Assignment: MBA – SEM IV

Subject Code: MB0037

International Business Management

Set I
Q.1. a. How has liberalizing trade helped international business?
b. What are the merits and demerits of international trade?

Answer: The Benefits of Trade Liberalization are as under:

Policies that make an economy open to trade and investment with the rest of the
world are needed for sustained economic growth. The evidence on this is clear.
No country in recent decades has achieved economic success, in terms of
substantial increases in living standards for its people, without being open to the
rest of the world. In contrast, trade opening (along with opening to foreign direct
investment) has been an important element in the economic success of East
Asia, where the average import tariff has fallen from 30 percent to 10 percent
over the past 20 years.

Opening up their economies to the global economy has been essential in

enabling many developing countries to develop competitive advantages in the
manufacture of certain products. In these countries, defined by the World Bank
as the "new globalizers," the number of people in absolute poverty declined by
over 120 million (14 percent) between 1993 and 1998.

There is considerable evidence that more outward-oriented countries tend

consistently to grow faster than ones that are inward-looking. Indeed, one finding
is that the benefits of trade liberalization can exceed the costs by more than a
factor of 10. Countries that have opened their economies in recent years,
including India, Vietnam, and Uganda, have experienced faster growth and more
poverty reduction. On average, those developing countries that lowered tariffs
sharply in the 1980s grew more quickly in the 1990s than those that did not.

Freeing trade frequently benefits the poor especially. Developing countries can
ill-afford the large implicit subsidies, often channeled to narrow privileged
interests that trade protection provides. Moreover, the increased growth that
results from free trade itself tends to increase the incomes of the poor in roughly
the same proportion as those of the population as a whole. New jobs are created
for unskilled workers, raising them into the middle class. Overall, inequality
among countries has been on the decline since 1990, reflecting more rapid
economic growth in developing countries, in part the result of trade
liberalization.

The potential gains from eliminating remaining trade barriers are considerable.
Estimate of the gains from eliminating all barriers to merchandise trade range
from US$250 billion to US$680 billion per year. About two-thirds of these gains
would accrue to industrial countries. But the amount accruing to developing
countries would still be more than twice the level of aid they currently receive.
Moreover, developing countries would gain more from global trade liberalization
as a percentage of their GDP than industrial countries, because their economies
are more highly protected and because they face higher barriers.

Although there are benefits from improved access to other countries’ markets,
countries benefit most from liberalizing their own markets. The main benefits for
industrial countries would come from the liberalization of their agricultural
markets. Developing countries would gain about equally from liberalization of
manufacturing and agriculture. The group of low-income countries, however,
would gain most from agricultural liberalization in industrial countries because of
the greater relative importance of agriculture in their economies.
Advantages and Disadvantages of International Trade
Advantages to consider:
 Enhance your domestic competitiveness
 Increase sales and profits
 Gain your global market share
 Reduce dependence on existing markets
 Exploit international trade technology
 Extend sales potential of existing products
 Stabilize seasonal market fluctuations
 Enhance potential for expansion of your business
 Sell excess production capacity
 Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind:

 You may need to wait for long-term gains
 Hire staff to launch international trading
 Modify your product or packaging
 Develop new promotional material
 Incur added administrative costs
 Dedicate personnel for travelling
 Wait long for payments
 Apply for additional financing
 Deal with special licenses and regulations

Q. 2. Discuss the impact of culture on International Business.

Answer: In this new millennium, few executives can afford to turn a blind eye to
global business opportunities. Japanese auto-executives monitor carefully what
their European and Korean competitors are up to in getting a bigger slice of the
Chinese auto-market. Executives of Hollywood movie studios need to weigh the
appeal of an expensive movie in Europe and Asia as much as in the US before a
firm commitment. The globalizing wind has broadened the mindsets of
executives, extended the geographical reach of firms, and nudged international
business (IB) research into some new trajectories. One such new trajectory is the
concern with national culture. Whereas traditional IB research has been
concerned with economic/ legal issues and organizational forms and structures,
the importance of national culture – broadly defined as values, beliefs, norms,
and behavioural patterns of a national group – has become increasingly
important in the last two decades, largely as a result of the classic work of
Hofstede (1980). National culture has been shown to impact on major business
activities, from capital structure (Chui et al., 2002) to group performance
(Gibson, 1999). For reviews, see’ Boyacigiller and Adler’ (1991) and ‘Earley and
Gibson’ (2002).

