Module I: Globalisation & Multinational Corporations Globalisation - Meaning and implications ; Globalisation of markets and production ; Drivers of Globalisation

Modes of entry into international business; The globalisation debate - arguments for and against; Differences between domestic and international business ; Multinational Corporations- Definition, Types, Organisation, Design & Structures Globalization Globalization or (Globalisation) refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import quotas. Globalization accompanied and allegedly contributed to economic growth in developed and developing countries through increased specialization and the principle of comparative advantage. The term can also refer to the transnational circulation of ideas, languages, and popular culture. Drivers for Globalisation There are many issues which are resulting as the driver of the globalization and they are playing important role in the globalization of products and services. First of all the decreasing and lowering of the trade and investment hurdles internationally is one of the important reason. After the establishment of the world trade organization in which many countries participated due to the free trade agreements in the countries around the world. After the establishment of GATT (General Agreement of Tariff and Trade) it is the trade agreement between the countries that are willing to carry the free trade around the world. The aim of these tariffs was to protect the local industries of those countries. But now the scholars of prosperity have though that the world would be become more peaceful and good place to live in when all the countries and their representatives coordinate with each other. The benefit of this is to the countries who do not have much source to utilizes their resources so that they can attract the large foreign investment in their countries. The other reason is the Second World War which was held due to the economic gains and benefits between the counties. So this led to a new concept for the world. There are 4 drivers of globalization 1. Market driver (companies consider the various market to invest- shift of open market economics). 2. Competition driver (organisation becoming a global center, shift in open market system) 3. Cost driver (companies consider the various lifestyle of the country before considering the price of the product and services to render). 4. Technology driver (increasing technology system, transportation, advancing in the level of world trade system) INTERNATIONAL BUSINESS International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc. A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets. Modes: importing and exporting, tourism and transportation, licensing and franchising, turnkey operations, management contracts, direct investment and portfolio investments. Modes of entry into international business Modes of entry: 1. Exporting .2. Licensing .3. Franchising .4. Turnkey Project .5. Mergers & Acquisitions: 6. Joint Venture .7. Wholly Owned Subsidiary

1) Exporting It means the sale abroad of an item produced, stored or processed in the supplying firms home country. It is a convenient method to increase the sales. Passive exporting occurs when a firm receives canvassed them. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export functions and for procuring foreign sales. Advantages of Exporting Need for limited finance: ;If the company selects a company in the host country to distribute the company can enter international market with no or less financial resources but this amount would be quite less compared to that would be necessary under other modes. Less risks: Exporting involves less risk as the company understands the culture, customer and the market of the host country gradually. Later after understanding the host country the company can enter on a full scale. Motivation for exporting: Motivation for exporting is proactive and reactive. Proactive motivations are opportunities available in the host country. Reactive motivators are those efforts taken by the company to export the product to a foreign country due to the decline in demand for its product in the home country. 2) Licensing: In this mode of entry, the domestic manufacturer leases the right to use its intellectual property (i.e.) technology, copy rights, brand name etc to a manufacturer in a foreign country for a fee. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. The cost of entering market through this mode is less costly. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership, managerial, investment etc. Advantages Low investment on the part of licensor. Low financial risk to the licensor Licensor can investigate the foreign market without many efforts on his part. Licensee gets the benefits with less investment on research and development. Licensee escapes himself from the risk of product failure. Disadvantages It reduces market opportunities for both Both parties have to maintain the product quality and promote the product. Therefore one party can affect the other through their improper acts. Chance for misunderstanding between the parties. Chance for leakages of the trade secrets of the licensor. Licensee may develop his reputation Licensee may sell the product outside the agreed territory and after the expiry of the contract. 3) Franchising: Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. The franchisor provides the following services to the franchisee.1. Trademarks 2.Operating System 3. Product reoutation 4. Continuous support system like advertising, employee training and reservation services quality assurances program etc. Advantages: Low investment and low risk Franchisor can get the information regarding the market culture, customs and environment of the host country. Franchisor learns more from the experience of the franchisees. Franchisee gets the benefits of R& D with low cost. Franchisee escapes from the risk of product failure.

Disadvantages It may be more complicating than domestic franchising. It is difficult to control the international franchisee. It reduces the market opportunities for both. Both the parties have the responsibilities to maintain product quality and product promotion. There is a problem of leakage of trade secrets. 4) Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design, construct and equip a manufacturing/ business/services facility and turn the project over to the purchase when it is ready for operation for remuneration like a fixed price, payment on cost plus basis. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. Eg: nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence they are multiyear project. 5) Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. It provides immediate access to international manufacturing facilities and marketing network. Advantages: The company immediately gets the ownership and control over the acquired firms factories, employee, technology, brand name and distribution networks. The company can formulate international strategy and generate more revenues. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. This strategy helps the host country. Disadvantages: Acquiring a firm in a foreign country is a complex task involving bankers, lawyers regulation, mergers and acquisition specialists from the two countries. This strategy adds no capacity to the industry. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies. Labour problem of the host countrys companies are also transferred to the acquired company. 6) Joint Venture: Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. It involves shared ownership. Various environmental factors like social, technological economic and political encourage the formation of joint ventures. It provides strength interms of required capital. Latest technology required human talent etc. and enable the companies to share the risk in the foreign markets. This act improves the local image in the host country and also satisfies the governmental joint venture. Advantages: Joint venture provides large capital funds suitable for major projects. It spread the risk between or among partners. It provides skills like technical skills, technology, human skills, expertise and marketing skills. It makes large projects and turn key projects feasible and possible. It synergy due to combined efforts of varied parties. Disadvantages: Conflict may arise Partner delay the decision making once the dispute arises. Then the operations become unresponsive and inefficient. Life cycle of a joint venture is hindered by many causes of collapse. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. The decision making is slowed down in joint ventures due to the involvement of a number of parties 7) Wholly Owned Subsidiary:

