.
In 1994, following the ratification of the Maastricht treaty Single European Act: The
main problem with the EC was the disharmony of the member-countries technical, legal,
regulatory and tax standards. The rules of the game differed substantially from country
to country, which stalled the creation of a true single internal market. The “White Paper”
was published in 1985, proposing that all impediments to the formation of a single
market be eliminated by 1992. Objectives of the Act: frontier controls, mutual recognition
of standards, public procurement, financial markets, lifting barriers, exchange controls,
freight transport. “ The United States of Europe”
The Treaty of Maastricht Common currency, lower cost of doing business in Europe,
reduce risks that arise from currency fluctuations. National authorities would lose
control over monetary policy Enlargement of the European Union: Eastern European
Countries Europe


A - The Nafta Agreement Nafta became law January 1, 1994.
Guidelines: Abolition within 10 years of tarifs on 99% of the goods traded among Mexico,
Canada, and the U.S. Remove most of the barriers on the cross-border flow of services
Protect intellectual property rights Removes most restrictions on FDI among the three
members Members are allowed to apply its own environmental standards

FTAA Enlargement of NAFTA or the creation of two major trading blocks in the Americas
SAFTA and NAFTA. CACM, CARICOM ( the Caribbean Community (CARICOM) is an
organization of 15 Caribbean nations and dependencies. CARICOM's main purposes are to
promote economic integration and cooperation among its members, to ensure that the

benefits of integration are equitably shared, and to coordinate foreign policy.) ,
MERCOSUR(sub-regional bloc. Its full members are Argentina,
Bolivia, Brazil, Paraguay, Uruguay and Venezuela. Its associate countries
are Chile, Peru, Colombia and Ecuador. Observer countries are New Zealand and Mexico.
Its purpose is to promote free trade and the fluid movement of goods, people, and
currency. )


The Association of Southeast Asian Nations is a political and economic organisation of

ten Southeast Asian countries. It was formed on 8 August 1967 by Indonesia, Malaysia,
the Philippines,Singapore, and Thailand. Since then, membership has expanded to
include Brunei, Cambodia, Laos, Myanmar (Burma), andVietnam. Its aims include
accelerating economic growth, social progress, and sociocultural evolution among its
members, protection of regional peace and stability, and opportunities for member countries
to resolve differences peacefully


the aims and purposes of ASEAN are:

 To accelerate economic growth, social progress, and cultural development in the region.
 To promote regional peace and stability.
 To promote collaboration and mutual assistance on matters of common interest.
 To provide assistance to each other in the form of training and research facilities.
 To collaborate for the better utilisation of agriculture and industry to raise the living
standards of the people.
 To promote Southeast Asian studies.
 To maintain close, beneficial co-operation with existing international organisations with
similar aims and purposes.


The South Asian Association for Regional Cooperation (SAARC) is

an economic and geopolitical organisation of eight countries that are primarily located

in South Asia or the Indian subcontinent. The SAARC Secretariat is based
in Kathmandu, Nepal. The combined economy of SAARC is the 3rd largest in the world in
the terms of GDP(PPP) after the United States and China and 5th largest in the terms
of nominal GDP.

The SAARC policies aim to promote welfare economics, collective self-reliance among the
countries of South Asia, and to acceleratesocio-cultural development in the region. The
SAARC has developed external relations by establishing permanent diplomatic relations
with the EU, the UN (as an observer), and other multilateral entities. The official meetings of
the leaders of each nation are held annually whilst the foreign ministers meet twice annually


Strategic Functions of International HRM

Key Challenges Influencing HR Practices and Processes within an International Context

When entering new markets, organizations are confronted with a wide range of challenges
mostly related to socio-economic, political and technological aspects.

Workforce Diversity

Canada's workforce diversity also produces a wide range of HR-related challenges,


 The Integration and accommodation of an increased number of older workers and

employees with disabilities
 Gender issues
 Aspects related to ethnic and cultural differences amongst employees

The complexity of the current workforce diversity will grow with each foreign market
Canadian organizations decide to enter.