1. Cultural change, convergence and divergence in an era of partial

globalization
An issue of considerable theoretical significance is concerned with cultural
changes and transformations taking place in different parts of the world. In fact,
since the landmark study of Haire et al. (1966) and the publication of
Industrialism and Industrial Man by Kerr et al. (1960), researchers have
continued to search for similarities in culture-specific beliefs and attitudes in
various aspects of work related attitudes and behaviours, consumption patterns,
and the like. If cultures of the various locales of the world are indeed converging
(e.g., Heuer et al., 1999), IB-related practices would indeed become increasingly
similar. Standard, culture-free business practices would eventually emerge, and
inefficiencies and complexities associated with divergent beliefs and practices in
the past era would disappear. In the following section, we review the evidence on
the issue and conclude that such an outlook pertaining to the convergence of
various IB practices is overly optimistic.

2. Evolution of partial globalization

Globalization refers to a ‘growing economic interdependence among countries,
as reflected in the increased cross-border flow of three types of entities: goods
and services, capital, and know-how’ (Govindarajan and Gupta, 2001, 4). Few
spoke of ‘world economy’ 25 years ago, and the prevalent term was
‘international trade’ (Drucker, 1995). However today, international trade has
culminated in the emergence of a global economy, consisting of flows of
information, technology, money, and people, and is conducted via government
international organizations such as the North American Free Trade Agreement
(NAFTA) and the European Community; global organizations such as the
International Organization for Standardization (ISO); multinational companies
(MNCs); and cross – border alliances in the form of joint ventures, international
mergers, and acquisitions. These inter – relationships have enhanced
participation in the world economy, and have become a key to domestic
economic growth and prosperity (Drucker, 1995, 153).

Yet, globalization is not without its misgivings and discontents (Sassan, 1998). A
vivid image associated with the G8 summits is the fervent protests against
globalization in many parts of the world, as shown in television and reported in
the popular media. Strong opposition to globalization usually originates from
developing countries that have been hurt by the destabilizing effects of
globalization, but in recent times we have also seen heated debates in Western
economies triggered by significant loss of professional jobs as a result of off
shoring to low – wage countries. Indeed, workers in manufacturing and farming
in advanced economies are becoming increasingly wary of globalization, as their
income continues to decline significantly. In parallel to the angry protests against
globalization, the flow of goods, services, and investments across national
borders has continued to fall after the rapid gains of the 1990s. Furthermore, the
creation of regional trade blocs, such as NAFTA, the European Union, and the
Association of Southeast Asian Nations, have stimulated discussions about
creating other trade zones involving countries in South Asia, Africa, and other
parts of the world. Although it is often assumed that countries belonging to the
World Trade Organization (WTO) have embraced globalization, the fact is that
the world is only partially globalized, at best (Schaeffer, 2003). Many parts of
Central Asia and Eastern Europe, including the former republics of the Soviet
Union, parts of Latin America, Africa, and parts of South Asia, have been
sceptical of globalization (Greider, 1997). In fact, less than 10% of the world’s
population is fully globalized (i.e., being active participants in the consumption of
global products and services) (Schaeffer, 2003). Therefore, it is imperative that
we analyze the issues of cultural convergence and divergence in this partially
globalized world.

3. Role of multiculturalism and cultural identity

The broad ideological framework of a country, corporation, or situation is the
most important determinant of the cultural identity that people develop in a
given locale (Triandis, 1994). The ‘melting pot’ ideology suggests that each
cultural group loses some of its dominant characteristics in order to become the
mainstream: this is assimilation, or what Triandis (1994) calls subtractive
multiculturalism.

In contrast, when people from a cultural group add appropriate skills and
characteristics of other groups, it may be called integration, or additive
multiculturalism. Both of these processes are essential for cultural convergence
to proceed. However, if there is a significant history of conflict between the
cultural groups, it is hard to initiate these processes, as in the case of Israelis
and Palestinians. In general, although there has been some research on the
typology of animosity against other nations (e.g., Jung et al., 2002), we do not
know much about how emotional antagonism against other cultural groups
affects trade patterns and intercultural cooperation in a business context. The
issues of cultural identity and emotional reactions to other cultural groups in an
IB context constitute a significant gap in our research effort in this area.

4. Implications of convergence and divergence issues

One message is clear: while convergence in some domains of IB activity is easily
noticeable, especially in consumer values and lifestyles, significant divergence of
cultures persists. In fact, Hofstede (2001) asserts that mental programs of
people around the world do not change rapidly, but remain rather consistent
over time. His findings indicate that cultural shifts are relative as opposed to
absolute. Although clusters of some countries in given geographical locales (e.g.,
Argentina, Brazil, Chile) might indicate significant culture shifts towards
embracing Anglo values, the changes do not diminish the absolute differences
between such countries and those of the Anglo countries (i.e., US, Canada, UK).
Huntington, in his ‘The Clash of Civilizations’ (1996), presents the view that there
is indeed a resurgence of non-Western cultures around the world, which could
result in the redistribution of national power in the conduct of international
affairs. The attempt by the Davos group to bring about uniform practices in
various aspects of IB and work culture, thereby sustaining the forces of
globalization, is certainly worthwhile. However, our analysis suggests that there
is no guarantee that such convergence will come about easily, or without long
periods of resistance.