Subsidiary means individual body under parent body. This Subsidiary or individual body as per their own generates revenue. They give their own rent, salary to employees, etc. But policies and trademark will be implemented from the Parent body. There are no branches here. Only the certain percentage of the profit will be given to the parent body. A subsidiary, in business matters, is an entity that is controlled by a bigger and more powerful entity. The controlled entity is called a company, corporation , or limited liability company , and the controlling entity is called its parent (or the parent company ). The reason for this distinction is that alone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees. The globalization debate - arguments for and against For: Globalization is a good idea. The people who appear to be in disagreement are those of the Old Left and Old Right who want to protect their privileges via protectionism or other "inventions" concocted by this group in the 20th Century. It is time to get real; Globalization does not mean the end of sovereignty nor the end of worker's rights. Globalization gives people and countries the opportunities denied to them by colonialism, communism, and other isms that destroyed the world. Even Monarchists have embraced the concept of globalization. Others who have embraced globalization have been India, China, and Iran. Globalization offers people choices in what they want to do with their life such as purchase what they want with regard to quality instead of manufacture, where to live as a lifestyle. As more opportunities open, ideologies and borders will be less and less important. As for diversity, globalization helps diversity since it removes from the arts from the monopoly of the few in Hollywood and the West. Against: The problem of cross-cultural conflicts is an actual and vital problem in an up-to-date world, where the democracy values of Western Culture prevail. Clashes between representatives of different cultures in routine life take on special significance and show up in violence, which indicate the failure of the process of globalization and the idea of a global village. The attempt of Western culture to create multicultural and negative effects, which were caused by the attempt, became the object of interest not only for politics and scientists, but also common citizens. World citizens are brought into the epicenter of globalization's negative effect. That is why cross-cultural conflicts, as the most important effects of globalization, should be researched by scientists more closely. Moreover, for successful managing these conflicts, as the negative effect of globalization, the problem has to be studied not only by specialists in conflict-management, but also from the point of view of inter-cultural communication. However, as statistics show, such conflicts are based on particular factors, which push people on resistance against the established system and on manifestation of personal identity. Summing up, it should be mentioned that crosscultural conflicts are the very negative effect of globalization which seems to be a perspective field for scientific research. For instance, at least three motivations for specialists in inter-cultural communication to explore the problem exist: 1. The problem is rather new not many scientists have already studied it; 2. Cross-cultural conflicts highlight and reveal the peculiarities of communication; 3. The ability of globalization is to abolish the discipline of inter-cultural communication. Moreover, there is no doubt that the research should involve various approaches due to the fact that globalization affects all the spheres of human beings and the problem stands at the intersection of scientific disciplines. Finalizing the article I suggest the reader to give a definition of globalization and in that way become aware of amplitude of the process and it's positive and negative effects. Differences between domestic and international business International Business Domestic Business It is extension of Domestic Business and The Domestic Business Follow the marketing Marketing Principles remain same. Principles Difference is customs, cultural factors No such difference. In large countries languages like India, we have many languages. Conduct and selling procedure changes Selling Procedures remain unaltered Working environment and management practices No such changes are necessary

.No 1. 2. 3. 4.

5. 6. 7.

change to suit local conditions. Will have to face restrictions in trade practices, licenses and government rules. Long Distances and hence more transaction time. Currency, interest rates, taxation, inflation and economy have impact on trade.

These have little or no impact on Domestic trade.

8. 9. 10. 11. 12. 13. 14.

Short Distances, quick business is possible. Currency, interest rates, taxation, inflation and economy have little or no impact on Domestic Trade. MNCs have perfected principles, procedures and No such experience or exposure. practices at international level MNCs take advantage of location economies No such advantage once plant is built it cannot be wherever cheaper resources available. easily shifted. Large companies enjoy benefits of experience It is possible to get this benefit through curve collaborators. High Volume cost advantage. Cost Advantage by automation, new methods etc. Global Standardization No such advantage Global business seeks to create new values and No such advantage global brand image. Can Shift production bases to different countries No such advantage and get competition from whenever there are problems in taxes or markets some spurious or SSI Unit who get patronage of Government. Multinational Corporations- Definition, Types, Organization, Design & Structures

A multinational corporation (MNC) or multinational enterprise is a corporation enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The International Labour Organization (ILO) has defined an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries. Some multinational corporations are very big, with budgets that exceed some nations' gross domestic products (GDPs). Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization. Types: there are four types of multinational corporations:

1. 2. 3. 4.

decentralized in management nature+ strong home country presence example: metro cash & carry centralized: economies of scale ; example: nestle a company which open up in deferential regions with same technology as in parent company. transnational alliances: combination of the above three types; example: KFC, Pizza Hut, MacDonald Structures: The formal division of the organization into subunits such as product divisions, national operations, and functions (Horizontal differentiation). The location of decision making responsibilities within that structure (centralized or decentralized) Vertical Differentiation. III. The establishment of integrating mechanisms to coordinate the activities of subunits including crossfunctional teams and or pan-regional committees integrating mechanisms. Vertical Differentiation: VD determines where in its hierarchy the decision making power is concentrated. Centralization: Centralization can facilitate coordination. Centralization can help ensure that decisions are consistent with organizational objectives. Centralization can give top-managers the means to bring about needed organizational changes.

Centralization can avoid the duplication of activities that occurs when similar activities are conducted by various subunits within the organization. Decentralization: Top mgmt. can become over burdened when decision making authority is centralized & can result in poor decision making. Motivational research favors decentralization. Decentralization permits greater flexibility. Decentralization can result in better decisions. Decentralization can increase control.

Module II: Introduction to International Trade Theory of Mercantilism, Absolute advantage, Comparative advantage, Hecksher-Ohlin theory, Porters diamond model; Instruments of International trade policy tariffs, subsidies, local content requirements, administrative policies, antidumping policies, political and economic arguments for intervention; GATT, WTO, IPR, TRIPS, TRIMS, GATS, Ministerial Conferences, Uruguay round of negotiations. Theory of Mercantilism Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and military security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from the 16th to late-18th centuries. Mercantilism was a cause of frequent European wars in that time and motivated colonial expansion. Mercantilist theory varied in sophistication from one writer to another and evolved over time. Favors for powerful interests were often defended with mercantilist reasoning. Mercantilist policies have included: Building a network of overseas colonies Forbidding colonies to trade with other nations Monopolizing markets with staple ports; Promote accumulation of gold and silver Forbidding trade to be carried in foreign ships; Export subsidies; Maximizing the use of domestic resources; Restricting domestic consumption with non-tariff barriers to trade Theory Most of the European economists who wrote between 1500 and 1750 are today generally considered mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but was quickly adopted by historians. Originally the Standard English term was "mercantile system". The word "mercantilism" was introduced into English from German in the early 19th century. Mercantilism: mid-16th century Gold and silver are the currency of trade A country could accumulate gold and silver by exporting more and importing less Theory says you should have a trade/export surplus. Maximize export through subsidies. Minimize imports through tariffs and quotas Economic activity was a zero-sum-game. Ie. One countrys gain is a loss of another country. Since all nations could not have export surplus, and as the supply of gold and silver was fixed at any particular point of time, one nation would gain at the expense of other. Mercantilist domestic policy was more fragmented than its trade policy. Flaws of Mercantilism during 18th century David Hume said that a favourable trade balance was only possible in the short run and over the period it will eliminated. For eg: favorable trade balance will result in inflow of gold & silver, which will increase money supply , in turn price & wages will increase and adversely affect export and encourage import.