Employment Legislation

A wide range of home and host-country employment legislations represent a key challenge
to HR managers and the development and implementation of employment policies,
processes, and practices in Canadian organizations operating internationally.

The Role of the HR Function

Employment legislation, socio-economic, and technological differences in local markets

demand sophisticated IHRM systems. It is also critical that HR managers responsible for the
development and implementation of such systems are equipped with the necessary staff,
and are integrated in the organizational strategic decision-making process and the
development of organizational goals and objectives.

IHRM systems need to be flexible to quickly adjust their policies and practices to respond to
the changes.
Flexibility is defined as a firm's ability to respond to various demands from a dynamic
competitive environment.
Advance IHRM systems can obtain a high level of fit and flexibility by developing a

strategic approach toward the management of international workforces.

Strategic International HR Planning-

projecting global competence supply, forecasting global competence needs, and developing
a blueprint to establish global competence pools with companies.

Strategic International HR Management- human resource management issues, functions,

policies, and practices that result from the strategic activities of multinational enterprises
and that affect the international concerns and goals of those enterprises.

Fit – the degree to which the needs, demands, goals, objectives, and/or structure of one
component are consistent with the need, demands, goals, objectives, and/or structure of
another component

Internal Fit-Focus on organization

External Fit- Focus on local environment

1.The Domestic Stage

Domestic strategy – internationalizing by exporting goods abroad as a means of seeking new


2.The Multidomestic Stage

Multidomestic strategy – a strategy that concentrates on the development of foreign markets by

selling to foreign nationals
Adaptive IHRM approach – HRM systems for foreign subsidiaries that will be consistent with the
local economic, political, and legal environment

3.The Multinational Stage

Multinational strategy – standardizing the products and services around the world to gain
Exportive IHRM approach – transferring home HRM systems to foreign subsidiaries
without modifying or adapting to the local environment

4.The Global Stage

Global strategy – introducing culturally sensitive products in chosen countries with the
least amount of cost

Integrative IHRM approach

– combining home HR practices with local practices and selecting the most qualified people
for the appropriate positions no matter where these candidates come from

Adaptive IHRM Approach- HRM systems that will be consistent with the local, economic,
political, and legal environment.

Key HR Practices and Processes Within an International Context

One of the key strategic decisions in recruitment is the internal recruitment versus external
recruitment. This two-option decision has a three-option parallel in the international domain
and includes:

Home-Country Nationals (HCNs): Individuals from the subsidiary country who know the
foreign cultural environment well.

Parent-Country Nationals (PCNs): Individuals from headquarters who are highly familiar
with the firm's products and services, as well as its corporate culture.

Third-Country Nationals: (TCNs): Individuals from a third country who have intensive
international experience and know the corporate culture from previous working experience
with corporate branches in a third country.

Strategic IHRM Flexibility

the ability to respond to ratio demands for a dynamic competitive environment. In an

international context, the changes are dramatic and fast paced. though they are different

from country to country. In such a dynamic global competitive environment, IHRM systems
need to be flexible to quickly adjust their polices and practices to respond to change.

Advantages(A) and Disadvantages(D) of Key Recuritment Options:

PCNs: *well versed in company's needs and norms (A)

* potential unfamiliarity with the cultural norms of the host country (D)

* potential blocking of HCNs career progression within the firm

HCNs: *familiarity with the host-country culture (A) * limited familiarity with firms own
operations (D)

TCNs: *greater familiarity with the host country culture than PCN's (A) * some cross-
cultural preparation may still be required (D)

* potentially suffering from a lack of knowledge of the corporate culture (D)

Using the five-factor personality model helps to identify those who will probably adjust well
to overseas assignments. The five factors are:

1. emotional

2. extraversion

3. openness




 Pre-program assessment and exploration. This includes An assessment of the

expatriate’s and family members’ background and prior international experience,
understanding of the host culture, specific goals/concerns, and personal tendencies
should shape a customized expat and family training session.