5. Processes of cultural changes

In the previous section, we make the point that, through the process of
globalization, cultures influence each other and change, but whether or not these
changes will bring about cultural convergence is yet to be seen. In this section,
we delineate a general model that describes and explains the complex processes
underlying cultural changes. As explained before, IB is both an agent and a
recipient of cultural change, and for international business to flourish it is
important to understand its complex, reciprocal relationships with cultural
change.

In line with the view of Hofstede (2001) that culture changes very slowly, culture
has been treated as a relatively stable characteristic, reflecting a shared
knowledge structure that attenuates variability in values, behavioral norms, and
patterns of behaviours (Erez and Earley, 1993). Cultural stability helps to reduce
ambiguity, and leads to more control over expected behavioural outcomes
(Weick and Quinn, 1999; Leana and Barry, 2000). For instance, most existing
models of culture and work behaviour assume cultural stability and emphasize
the fit between a given culture and certain managerial and motivational
practices (Erez and Earley, 1993). High fit means high adaptation of managerial
practices to a given culture and, therefore, high effectiveness. The assumption of
cultural stability is valid as long as there are no environmental changes that
precipitate adaptation and cultural change. Yet, the end of the 20th century and
the beginning of the new millennium have been characterized by turbulent
political and economical changes, which instigate cultural changes. In line with
this argument, Lewin and Kim (2004), in their comprehensive chapter on
adaptation and selection in strategy and change, distinguished between theories
driven by the underlying assumption that adaptation is the mechanism to cope
with change, and theories driven by the underlying assumption of selection and
the survival of the fittest, suggesting that ineffective forms of organization
disappear, and new forms emerge. However, although organizational changes as
a reaction to environmental changes have been subjected to considerable
conceptual analyses, the issue of cultural change at the national level has rarely
been addressed.
There are relatively few theories of culture that pertain to the dynamic aspect of
culture. One exception is the eco-cultural model by Berry et al. (2002), which
views culture as evolving adaptations to ecological and socio-political influences,
and views individual psychological characteristics in a population as adaptive to
their cultural context, as well as to the broader ecological and socio-political
influences. Similarly, Kitayama (2002) proposes a system view to understanding
the dynamic nature of culture, as opposed to the entity view that sees culture as
a static entity. This system view suggests that each person’s psychological
processes are organized through the active effort to coordinate one’s behaviours
with the pertinent cultural systems of practices and public meanings. Yet,
concurrently, many aspects of the psychological systems develop rather flexibly
as they are attuned to the surrounding socio-cultural environment, and are likely
to be configured in different ways across different socio-cultural groups.

6. The dynamics of culture as a multi-level, multi-layer construct

The proposed model consists of two building blocks. One is a multi-level
approach, viewing culture as a multi-level construct that consists of various
levels nested within each other from the most macro-level of a global culture,
through national cultures, organizational cultures, group cultures, and cultural
values that are represented in the self at the individual level, as portrayed in
Figure 2.1. The second is based on Schein’s (1992) model viewing culture as a
multi – layer construct consisting of the most external layer of observed artefacts
and behaviours, the deeper level of values, which is testable by social
consensus, and the deepest level of basic assumption, which is invisible and
taken for granted. The present model proposes that culture as a multi – layer
construct exists at all levels – from the global to the individual – and that at each
level change first occurs at the most external layer of behaviour, and then, when
shared by individuals who belong to the same cultural context, it becomes a
shared value that characterizes the aggregated unit (group, organizations, or
nations).

In the model, the most macro-level is that of a global culture being created by
global networks and global institutions that cross national and cultural borders.
As exemplified by the effort of the Davos group discussed earlier, global
organizational structures need to adopt common rules and procedures in order
to have a common ‘language’ for communicating across cultural borders
(Kostova, 1999; Kostova and Roth, 2003; Gupta and Govindarajan, 2000).
Figure 2.1: The dynamic of top-down–bottom-up processes across levels
of culture.

Given the dominance of Western MNCs, the values that dominate the global
context are often based on a free market economy, democracy, acceptance and
tolerance of diversity, respect of freedom of choice, individual rights, and
openness to change (Gupta and Govindarajan, 2000).