Adam Smith & David Ricardo said that trade was a positive sum game in which all trading nations can gain even if some benefit more than others. They argued that international trade expands the scope of division of labour (specialization) which increases productivity and output and all trading partners can simultaneously enjoy higher level of production and consumption with free trade

Infinite growth: The mercantilists saw a large population as a form of wealth which made possible the development of bigger markets and armies. The opposing doctrine of physiocracy predicted that mankind would outgrow its resources.

Reverse-mercantilism Reverse-mercantilism is an economic system which strives to increase corporate wealth and monopoly by subsidizing some corporate entities while regulating, taxing and controlling borders (blocking outsourcing and creating tariffs) for all competitors. Theory of absolute advantage In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost. Adam Smith: Wealth of Nations (1776) thought that the basis of international trade was absolute cost advantage. According to his theory, trade between two countries would be mutually benefitted if one country could produce one commodity at an absolute advantage (over the other country) and the other country could produce another commodity at an absolute advantage over the first. Hence trade between countries is, therefore, beneficial. Here the basis of international trade is the absolute difference in the cost of production of different commodities between nations Example: US have an AA in the production of wheat over UK and UK has an AA in the production of cloth over US. Hence, according to Adam Smiths theory, US should specialize in the production of wheat and meet its requirement of cloth through import from UK. On the other hand, UK should specialize in the production of cloth and should obtain wheat from US. Such trade would be mutually beneficial. In short, according to Smiths theory, 3 kinds of gains accrue to a country from international trade: a) Productivity gain b) Absolute cost gain c) Surplus gain Comparative advantage The famous classical economist David Ricardo has demonstrated that the basis of trade is the comparative cost difference i.e. trade can take place even in the absence of absolute cost difference, provided there is comparative cost difference. In economics, the theory of comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies. For example, if, using machinery, a worker in one country can produce both shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain

from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes. Without trade, its opportunity cost per shoe was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt depending on how much trade occurs (since the more-efficient country has a 1:1 trade-off). The more-efficient country has a comparative advantage in shoes, so it can gain in efficiency by moving some workers from shirt-production to shoe-production and trading some shoes for shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as low as 1/2 shoe depending on how much trade occurs. Assumption of CCT Labour as the only element of cost of production Goods are exchanged against one another according to the relative amounts of labour embodied in them Labour is perfectly mobile within the country but perfectly immobile between countries Labour is homogeneous Production is subject to the law of constant returns International trade is free from all barriers There is no transport cost There is full employment There is perfect competition There are only two countries and two commodities Assumptions and limitations Driven only by maximization of production and consumption Only 2 countries engaged in production and consumption of just 2 goods What about the transportation costs? Only resource labour (that too, non-transferable) No consideration for learning theory Hecksher-Ohlin theory The HeckscherOhlin theorem is one of the four critical theorems of the HeckscherOhlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good." The critical assumption of the HeckscherOhlin model is that the two countries are identical, except for the difference in resource endowments. This also implies that the aggregate preferences are the same. The relative abundance in capital will cause the capital-abundant country to produce the capital-intensive good cheaper than the labor-abundant country and vice versa. Initially, when the countries are not trading: The price of capital-intensive good in capital-abundant country will be bid down relative to the price of the good in the other country, The price of labor-intensive good in labor-abundant country will be bid down relative to the price of the good in the other country. Once trade is allowed, profit-seeking firms will move their products to the markets that have (temporary) higher price. As a result: the capital-abundant country will export the capital-intensive good, the labor-abundant country will export the labor-intensive good The Leontief paradox, presented by Wassily Leontief in 1951, found that the U.S. (the most capital-abundant country in the world by any criterion) exported labor-intensive commodities and imported capital-intensive commodities, in apparent contradiction with HeckscherOhlin theorem. However, if labor is separated into two distinct factors, skilled labor and unskilled labor, the Heckscher-Ohlin theorem is more accurate. The U.S. tends to export skilled-labor-intensive goods, and tends to import unskilled-labor-intensive goods. Porters diamond model The diamond model is an economical model developed by Michael Porter in his book The Competitive Advantage of Nations, where he published his theory of why particular industries become competitive in particular locations. Afterwards, this model has been expanded by other scholars.

Porter analysis The approach looks at cluster of industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in local or regional contexts. The Porter analysis was made in two steps. First, clusters of successful industries have been mapped in 10 important trading nations. In the second, the history of competition in particular industries is examined to clarify the dynamic process by which competitive advantage was created. The second step in Porter's analysis deals with the dynamic process by which competitive advantage is created. The basic method in these studies is historical analysis. The phenomena that are analysed are classified into six broad factors incorporated into the Porter diamond, which has become a key tool for the analysis of competitiveness: Factor conditions are human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages. Demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors. Related and supporting industries can produce inputs which are important for innovation and internationalization. These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate Firm strategy, structure and rivalry constitute the fourth determinant of competitiveness. The way in which companies are created, set goals and are managed is important for success. But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness. Government can influence each of the above four determinants of competitiveness. Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level. Chance events are occurrences that are outside of control of a firm. They are important because they create discontinuities in which some gain competitive positions and some lose. The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs.

