GLOBAL BUSINESS ENVIRONMENT

MBA

Global Recession and Recovery

The world economy faced Great Recession in 2008 which continued in 2009 as well. The recession originated in the USA and soon spread to many other countries of the world. Rate of growth for the world as a whole which was 5.2 percent in 2007 fell to 3.0 percent in 2008 and turned negative (0.6 per cent) in 2009. In its World Economic Outlook published in April 2010, the IMF projects the rate of growth in 2010 for the world as a whole at 4.2 per cent.

ACCORDING TO WORLD BANK, THE FOLLOWING THREE MAJOR FACTORS ACCOUNTED FOR THE SCALE OF THE CRISIS:

Macro-economic imbalances that fed illiquidity into the system, lowering interest rates and fuelling the asset price bubbles. A financial innovation which turned out to be an important transmission for instability was the trading in derivatives. According to Bank for International Settlement (BIS) the derivatives trade grew five times between 2002 and 2007 to touch a level in excess of $ 500 trillion. The failure of national financial regulators to effectively regulate global financial markets encouraged investors to take exorbitant risks.

IMPACT ON DEVELOPING ECONOMIES

The Trade Channel Lower Earnings from Invisibles Capital Outflows Decline in Equity Prices Depreciation in Exchange Rates Adverse Consequences for Prospects

Domestic

Growth

GLOBAL RECOVERY According to World Economic Outlook (April 2010) of IMF :

A stimulus driven US recovering is underway. Europe is facing an uneven recovery and complex policy challenges. Asia is staging a vigorous and balanced recovery. Robust recovery in Latin American countries. CIS economies are recovering at a moderate pace. The Middle East and North Africa region is recovering at a good pace. Africa is coming through the crisis well.

Alternative View
There is the possibility of doubledip recession ahead. The argument is that the global recovery has been initiated and sustained by artificial stimuli and once these stimuli run out of steam, the recession (or at least a slowdown ) will reappear.

CHANGING GLOBAL EQUATIONS : THE DRAGON ARRIVES

The collapse of Eastern Europe in 1989 and the USSR in 1991 marked the end of a bi-polar world. With the demise of socialism in these countries, the USA established its hegemony over the world economy. By the first half of 2010, the Chinese economy outpaced Japans economy and dislodged it from the second position. According to the World Bank, China is on course to upset the USA from the top spot by 2025.

GLOBAL TRADE STRUCTURE

The World Trade Organisation (WTO) Regional Trade Agreements Protectionism Multinational Corporations (MNCs).

WORLD TRADE ORGANISATION (WTO) WTO was set up in 1995.

The main focus of the WTO is on cutting down trade barriers among countries with the objective of encouraging multilateralism. Cancun Ministerial Conference was held from September 10 to 14, 2003. It focused on two issues: 1. Liberalisation of agriculture 2. Singapore issues. Singapore issues. These include four issues investment, competition policy, government procurement and trade facilitation. Developing countries came together to constitute G-20 and G-16.

REGIONAL TRADE AGREEMENTS

RTAs are generally of the following types: Preferential Trade Agreement Free Trade Agreement Customs Union Common Market

PROTECTIONISM
Since the mid 1970s the industrialised countries of the West have been increasingly resorting to protectionism. The main instrument of protection during the past two and a half decades has been the non-tariff barrier (NTB). Protectionist sentiments have grown stronger in the USA with the onset of recession in 2008.

DOMINANCE OF MNCs
The global economy is dominated by 40,000 corporations. The sales of 200 top corporations in 1982 were equivalent to 24.2 per cent of the worlds GDP and had risen to 28.3 per cent of the world GDP in 1998. Out of the 100 largest economies in the world, 51 are corporations; only 49 are countries. One-third of the world trade is simply in the form of transactions among various units of the same corporation.