Below the global level are nested organizations and networks at the national
level with their local cultures varying from one nation or network to another.
Further down are local organizations, and although all of them share some
common values of their national culture, they vary in their local organizational
cultures, which are also shaped by the type of industry that they represent, the
type of ownership, the values of the founders, etc. Within each organization are
sub-units and groups that share the common national and organizational culture,
but that differ from each other in their unit culture on the basis of the differences
in their functions (e.g., R&D vs manufacturing), their leaders’ values, and the
professional and educational level of their members. At the bottom of this
structure are individuals who through the process of socialization acquire the
cultural values transmitted to them from higher levels of culture. Individuals who
belong to the same group share the same values that differentiate them from
other groups and create a group – level culture through a bottom-up process of
aggregation of shared values. For example, employees of an R&D unit are
selected into the unit because of their creative cognitive style and professional
expertise. Their leader also typically facilitates the display of these personal
characteristics because they are crucial for developing innovative products.
Thus, all members of this unit share similar core values, which differentiate them
from other organizational units. Groups that share similar values create the
organizational culture through a process of aggregation, and local organizations
that share similar values create the national culture that is different from other
national cultures.

7. Factors that facilitate cultural change

Culture itself influences the level of resistance or acceptance of change. Harzing
and Hofstede (1996) proposed that certain cultural values facilitate change,
whereas others hinder it. The values of low power distance, low uncertainty
avoidance, and individualism facilitate change. Change threatens stability, and
introduces uncertainty, and resistance to change will therefore be higher in
cultures of high rather than low uncertainty avoidance (Steensma et al., 2000).
Change also threatens the power structure, and therefore will be avoided in high
power distance cultures. Finally, change breaks the existing harmony, which is
highly valued in collectivistic cultures, and therefore will not be easily accepted
by collectivists (Levine and Norenzayan, 1999).

A recent study by Erez and Gati (2004) examined the effects of three factors on
the change process and its outcomes:

 the cultural value of individualism – collectivism;

 the reward structure and its congruence with the underlying cultural
values; and
 the degree of ambiguity in the reward structure.

The change process examined was a shift from choosing to work alone to a
behavioural choice of working as part of a team, and vice versa. Working alone is
more prevalent in individualistic cultures, whereas working in teams dominates
the collectivistic ones.

8. Understanding when culture matters: increasing the precision of

cultural models
Beyond exploring new cultural constructs and the dynamic nature of culture, we
also argue for the importance of examining contingency factors that enhance or
mitigate the effect of national culture. Consider the following scenario. A senior
human resource manager in a multinational firm is charged with implementing
an integrative training program in several of the firm’s subsidiaries around the
globe. Over the term of her career, the manager has been educated about
differences in national culture and is sensitive to intercultural opportunities and
challenges. At the same time, she understands the strategic need to create a
unified global program that serves to further integrate the firm’s basic
processes, creating efficiencies and synergies across the remote sites. She
approaches the implementation with trepidation. A key challenge is to determine
whether the program should be implemented in the same manner in each
subsidiary or modified according to the local culture at each site. Put another
way, in this complex circumstance, does culture matter?

Q.3. a. Explain the brief structure of WTO.

Answer: Structure of World Trade Organization (WTO)

The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and
predictably.

It does this by:

 Administering trade agreements
 Acting as a forum for trade negotiations
 Settling trade disputes
 Reviewing national trade policies
 Assisting developing countries in trade policy issues, through technical
assistance and training programs
 Cooperating with other international organizations

WTO Structure:
The WTO has nearly 150 members, accounting for over 97% of world trade.
Around 30 others are negotiating membership.
Decisions are made by the entire membership. This is typically by consensus. A
majority vote is also possible but it has never been used in the WTO, and was
extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements
have been ratified in all members’ parliaments.

The WTO’s top level decision-making body is the Ministerial Conference which
meets at least once every two years.

Below this is the General Council (normally ambassadors and heads of

delegation in Geneva, but sometimes officials sent from members’ capitals)
which meets several times a year in the Geneva headquarters. The General
Council also meets as the Trade Policy Review Body and the Dispute Settlement
Body.

At the next level, the Goods Council, Services Council and Intellectual
Property (TRIPS) Council report to the General Council.

Numerous specialized committees, working groups and working parties

deal with the individual agreements and other areas such as the environment,
development, membership applications and regional trade agreements.

Secretariat
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 with. The Secretariat’s main
duties are to supply technical support for the various councils and committees
and the ministerial conferences, to provide technical assistance for developing
countries, to analyze world trade, and to explain WTO affairs to the public and
media.