Instruments of International Trade Policies Tariff: A tariff (also called as duty) is the most common type of trade control and is a tax that governments levy on a good which crosses an official boundary whether it be that of a nation or a group of nations, like the EU ( European Union), that have agreed to impose a common tariff on goods entering their blocs. Tariffs collected by the exporting country are called export tariff. If collected by a country through which the goods have passes, it is a transit tariff. If collected by the importing country, it is an import tariff.

Specific Duties: It is a flat sum per physical unit of the commodity imported or exported. Ad-Valorem Duties: These are levied as a fixed percentage of the value of the commodity imported or exported. Compound Duties: When a commodity is subject to both specific and ad-valorem duties, the tariff is generally referred to as compound duty. Revenue Tariff: When raising revenue is the primary objective behind imposition of tariff. Protective tariff: This is intended to accord protection to domestic industries from foreign competition Countervailing and Anti-Dumping Duties: Countervailing duties may be imposed on certain imports when they have been subsidized by foreign governments. Anti-dumping duties are applied to imports which are being dumped on the domestic market at a price either below their cost of production or substantially lower than their domestic prices.

Subsidies: A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributed as subventions/grants in an industry to prevent the decline of that industry or an increase in the prices of its products. Examples are subsidies to encourage the sale of exports . Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Voluntary export restraint (VER) or voluntary export restriction is what government imposed limit on the quantity of goods that can be exported out of a country during a specified period of time. Typically VERs arises when the import-competing industries seek protection from a surge of imports from particular exporting countries. VERs is then offered by the exporter to appease the importing country and to deter the other party from imposing even more explicit (and less flexible) trade barriers. Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff.

Some NTBS to trade Quotas Import Licensing requirements Proportion restrictions of foreign to domestic goods (local content requirements) Minimum import price limits Embargoes Licenses The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas. Almost all industrialized countries apply these non-tariff methods. The license system requires that a state (through specially authorized office) issues permits for foreign trade transactions of import and export commodities included in the lists of licensed merchandises Quotas A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. Quantitative controls on foreign trade transactions can be carried out through one-time license. Embargo Embargo is a specific type of quotas prohibiting the trade. Embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic. Local content requirement is a popular government policy in developing countries to regulate foreign direct investment Eg: Local Content Requirements in the Film Sector

As an instrument of national policy in the film sector, screen quotas made their appearance at the end of the First World War when several European countries enacted a system of screen quotas to protect their film industry from the sudden and threatening influx of American films, which they perceived as a danger to their cultural expression. Administrative Policies Bureaucratic rules designed to make it difficult for imports to enter a country. Eg: Japanese masters in imposing rules. Tulip bulbs. Federal Express

Political and economic arguments for intervention

Political: One common political argument for government intervention is that it is necessary for protecting jobs and industries from unfair foreign competition. Countries sometimes argue that it is necessary to protect certain industries because they are important for national security. Defense related industries often get this kind of attention (e.g. aerospace, advanced). Economic In order to protect startup companies in certain industries, governments can impose quotas and tariffs on any foreign competition entering the market. Political Arguments for Intervention Protect Industry and Jobs. National Security Retaliation Protect Consumers Further Foreign Policy Protect Human Rights

Rationale for Govt. Intervention National Security defense industries Strategic Trade Policy If first mover advantages are important then govts. can help firms achieve it governments can help firms in overcoming Barriers to entry into industries where foreign firms have an initial advantage. protecting consumers Genetically engineered seeds and crops Hormone treated beef

Furthering foreign policy objectives Helms-Burton Act. DAmato Act

Protecting human rights Infant Industry

Infant industry is the oldest economic argument for government intervention, dating to 1792 and Alexander Hamilton. Protect developing countrys new industry from developed countries better established industries. Recognized by GATT. Strategic Trade Policy

Strategic trade policy can help a firm gain first mover advantages or overcome barriers created by a different (foreign) first mover. Unemployment

strong political effect retaliation in other countries cost of restrictions (higher prices) Infant Industry Argument

local industry need protection early to achieve economies of scale until they become competitive consumers and taxpayers pay GATT

The General Agreement on Tariffs and Trade (typically abbreviated GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1946 and lasted until 1993, when it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1946) is still in effect under the WTO framework, subject to the modifications of GATT 1994.

Annecy Round - 1949 The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions, around 5000 in total. Torquay Round - 1951 The third round occurred in Torquay, England in 1950. Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body.[3] Geneva Round - 1955-1956 The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or reduced. Dillon Round - 1960-1962 The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC). Kennedy Round - 1962-1967 Kennedy Round took place from 1962-1967. $40 billion in tariffs were eliminated or reduced. Tokyo Round - 1973-1979 Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $190 billion worth. Uruguay Round - 1986-1994 The Uruguay Round began in 1986. pagl It was the most ambitious round to date, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property,textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role. GATT and the World Trade Organization In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO, 21 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 153 member countries in the WTO. Of the original GATT members and the SFR Yugoslavia has not rejoined the WTO. Since FR Yugoslavia, (renamed to Serbia and Montenegro and with membership negotiations later split in two), is not recognized as a direct SFRY successor state; therefore, its application is considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to establish a working party to examine the request of Syria for WTO membership. The contracting parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31 December 1995. Serbia and Montenegro are in the decision stage of the negotiations and are expected to become the newest members of the WTO in 2012 or in near future. Whereas GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT. WTO The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by

representatives of member governments:fol.9-10 and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994). The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. As of March 2012 the future of the Doha Round is uncertain. The GATT was the only multilateral instrument governing international trade from 1948 until the WTO was established on January 1, 1995. Despite attempts in the mid 1950s and 1960s to create some form of institutional mechanism for international trade, the GATT continued to operate for almost half a century as a semiinstitutionalized multilateral treaty regime on a provisional basis. URUGUAY round Well before GATT's 40th anniversary, its members concluded that the GATT system was straining to adapt to a new globalizing world economy. In response to the problems identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries' policies on world trade GATT could not manage etc.), the eighth GATT round known as the Uruguay Round was launched in September 1986, in Punta del Este, Uruguay. It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed April 15, 1994, during the ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh Agreement. The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994). GATT 1994 is not however the only legally binding agreement included via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions and understandings was adopted. The agreements fall into a structure with six main parts: The Agreement Establishing the WTO Goods and investment the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures Services the General Agreement on Trade in Services Intellectual property the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Dispute settlement (DSU) Reviews of governments' trade policies (TPRM) DOHA round The WTO launched the current round of negotiations, the Doha Development Agenda (DDA) or Doha Round, at the fourth ministerial conference in Doha, Qatar in November 2001. The Doha round was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries. The negotiations have been highly contentious. As of March 2012, agreement has not been reached, despite the intense negotiations at several ministerial conferences and at other sessions. Disagreements still continue over several key areas including agriculture subsidies. Intellectual Property Rights Intellectual property (IP) is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized under the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property rights include copyrights, trademarks, patents, industrial design rights and trade secrets in some jurisdictions. Although many of the legal principles governing intellectual property have evolved over centuries, it was not until the 19th century that the term intellectual property began to be used, and not until the late 20th century that it