 Expat and family training program. This stage is designed to increase the assignees’
knowledge about the host country, society, values, business culture, and day-to-day
living. Completing such training should result in significantly reduced risk of
cultural misunderstandings and an enhanced cross-cultural experience.
 Host manager and team cultural briefing. This next stage is focused on the host
country manager and the team with whom the international assignee will be
working, and provides insight into the cultural values and norms of the assignee
 Project alignment meeting. After the expatriate and host organization have received
critical information, it is time for an exchange, either in person or via telephone or
videoconference. A project alignment meeting with the assignee and host manager
should be held to discuss cultural differences that might affect the success of the
assignment, tools and techniques to prevent misunderstandings, and mutual
expectations of the assignee and the manager.
 In-country coaching. As soon as the expatriate arrives in the host country, new and
unknown situations inevitably occur. Therefore, an assignee should receive face-to-
face or telephone coaching. A coach monitors the assignee’s process during the
assignment and captures experiences, case studies, and best practices.
 Knowledge management process. Systematic and ongoing capture (and
dissemination) of relevant documentation and lessons learned from an expatriate
assignment is invaluable to the assignee, future expatriates, and the organization as a
whole. Knowledge management enables the organization to avoid repetitive
occurrences of known issues and over time, best practices and effective case studies
are developed.


the process of PCNs, TCNs, or even HCNs returning to their home headquarters or
home subsidiaries.

Career Development after Repatriation:

-An international assignment should be seen as only one step in career development
-Managers should make sure that candidate's KSA's developed during assignment are
- They can serve as a mentor or trainer to potential expatriates
-They can serve as a long distance supervisor to other expatriate
-Another option is to remain a global manager and to move amongst subsidiaries for the
remainder of career

Staffing Policy – Ethnocentric, Polycentric and Geocentric Approach

Ethnocentric Staffing

Ethnocentric staffing, which involves staffing the most important positions in foreign
subsidiaries with expatriates from the company's home country. Expatriates are often
believed to better represent the interests of the home office and ensure that the foreign
offices are aligned with home headquarters. In fact, many expatriates are selected from the
company's current employees and are simply transferred to a foreign subsidiary.

Ethnocentric staffing presents advantages and disadvantages. The obvious advantage to

ethnocentric staffing is the alignment of interests and perspective of the home office with all
foreign subsidiaries abroad. Communication is also easier because there should be no
language and cultural barriers. The company may also be able to transfer employees with a
clear performance record that will provide some level of predictability.

On the other hand, one can lose local perspective and insights that local employees can
provide that may help overcome unique hurdles in each foreign office. Moreover, hiring
expatriates tends to be expensive compared to hiring locally. Additionally, a high ratio of
expatriates may create local resentment at foreign subsidiaries, which may hurt morale.

Polycentric Staffing

In polycentric staffing, a company will hire host-country nationals for positions in the
company from mail room clerks all the way up to the executive suites. Polycentric staffing is
particularly feasible in developed countries, such as European countries, Canada, Australia
and Japan, where highly educated and trained employees can be easily located.

Polycentric staffing has advantages and disadvantages. Host-country nationals will be able
to better guide the company on local market conditions, politics, laws and culture at each
foreign location. Use of local employees also sends a message to the country and its
consumers that the company is willing to make a commitment to the country and its people.
Local employees are also cheaper, as there are no relocation expenses and premium
compensation for working abroad.


The geocentric staffing policy seeks the best people, regardless of nationality for key jobs
This approach is consistent with building a strong unifying culture and informal
management network .It makes sense for firms pursuing either a global or transnational
strategy .Immigration policies of national governments may limit the ability of a firm to
pursue this policy .
It enables the firm to make the best use of its human resources builds a cadre of international
executives who feel at home working in a number of different cultures can be limited by
immigration laws is costly to implement