The Secretariat also provides some forms of legal assistance in the dispute
settlement process and advises governments wishing to become members of the
WTO.

The WTO is ‘member-driven’, with decisions taken by consensus among all

member governments.
The WTO is run by its member governments. All major decisions are made by the
membership as a whole, either by ministers (who meet at least once every two
years) or by their ambassadors or delegates (who meet regularly in Geneva).
Decisions are normally taken by consensus.
In this respect, the WTO is different from some other international organizations
such as the World Bank and International Monetary Fund. In the WTO, power is
not delegated to a board of directors or the organization’s head.

When WTO rules impose disciplines on countries’ policies, that is the outcome of
negotiations among WTO members, the rules are enforced by the members
themselves under agreed procedures that they negotiated, including the
possibility of trade sanctions. But those sanctions are imposed by member
countries, and authorized by the membership as a whole. This is quite different
from other agencies whose bureaucracies can, for example, influence a country’s
policy by threatening to withhold credit.
Reaching decisions by consensus among some 150 members can be difficult. Its
main advantage is that decisions made this way are more acceptable to all
members. And despite the difficulty, some remarkable agreements have been
reached. Nevertheless, proposals for the creation of a smaller executive body –
perhaps like a board of directors each representing different groups of countries
– are heard periodically. But for now, the WTO is a member-driven, consensus-
based organization.

Highest authority: the Ministerial Conference

So, the WTO belongs to its members. The countries make their decisions through
various councils and committees, whose membership consists of all WTO
members. Topmost is the ministerial conference which has to meet at least once
every two years. The Ministerial Conference can take decisions on all matters
under any of the multilateral trade agreements.

Second level: General Council in three guises

Day-to-day work in between the ministerial conferences is handled by three
bodies:
 The General Council
 The Dispute Settlement Body
 The Trade Policy Review Body

All three are in fact the same – the Agreement Establishing the WTO states they
are all the General Council, although they meet under different terms of
reference. Again, all three consist of all WTO members. They report to the
Ministerial Conference.

The General Council acts on behalf of the Ministerial Conference on all WTO
affairs. It meets as the Dispute Settlement Body and the Trade Policy Review
Body to oversee procedures for settling disputes between members and to
analyze members’ trade policies.

Third level: councils for each broad area of trade, and more back to top
Three more councils, each handling a different broad area of trade, report to the
General Council:
 The Council for Trade in Goods (Goods Council)
 The Council for Trade in Services (Services Council)
 The Council for Trade – Related Aspects of Intellectual Property Rights
(TRIPS Council)

As their names indicate, the three are responsible for the workings of the WTO
agreements dealing with their respective areas of trade. Again they consist of all
WTO members. These three also have the subsidiary bodies.

Six other bodies report to the General Council. The scope of their coverage is
smaller, so they are “committees”. But they still consist of all WTO members.
They cover issues such as trade and development, the environment, regional
trading arrangements, and administrative issues. The Singapore Ministerial
Conference in December 1996 decided to create new working groups to look at
investment and competition policy, transparency in government procurement,
and trade facilitation.
Two more subsidiary bodies dealing with the plural-lateral agreements (which
are not signed by all WTO members) keep the General Council informed of their
activities regularly.

Fourth level: down to the nitty-gritty

Each of the higher level councils has subsidiary bodies. The Goods Council has
11 committees dealing with specific subjects (such as agriculture, market
access, subsidies, anti-dumping measures and so on). Again, these consist of all
member countries. Also reporting to the Goods Council is the Textiles Monitoring
Body, which consists of a chairman and 10 members acting in their personal
capacities, and groups dealing with notifications (governments informing the
WTO about current and new policies or measures) and state trading enterprises.

The Services Council’s subsidiary bodies deal with financial services, domestic
regulations, GATS rules and specific commitments.
At the General Council level, the Dispute Settlement Body also has two
subsidiaries: the dispute settlement “panels” of experts appointed to adjudicate
on unresolved disputes, and the Appellate Body that deals with appeals.

Heads of Delegations and other boards: the need for informality

Important breakthroughs are rarely made in formal meetings of these bodies,
least of all in the higher level councils. Since decisions are made by consensus,
without voting, informal consultations within the WTO play a vital role in bringing
a vastly diverse membership round to an agreement.
One step away from the formal meetings is informal meetings that still include
the full membership, such as those of the Heads of Delegations (HOD). More
difficult issues have to be thrashed out in smaller groups. A common recent
practice is for the chairperson of a negotiating group to attempt to forge a
compromise by holding consultations with delegations individually, in twos or
threes, or in groups of 20 – 30 of the most interested delegations.
These smaller meetings have to be handled sensitively. The key is to ensure that
everyone is kept informed about what is going on (the process must be
“transparent”) even if they are not in a particular consultation or meeting, and
that they have an opportunity to participate or provide input (it must be
“inclusive”).

b. Highlight the drawbacks of GATT.