became common place in the majority of the world. The British Statute of Anne 1710 and the Statute of Monopolies 1623 are now seen as the origins of copyright and patent law respectively. Objectives Financial incentive These exclusive rights allow owners of intellectual property to benefit from the property they have created, providing a financial incentive for the creation of an investment in intellectual property, and, in case of patents, pay associated research and development costs. Some commentators, such as David Levine and Michele Boldrin, dispute this justification. Economic growth The WIPO treaty and several related international agreements are premised on the notion that the protection of intellectual property rights are essential to maintaining economic growth. The WIPO Intellectual Property Handbook gives two reasons for intellectual property laws: One is to give statutory expression to the moral and economic rights of creators in their creations and the rights of the public in access to those creations. The second is to promote, as a deliberate act of Government policy, creativity and the dissemination and application of its results and to encourage fair trading which would contribute to economic and social development. The Anti-Counterfeiting Trade Agreement (ACTA) states that "effective enforcement of intellectual property rights is critical to sustaining economic growth across all industries and globally". Economists estimate that two-thirds of the value of large businesses in the U.S. can be traced to intangible assets. "IP-intensive industries" are estimated to generate 72 percent more value added (price minus material cost) per employee than "non-IP-intensive industries".[18][dubious discuss] A joint research project of the WIPO and the United Nations University measuring the impact of IP systems on six Asian countries found "a positive correlation between the strengthening of the IP system and subsequent economic growth." Economists have also shown that IP can be a disincentive to innovation when that innovation is drastic. IP makes excludable non-rival intellectual products that were previously non-excludable. This creates economic inefficiency as long as the monopoly is held. A disincentive to direct resources toward innovation can occur when monopoly profits are less than the overall welfare improvement to society. This situation can be seen as a market failure, and an issue of appropriability. Morality According to Article 27 of the Universal Declaration of Human Rights, "everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author". Although the relationship between intellectual property and human rights is a complex one, there are moral arguments for intellectual property. Various moral justifications for private property can also be used to argue in favor of the morality of intellectual property TRIPS (trade-related aspects of intellectual property rights) The TRIPS Agreement, which came into effect on 1 January 1995, is to date the most comprehensive multilateral agreement on intellectual property. The areas of intellectual property that it covers are: copyright and related rights (i.e. the rights of performers, producers of sound recordings and broadcasting organizations); trademarks including service marks; geographical including appellations of origin; industrial designs, patents including the protection of new varieties of plants; the layout-designs of integrated circuits; and undisclosed information including trade secrets and test data. The three main features of the Agreement are: Standards. In respect of each of the main areas of intellectual property covered by the TRIPS Agreement, the Agreement sets out the minimum standards of protection to be provided by each Member. Each of the main elements of protection is defined, namely the subject-matter to be protected, the rights to be conferred and permissible exceptions to those rights, and the minimum duration of protection. The Agreement sets these standards by requiring, first, that the substantive obligations of the main conventions of the WIPO, the Paris Convention for the Protection of Industrial Property (Paris Convention) and the Berne Convention

for the Protection of Literary and Artistic Works (Berne Convention) in their most recent versions, must be complied with. With the exception of the provisions of the Berne Convention on moral rights, all the main substantive provisions of these conventions are incorporated by reference and thus become obligations under the TRIPS Agreement between TRIPS Member countries. The relevant provisions are to be found in Articles 2.1 and 9.1 of the TRIPS Agreement, which relate, respectively, to the Paris Convention and to the Berne Convention. Secondly, the TRIPS Agreement adds a substantial number of additional obligations on matters where the pre-existing conventions are silent or were seen as being inadequate. The TRIPS Agreement is thus sometimes referred to as a Berne and Paris-plus agreement. Enforcement. The second main set of provisions deals with domestic procedures and remedies for the enforcement of intellectual property rights. The Agreement lays down certain general principles applicable to all IPR enforcement procedures. In addition, it contains provisions on civil and administrative procedures and remedies, provisional measures, special requirements related to border measures and criminal procedures, which specify, in a certain amount of detail, the procedures and remedies that must be available so that right holders can effectively enforce their rights. Dispute settlement. The Agreement makes disputes between WTO Members about the respect of the TRIPS obligations subject to the WTO's dispute settlement procedures.

In addition the Agreement provides for certain basic principles, such as national and most-favoured-nation treatment, and some general rules to ensure that procedural difficulties in acquiring or maintaining IPRs do not nullify the substantive benefits that should flow from the Agreement. The obligations under the Agreement will apply equally to all Member countries, but developing countries will have a longer period to phase them in. Special transition arrangements operate in the situation where a developing country does not presently provide product patent protection in the area of pharmaceuticals. The TRIPS Agreement is a minimum standards agreement, which allows Members to provide more extensive protection of intellectual property if they so wish. Members are left free to determine the appropriate method of implementing the provisions of the Agreement within their own legal system and practice. TRIMS Trade and Investment There are three main areas of work in the WTO on trade and investment: A Working Group established in 1996 conducts analytical work on the relationship between trade and investment. The Agreement on Trade-Related Investment Measures (TRIMs Agreement), one of the Multilateral Agreements on Trade in Goods, prohibits trade-related investment measures, such as local content requirements, that are inconsistent with basic provisions of GATT 1994. The General Agreement on Trade in Services addresses foreign investment in services as one of four modes of supply of services. The areas of work on trade and investment in the WTO 1. Working Group on the relationship between trade and investment. The Working Group on the Relationship between Trade and Investment was established during the 1996 Ministerial Conference in Singapore to examine the relationship between trade and investment. There is no negotiation of new rules or commitments. 2. Agreement on Trade-Related Investment Measures (TRIMs) This Agreement, negotiated during the Uruguay Round, applies only to measures that affect trade in goods. Recognizing that certain investment measures can have trade-restrictive and distorting effects, it states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions). Examples of inconsistent measures, as spelled out in the Annex's Illustrative List, include local content or trade balancing requirements. The Agreement contains transitional arrangements allowing Members to maintain notified TRIMs for a limited time following the entry into force of the WTO (two years in the case of developed country Members, five years for developing country Members, and seven years for least-developed country Members). The Agreement also establishes a Committee on TRIMs to monitor the operation and implementation of these commitments.