Answer: Given its provisional nature and limited field of action, the success of
GATT in promoting and securing the liberalization of much of world trade over 47
years is incontestable. Continual reductions in tariffs alone helped spur very high
rates of world trade growth – around 8 per cent a year on average during the
1950s and 1960s. And the momentum of trade liberalization helped ensure that
trade growth consistently out-paced production growth throughout the GATT era.
The rush of new members during the Uruguay Round demonstrated that the
multilateral trading system, as then represented by GATT, was recognized as an
anchor for development and an instrument of economic and trade reform.

The limited achievement of the Tokyo Round, outside the tariff reduction results,
was a sign of difficult times to come. GATT’s success in reducing tariffs to such a
low level, combined with a series of economic recessions in the 1970s and early
1980s, drove governments to devise other forms of protection for sectors facing
increased overseas competition. High rates of unemployment and constant
factory closures led governments in Europe and North America to seek bilateral
market-sharing arrangements with competitors and to embark on a subsidies
race to maintain their holds on agricultural trade. Both these changes
undermined the credibility and effectiveness of GATT.
Apart from the deterioration in the trade policy environment, it also became
apparent by the early 1980s that the General Agreement was no longer as
relevant to the realities of world trade as it had been in the 1940s. For a start,
world trade had become far more complex and important than 40 years before:
the globalization of the world economy was underway, international investment
was exploding and trade in services – not covered by the rules of GATT – was of
major interest to more and more countries and, at the same time, closely tied to
further increases in world merchandise trade. In other respects, the GATT had
been found wanting: for instance, with respect to agriculture where loopholes in
the multilateral system were heavily exploited – and efforts at liberalizing
agricultural trade met with little success – and in the textiles and clothing sector
where an exception to the normal disciplines of GATT was negotiated in the form
of the Multi-fibre Arrangement. Even the institutional structure of GATT and its
dispute settlement system were giving cause for concern.

Together, these and other factors convinced GATT members that a new effort to
reinforce and extend the multilateral system should be attempted. That effort
resulted in the Uruguay Round.

Q.4. a. Give a short note on the regional economic integration.

Answer: Regional Economic Integration:

Regional integration can take many forms, and nowhere is this more evident
than in the vastly different integration processes taking place in the regions of
Europe and East Asia. The subject of this paper is regional integration as it has
developed in East Asia with a focus on the drivers of that integration. While the
paper is not intended as a direct comparison of integration in East Asia and
Europe, it will include some comparisons between the two regions.

Integration in East Asia has progressed very slowly and is still in an early stage
despite that the process has continued for decades. In fact, it could be said that
the process began centuries ago – even as far back as the 15th century. By
comparison, European integration has progressed steadily and has gradually
deepened over the last 50 years to reach an advanced stage today with a
common currency and well-developed regional institutions. Thus, the speed of
progression and the level of integration attained in the two regions are quite
dissimilar.

In addition to these differences, the drivers behind the integration process in

each region are different. In Europe, the origins of integration have been
institutional in nature, and the development of institutions has been prominent
throughout the process. Thus, regional institutions have been the driving force
behind integration in Europe. In East Asia, the development of regional
institutions has also occurred; however, progress in this area has been slow and
the few existing institutions are fairly weak and ineffective. Nevertheless,
regional integration is taking place in East Asia, but the driving force is the
market rather than policy or institutions. Corporations and the production
networks they have established are driving integration in East Asia.

b. Mention the benefits of WTO.

Answer: Ten Benefits of WTO are listed below:
I. The system helps to keep the peace
II. The system allows disputes to be handled constructively
III. A system based on rules rather than power makes life easier for all
IV. Freer trade cuts the cost of living
V. It gives consumers more choice and a broader range of qualities to
choose from
VI. Trade raises incomes
VII. Trade stimulates economic growth and that can be good news for
employment
VIII. The basic principles make the system economically more efficient,
and they cut costs
IX. The system shields governments from narrow interests
X. The system encourages good government

Q. 5 a. Explain five-element product wave model.

Answer: The Five-Element Product Wave:

The wave model employs design engineering, process engineering, product
marketing, production, and end-of-life activities as elements. The first wave is
associated with the "A" version of a product or service, and survives through the
traditional PLC introduction and growth phases. A second wave begins with the
"B" version, the markedly improved second model. It starts just before the
traditional life cycle maturity stage and lives until sales decline to a point at
which an EOL decision must be made.

Note that design engineering has a peak of activity level at each upgrade.
Process engineering activity shadows that of design engineering, as system
changes will be contemplated and made to facilitate the changes made in the
product or service. Product marketing also has activity level spikes that closely
match engineering design activity, lagged somewhat for product introduction.
Production has one activity peak that results from demand management and
production planning through master production scheduling.

Finally, the EOL curve peaks at each redesign. The last wave begins shortly
before original production ceases and ends when the product is no longer
manufactured or supported by the EOL Company or division. The EOL element
requires that a decision be made about the preceding version at each major
redesign: continue production, make a short-term run of spares, keep blueprints
active so that parts can be made as ordered, enter into a manufacturing and
support agreement with another entity, or discontinue production.

The wave effect comes from the fact that the process repeats for the successful
firm, forming swells in design engineering, process engineering, product
marketing, and manufacturing curves before the final crest at EOL activity.

The five-element product wave, or FPW, uses trigger points, rather than time, as
the horizon over which the element curves vary. Changes in magnitude,
represented by the vertical axis, result from differing activity levels within the
five elements. Simple changes in levels of dollar or unit product sales, in and of
themselves, do not necessarily determine the trigger points. Rather, the varying
activity levels are a direct result of product introductions and redesigns that,
from the outset, must take into account company strategy, core capabilities, and
the state of the competitive environment.
For example, a product with strong sales may be redesigned in a preemptive
strike against competitors, further distancing that product from the competition,
such as with Caterpillar’s innovative high-drive bulldozers.

That the five-element wave is grounded in reality becomes apparent when

considering the recent research that suggests product introduction cycles are
being compressed. Bayus (1994) claims that knowledge is being applied faster,
resulting in increasing levels of new product introductions. Yet since product
removals are not keeping pace with introductions, there are an increasing
number of product variations on the market. Slater (1993) observes that product
life cycles are growing shorter and shorter. Vesey (1992) reports that the
strategy for the 1990s is speed to market and discusses the pressures the
market is exerting to shorten product introduction lead times.
Regardless of whether life cycles are actually being compressed or knowledge is
simply being applied faster, it is apparent that firms are increasing the speed
with which they bring their products to market. The effect of this is a
compression of the design engineering, process engineering, production, and
product marketing elements of the wave model. (The EOL curve may remain
unchanged because accelerated introductions do not necessarily affect EOL
efforts.) The five-element wave clearly shows the inefficiency of traditional "over-
the-wall" systems as speed to market increases. As the elements compress,
more and more information is thrown over the wall. Recipients find themselves
with less and less time to take action. Taken to the extreme, in-baskets, phone
lines, conference rooms, desks, and floors are soon gridlocked and littered with
unanswered correspondence and things to do. Forget quality; production itself
grinds to a halt.
The solution is to maximize the advantage of the relationships within the five-
element wave and work in concurrent teams, as illustrated in Figure 6. That way,
responsibility is shared throughout the system. Members from each discipline
optimize the system. The method tears down barriers between departments and
speeds the introduction process, thus decreasing costs. The focal point becomes
the customer, rather than the task. The system is totally interactive and bound
together. Each element is connected to all of the others and is focused on the
customer.

What is the recent experience with teams? There is evidence that using
concurrent design teams speeds the product to market and provides substantial
savings. Boeing expects that concurrent design will save some $4 billion in the
development of its 777 airliner. Westinghouse recently suggested that
concurrent engineering would eliminate 200 duplicate processes in a project that
consisted of 600 using traditional over-the-wall approaches. Ford’s Team Taurus
was able to cut a full year out of model turnaround. In addition, design changes
required after initial production began were reduced by some 76 percent.

The strength of the five-element product wave is the fact that it illuminates
critical decision points in the life of a product or service. The interrelationships of
the elements clearly illustrate the benefit of working product introductions,
design changes, and end-of-life decisions in teams. This is particularly true in
today’s rapidly compressing environment of speeding products to market.
Furthermore, the model is flexible and may be expanded or contracted to include
those functional areas relevant to the production team. Thus, whether a given
firm’s product is a service or a manufactured good, the five-element wave is a
powerful tool that can be deployed to accelerate effective decision making in
markets demanding ever-increasing levels of speed and agility.

b. What do you mean by globalization?

Answer: Economic "globalization" is a historical process, the result of

human innovation and technological progress. It refers to the
increasing integration of economies around the world, particularly
through trade and financial flows. The term sometimes also refers to the
movement of people (labor) and knowledge (technology) across international
borders. There are also broader cultural, political and environmental dimensions
of globalization that are not covered here.