GATS The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. All members of the WTO are signatories to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well. However, upon accession, Members may introduce temporary exemptions to this rule.

MINISTERIAL CONFERENCE The Ministerial Conference is the top decision making body of the World Trade Organization (WTO). There have been six Ministerial Conferences. First ministerial conference The inaugural ministerial conference was held in Singapore in 1996. Its primary purpose was to initiate an international effort among global trading nations to overhaul the structure and mechanisms of the General Agreement on Tariffs and Trade (GATT) while preserving the considerable progress and success achieved by that system since its inception in 1948. Disagreements, largely between developed and developing economies, emerged over four issues initiated by this conference; afterward, these were collectively referred to as the "Singapore issues". Second ministerial conference Was held in Geneva in Switzerland. Third ministerial conference The third conference in Seattle, United States ended in failure, with massive demonstrations and police and National Guard crowd control efforts drawing worldwide attention. 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 143rd member to join. Fifth ministerial conference The ministerial conference was held in Cancn, 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 The sixth WTO Conference Ministerial was held in Hong Kong from 13 December 18 December 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. Further concessions to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed

Countries, following the Everything But Arms initiative of the European Union but with up to 3% of tariff lines exempted. Other major issues were left for further negotiation to be completed by the end of 2006. Uruguay round of negotiations The Uruguay Round was the 8th round of Multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986-1994 and embracing 123 countries as contracting parties. The Round transformed the GATT into the World Trade Organization. The Round came into effect in 1995 and has been implemented over the period to 2000 (2004 in the case of developing country contracting parties) under the administrative direction of the newly created World Trade Organization (WTO). The Uruguay Round Agreement on Agriculture, administered by the WTO, brings agricultural trade more fully under the GATT. It provides for converting quantitative restrictions to tariffs and for a phased reduction of tariffs. The agreement also imposes rules and disciplines on agricultural export subsidies, domestic subsidies, and sanitary and phytosanitary (SPS) measures. The Doha Development Round was the next trade round to commence in 2001 Goals The main objectives of the Uruguay Round were: to reduce agricultural subsidies to put restrictions on foreign investment, and to begin the process of opening trade in services like banking and insurance. They also wanted to draft a code to deal with copyright violation and other forms of intellectual property rights. Achievements The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994).[6] The GATT 1994 is not, however, the only legally binding agreement included in the Final Act; a long list of about 60 agreements, annexes, decisions and understandings was adopted. In fact, the agreements fall into a simple structure with six main parts: an umbrella agreement (the Agreement Establishing the WTO); agreements for each of the three broad areas of trade that the WTO covers: goods and investment (the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures (TRIMS)), General Agreement on Trade in Services (GATS), and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); dispute settlement (DSU); Agreement on Customs Valuation and reviews of governments' trade policies (TPRM) Module III: International Business Environment Implication of environment differences: a) Economic factors the determinants of economic development ; b) Political and Legal factors c) Cultural factors -Culture, Values, Norms, Social, Religious, Ethical, Language, Education ; Regional Integrations, Trading Blocks - European Union, ASEAN, APEC, NAFTA, SAARC, ANDEAN PACT and MERCOSUR ; Global sourcing and its impact on Indian Industry. Economic factors the determinants of economic development Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.

As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries. As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure. Investment is the most fundamental determinant of economic growth identified by both neoclassical and endogenous growth models. However, in the neoclassical model investment has impact on the transitional period, while the endogenous growth models argue for more permanent effects. The importance attached to investment by these theories has led to an enormous amount of empirical studies examining the relationship between investment and economic growth. Human capital is the main source of growth in several endogenous growth models as well as one of the key extensions of the neoclassical model. Since the term human capital refers principally to workers acquisition of skills and know-how through education and training, the majority of studies have measured the quality of human capital using proxies related to education (e.g. school-enrolment rates, tests of mathematics and scientific skills, etc.). On these grounds, a large number of studies has found evidence that an educated labour force is a key determinant of economic growth. Innovation and R&D activities can play a major role in economic progress increasing productivity and growth. This is due to increasing use of technology that enables introducing of new and superior processes and products. Openness to trade is another important determinant of economic performance. There are sound theoretical reasons for arguing that there is a strong and positive link between openness and economic growth: openness facilitates the transfer of technology and the diffusion of knowledge, and, by increasing exposure to competition, contributes to exploitation of comparative advantage. Foreign Direct Investment (FDI) has recently played a crucial role of internationalizing economic activity and it is a primary source of technology transfer and economic growth. This major role is stressed in several models of endogenous growth theory. Another important source of growth highlighted in the literature is the institutional framework. Although the important role institutions play in shaping economic performance has been acknowledged long time ago (Lewis, 1955, Ayres, 1962), it is not until recently that such factors have been examined empirically in a more consistent way. The important role of geography on economic growth has been long recognized. Though, over the last years there has been an increased interest on these factors since they have been properly formalized and entered into models Researchers have used numerous variables as proxies for geography including absolute values of latitude, distances from the equator, proportion of land within certain distance from the coast, average temperatures and average rainfall, soil quality and disease ecology. b) Political and Legal factors Political environment The political environment of a country is influenced by the political organisations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. political stability in the country, foreign policy, Defence and military policy, image of the country and its leaders in and outside the country. The political environment of the country influences the business to a great extent. For instance, the Government of India, bottling and sale of cocoa-cola was discontinued in India in the late seventies following policy of restricting the growth of multinationals in Indian markets. But, its entry was allowed under the New Industrial policy of 1991. Under this new policy, government allowed liberalized licensing, imports and exports, inflow of foreign capital and technology on more liberal terms. The trends towards globalization and signing of GATT in 1993 have posed new challenges before Indian business. Legal regulatory environment

Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It may include the exact rulings and decision of the courts. These affect the business and its managers to a great extent. For instance, in 1992, the Supreme Court ordered the closure of a number of tanneries in Kanpur as they were polluting Holi Ganga. In August 1993 several foundries around the famous Taj Mahal were ordered to be closed down because of air-pollution caused by them had adverse impact on the whiteness of Taj Mahal. c) Cultural factors -Culture, Values, Norms, Social, Religious, Ethical, Language Language and dialect: We've covered this topic well, so I won't detail this one again -- except to say that language is also a marker for other cultural differences. A different dialect raises linguistic questions, and also the probability that other cultural factors will be different. Religion: Obviously, religion is a strong cultural factor, but most important for search marketers is the way this divides different areas of countries. The state of Bavaria in Germany is strongly catholic, for instance, whereas the rest of Germany is largely protestant. Nearby Austria follows Bavaria's example. You could argue that Bavaria and Austria have more in common than the rest of Germany. Level of education and literacy: Clearly, the level of literacy of web searchers will influence the way people search, but they still need things. Ever thought of creating a visual site where you click on images of things to conduct your product choice? Doing this could win you huge fans in many less well targeted markets. Explicit or implicit cultural behaviors: Do people say what they mean, or say what you want to hear? This might actually drive more search for things they can't talk about in public.

Regional Integration Regional integration is a process in which states enter into a regional agreement in order to enhance regional cooperation through regional institutions and rules. The objectives of the agreement could range from economic to political, although it has generally become a political economy initiative where commercial purposes are the means to achieve broader socio-political and security objectives. It could be organized either on a supranational or an intergovernmental decision-making institutional order, or a combination of both. Past efforts at regional integration have often focused on removing barriers to free trade in the region, increasing the free movement of people, labour, goods, and capital across national borders, reducing the possibility of regional armed conflict (for example, through Confidence and Security-Building Measures), and adopting cohesive regional stances on policy issues, such as the environment, climate change and migration. The amount of trade that takes place within the scope of such agreements is about 35%, which accounts to more than one-third of the trade in the world. The main objective this agreement is to reduce the barriers related to the trade among various nations but the structure may vary from one agreement to another. The removal of the trade barriers among various nations by these agreements has led to liberalized economy in many countries which had brought significant economic development among these countries. A number of agreements notified to GATT and WTO is signed in each year has dramatically increased from 1990s. There were 194 agreement notified in 1999 and it contained 94 agreements form the early 1990s.

TRADE BLOCS A trade bloc is a type of 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. European Union The European Union (EU) is an economic and political union or confederation of 27 member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by six countries in 1958. In the intervening years the EU has grown in size by the accession of new member states, and in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993. The latest amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009. The EU has developed a single market through a standardised system of laws which apply in all member states. Within the Schengen Area (which includes

EU and non-EU states) passport controls have been abolished. EU policies aim to ensure the free movement of people, goods, services, and capital, enact legislation in justice and home affairs, and maintain common policies on trade, agriculture, fisheries and regional development. The European Union is composed of 27 sovereign Member States: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. Objectives: Setting up a common market Continuous & balanced expansion Closer relations between the member states. ASEAN The Association of Southeast Asian Nations is a geo-political and economic organization of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include accelerating economic growth, social progress and cultural development among its members, protection of regional peace and stability, and opportunities for member countries to discuss differences peacefully. The ASEAN way can be traced back to the signing of the Treaty of Amity and Cooperation in Southeast Asia. "Fundamental principles adopted from this included: mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all nations; the right of every State to lead its national existence free from external interference, subversion or coercion; non-interference in the internal affairs of one another; settlement of differences or disputes by peaceful manner; renunciation of the threat or use of force; and effective cooperation among themselves" NAFTA The North American Free Trade Agreement (NAFTA) is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada United States Free Trade Agreement between the U.S. and Canada. In terms of combined GDP of its members, as of 2010 the trade bloc is the largest in the world. The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Trade The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, America, and Mexico. NAFTA allowed agriculture goods to be tariff-free such as eggs, poultry and other meats and crops. This allowed corporations to trade freely and import and export various goods on a North American scale. Since the implementation of NAFTA, the countries involved have been able to do the following: exports, imports and trade balances. Provisions of NAFTA: Duty-free market access. Trade rules- safeguard, subsidies, countervailing & antidumping duties, health & safety standards. Rules on trade in services & investment Protection of intellectual property. Dispute settlement mechanism. APEC Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim countries (formally Member Economies) that seeks to promote free trade and economic cooperation throughout the Asia-Pacific region. Established in 1989 in response to the growing interdependence of Asia-Pacific economies and the advent of regional economic blocs