At its most basic, there is nothing mysterious about globalization. The term has
come into common usage since the 1980s, reflecting technological advances
that have made it easier and quicker to complete international transactions –
both trade and financial flows. It refers to an extension beyond national borders
of the same market forces that have operated for centuries at all levels of human
economic activity – village markets, urban industries, or financial centers.

Markets promote efficiency through competition and the division of labor – the
specialization that allows people and economies to focus on what they do best.
Global markets offer greater opportunity for people to tap into more and larger
markets around the world. It means that they can have access to more capital
flows, technology, cheaper imports, and larger export markets. But markets do
not necessarily ensure that the benefits of increased efficiency are shared by all.
Countries must be prepared to embrace the policies needed, and in the case of
the poorest countries may need the support of the international community as
they do so.

Q. 6. Give some examples of companies doing international business

and discuss how they have they have managed their business in the
international markets.

Answer: A PERSPECTIVE OF THE NORTHEN ISLAND SOFTWARE

COMPANIES, RAPD M–UP
Within six months of announcing it would invest $4.5 million to establish its new
software development center in Northern Ireland, IMR was up and running with
more than one-third its target staff.

"The fast start-up of the Belfast facility reaffirms our confidence to locate in
Northern Ireland," said Sanan. "The success to date in building a quality work
force has surpassed our expectations and opens up new ambitions for our
interests in Northern Ireland."

According to Arthur "Bro" McFerran, president of IMR (NI) Ltd., the company is
hiring 12 to 18 programmers a month in Northern Ireland and is well on its way
to meeting its staffing goal of 300 by 1999. McFerran credited Northern Ireland’s
Training & Employment Agency (T&EA) with helping place the company’s staffing
on the fast track.
"The T&EA not only has helped us to identify and recruit qualified software
graduates from Northern Ireland’s universities, it is also assisting us with a
unique initiative to bring additional sources of high quality talent to the
company," McFerran said.

Innovation In Training
Impressed by the number and quality of information technology graduates from
the region’s universities, IMR recognized an untapped resource in the well-
educated, versatile graduates of other fields in Northern Ireland. Working with
the T&EA, IMR developed "IMR Academy," an intensive
20-week training program at the Belfast Institute of Further and Higher
Education, to expand the skills of qualified applicants who are not computer
software graduates, but who are equally well-educated in other

Disciplines and who have demonstrated aptitude for learning computer software
programming.
Tom Scott of the T&EA said IMR applicants are assessed throughout the program
and those who successfully complete the course are awarded a National
Computing Certificate and full-time employment with IMR. Approximately 40
trainees have already participated in the program.

"IMR is extremely pleased with the T&EAs ability to design and deliver a training
program customized to our needs, and one that is delivering us an impressive
pool of incremental programming talent," McFerran said.

Smart And Available

"The recent software investments by IMR and other companies provide a new
opportunity for Northern Ireland’s computer graduates," McFerrin said.
Recruitment research by IMR indicates that traditionally, nearly half of the
region’s computer graduates have been forced to seek jobs outside Northern
Ireland due to the lack of available information technology positions.

Now IT graduates have the chance to find good jobs in Northern Ireland, and
graduates from other fields can take advantage of the IMR Academy training
program to get a head start on a career in the growing software sector.
McFerrin said. Recruitment research by IMR indicates that traditionally, nearly
half of the region’s computer graduates have been forced to seek jobs outside
Northern Ireland due to the lack of available information technology positions.

Competitive Advantage
Northern Ireland recently has attracted information technology – based
investments from other multinational companies such as BT, Fujitsu, Liberty
Mutual Group, Seagate Technology, STB Systems and UniComp. These
companies cite Northern Ireland’s work force and favorable cost base in their
decisions to locate in the region.

"The availability of high-quality graduates combined with the region’s

competitive operating costs and attractive incentives made Northern Ireland the
best possible location for STB," said Richard W. Cooke, STB’s director of
engineering operations.

With salaries and fringe costs for well trained software engineers in Northern
Ireland approximately 50 percent lower than costs for US engineers, and low
employee turnover and favorable rates for office space, the overall annual per
capita operational costs to develop high quality software can be significantly less
compared with these same costs in the United States.

Typical starting salaries for IT graduates in Northern Ireland are $22,000 to

$25,000 annually. At less than three percent annually, Northern Ireland’s
employee turnover rate is a fraction of the rates typically experienced in other
parts of Europe and the United States. Annual costs per square foot for office
space, exclusive of property taxes and service charges, range from as low as $5
per square foot in some development areas, to approximately $14 in Belfast.
These costs can be as much as 50 percent lower than office space costs in other
European cities.