(such as the European Union) in other parts of the world, APEC works to raise living standards and education levels through sustainable economic growth and to foster a sense of community and an appreciation of shared interests among Asia-Pacific countries. Members account for approximately 40% of the world's population, approximately 54% of the world's gross domestic product and about 44% of world trade. SAARC The South Asian Association for Regional Cooperation (SAARC) is an organisation of South Asian nations, founded in December 1985 by Ziaur Rahman and dedicated to economic, technological, social, and cultural development emphasizing collective self-reliance. Its seven founding members are Sri Lanka, Bhutan, India, Maldives, Nepal, Pakistan, and Bangladesh. Afghanistan joined the organization in 2005. Meetings of heads of state are usually scheduled annually; meetings of foreign secretaries, twice annually. It is headquartered in Kathmandu, Nepal. The 16 stated areas of cooperation are agriculture and rural, biotechnology, culture, energy, environment, economy and trade, finance, funding mechanism, human resource development, poverty alleviation, people to people contact, security aspects, social development, science and technology, communications, and tourism. Objectives The objectives of the Association as defined in the Charter are: to promote the welfare of the people of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potential; to promote and strengthen selective self-reliance among the countries of South Asia; to contribute to mutual trust, understanding and appreciation of one another's problems; to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; to strengthen cooperation with other developing countries; to strengthen cooperation among themselves in international forums on matters of common interest; and to cooperate with international and regional organisations with similar aims and purposes. Principles The principles are: Respect for sovereignty, territorial integrity, political equality and independence of all members states Non-interference in the internal matters is one of its objectives Cooperation for mutual benefit All decisions to be taken unanimously and need a quorum of all eight members All bilateral issues to be kept aside and only multilateral(involving many countries) issues to be discussed without being prejudiced by bilateral issues Afghanistan was added to the regional grouping on 13 November 2005, with the addition of Afghanistan, the total number of member states were raised to eight (8). In April 2006, the United States of America and South Korea made formal requests to be granted observer status. The European Union has also indicated interest in being given observer status, and made a formal request for the same to the SAARC Council of Ministers meeting in July 2006. On 2 August 2006 the foreign ministers of the SAARC countries agreed in principle to grant observer status to the US, South Korea and the European Union. On 4 March 2008, Iran requested observer status. Followed shortly by the entrance of Mauritius. ANDEAN PACT The Andean Community is a customs union comprising the South American countries of Bolivia, Colombia, Ecuador and Peru. The trade bloc was called the Andean Pact until 1996 and came into existence with the signing of the Cartagena Agreement in 1969. Its headquarters are located in Lima, Peru. The Andean Community has 98 million inhabitants living in an area of 4,700,000 square kilometers, whose Gross Domestic Product amounted to US$745.3 billion in 2005, including Venezuela, (who was a member at that time). It's estimated GDP PPP for 2011 amounts to US$902.86 billion, excluding Venezuela. Free flow of people From January 1, 2005, the citizens of the member countries can enter the other Andean Community member states without the requirement of visa. The passengers should present the authorities their national ID cards.

Visitors to Venezuela will have to present their passports; they will then receive the Andean Migration Card (Tarjeta Andina de Migracin), in which the time of temporary residence in the country is stated. MERCOSUR Mercosur or Mercosul (English: Common Southern Market) is an economic and political agreement among Argentina, Brazil, Paraguay and Uruguay. Founded in 1991 by the Treaty of Asuncin, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods, people, and currency. The official languages are Portuguese, Guaran and Spanish. It has been updated, amended, and changed many times since. It is now a full customs union. Mercosur and the Andean Community of Nations are customs unions that are components of a continuing process of South American integration connected to the Union of South American Nations. Mercosur origins trace back to 1985 when Presidents Ral Alfonsn of Argentina and Jos Sarney of Brazil signed the Argentina-Brazil Integration and Economics Cooperation Program The program also proposed the Gaucho as a currency for regional trade. Venezuela signed a membership agreement on 17 June 2006. The founding of the Mercosur Parliament was agreed at the December 2004 presidential summit. It should have 18 representatives from each country by 2010, regardless of population. Bolivia, Chile, Colombia, Ecuador and Peru currently have associate member status Objectives: The Southern Common Market promotes: The free transit of produced goods, services and factors among the member states. Among other things, this includes the elimination of customs rightsand lifting of nontariff restrictions on the transit of goods or any other measures with similar effects; Fixing of a common external tariff (CET) and adopting of a common trade policy with regard to nonmember states or groups of states, and the coordination of positions in regional and international commercial and economic meetings; Coordination of macroeconomic and sectorial policies of member states relating to foreign trade, agriculture, industry, taxes, monetary system, exchange and capital, services, customs, transport and communications, and any others they may agree on, in order to ensure free competition between member states; The commitment by the member states to make the necessary adjustments to their laws in pertinent areas to allow for the strengthening of the integration process. The Asuncin Treaty is based on the doctrine of the reciprocal rights and obligations of the member states. Mercosur initially targeted free-trade zones, then customs unification, and finally a common market. The common market will allow (in addition to customs unification) the free movement of man power and capital across the member nations, and depends the grating of equal rights and duties to all member countries. Because member states will implement the trade liberalization at different speeds, during the transition period the rights and obligations of each party will initially be equivalent but not necessarily equal. In addition to the reciprocity doctrine, the Asuncin Treaty also contains provisions for the most-favored nation concept. This concept is that after the common market is formed, member nations are to automatically extend to the other members any advantage, favor, entitlement, immunity or privilege granted to a product originating from or intended for countries that are not party to the Latin American Integration Association (ALADI) GLOBAL SOURCING Global sourcing is a term used to describe practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs. Common examples of globally sourced products or services include: labor-intensive manufactured products produced using low-cost Chinese labor, call centers staffed with low-cost English speaking workers in the Philippines and India, and IT work performed by low-cost programmers in India and Eastern Europe. While these examples are examples of Low-cost country sourcing, global sourcing is not limited to low-cost countries. Majority of companies today strive to harness the potential of global sourcing in reducing cost. Hence it is commonly found that global sourcing initiatives and programs form an integral part of the strategic sourcing plan and procurement strategy of many multinational companies.

Global sourcing is often associated with a centralized procurement strategy for a multinational, wherein a central buying organization seeks economies of scale through corporate-wide standardization and benchmarking. A definition focused on this aspect of global sourcing is: "proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations. The global sourcing of goods and services has advantages and disadvantages that can go beyond low cost. Some advantages of global sourcing, beyond low cost, include: learning how to do business in a potential market, tapping into skills or resources unavailable domestically, developing alternate supplier/vendor sources to stimulate competition, and increasing total supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated with different cultures and time zones, exposure to financial and political risks in countries with (often) emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality. Indian retail chains set up global sourcing: Global retails like Wal- mart and Tescos do it all the time. Now its the turn of Indian retail chains who are exploring ways to set up global sourcing of merchandise for shoring up margins and offering best prices to customers. These days like of bigbazaars, shoppers stop, subhiksha are looking to source merchandise at the lowest rates globally. Future group pantaloon retail India has just set up global sourcing offices in Hongkong and Mainland china the first overseas sourcing operation by any domestic retail chain. Indias biggest car maker Maruti Udyog Ltd is toying with the idea of sourcing components from the global market as the part of its strategy to become more cost competitive. American power conversion corporation, the US based leading provider of global, end-to-end availability enhancement solutions, has drawn up a blueprint to turn its Indian manufacturing facility in Bangalore in to a global sourcing center for catering to its principals in the fastest growing Asia-Pacific region.