4.

2 International Business
Ashish J. Shah profajshah-bnsb@yahoo.com 2009 11

Module 2 Agenda
International Business Environment:
Globalisation of Business WTO and Trade Liberalisation Emerging Issues Implications for India Regional Trade Blocks Inter-Regional Trade among Regional Groups

Globalisation of Business
Pls. see case on The Globalisation of Health Care on P 4 Has led to fundamental shift in world economy Countries have reduced trade barriers; no longer content with self-sustenance concept A manufactured product or service today unlikely to have components from one country alone Our breakfast is an international potpourri of ingredients too

Globalisation of Business
Amazon, eBay deliver from the US to your doorstep DHL, TNT become your international valuechain partners Collapse of communism and environmental concerns in the West sped up globlsn $ 1 billion of currency exchange/day $ 10 trillion worth of products and $ 3 trillion worth of services transacted annually

Globalisation of Business
However, fears of job security are high Influx of immigrants into the EU, South Pacific and North America creating nervousness More Asian companies beginning to dominate car industry now; GM finding it difficult to protect market share Globalisation thus refers to the shift to a more integrated and interdependent world economy

Globalisation of Business
Globalisation of markets merging of historically distinct markets into one, global market Increasingly firms are talking less of country markets and more of the global market as a whole Globalisation of production sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production (labour, energy, land and capital) e.g. Airbus

Globalisation of Business
Dimensions of Globalisation
Disembedding/delocalisation Acceleration Standardisation e.g. The English language Interconnectedness Movement Mixing Vulnerability e.g. AIDS, avian flu Re-embedding

Globalisation of Business
Drivers of Globalisation
Increase and Expansion of technology Liberalisation of cross-border trade and resource movements because governments find:
Their citizens want so Manufacturers will become more competitive May induce other countries to lower barriers

Development of services that support international business e.g. SEZs Growing consumer pressures Increased global competition

Globalisation of Business
Changing political situations e.g. Collapse of communism Expanded cross-national cooperation:
To gain reciprocal advantages To solve problems jointly that one country alone cannot solve To deal with concerns outside the territory of all countries

Stages in Globalisation
1. 2. 3. 4. 5. Domestic company (ethnocentric) International company (ethnocentric) MNC (polycentric) Global company (Regiocentric) Transnational company (Geocentric)

Globalisation of Business
Levels of Globalisation
1. 2. 3. 4.

World-level globalisation Country-level Globalisation Industry-level Globalisation Firm-level Globalisation Globalisation of markets e.g. Coca Cola Globalisation of production e.g. Hyundai Globalisation of investment e.g. FDI Globalisation of technology

Components of Globalisation

Globalisation of Business
Implications of Globalisation
Implications of the globalisation of:
Markets Production e.g. Dell Investment e.g. FDI Technology

Trends in Globalisation
Cooperation among countries Liberalisation of cross-border movements Transfer of technology

Globalisation of Business
Obstacles to Globalisation
Government policies and procedures High cost Poor infrastructure Obsolescence Resistance to change Poor quality image Supply problems Small size Lack of experience Limited R & D and marketing research Growing competition Trade barriers e.g. Non-tariff barriers

WTO
WTO: organisation meant to monitor international trade amongst its member states Birth of WTO:
GATT (1947) mainly host to developed nations UNCTAD (UN conference on trade and development): estd. in response to US reluctance in 1963 WTO: 1995 Uruguay round

WTO
Differences between GATT and WTO and features of WTO?
GATT:
more of a provisional agreement among exclusive states Less scope under agreement to decide on disputes Applied to merchandised goods, not services Multilateral, WTO more plurilateral; many new agreements were signed in 80s

WTO
Objectives of WTO:
Improve standard of living of people in member countries Ensure full employment and broad increase in effective demand Enlarge production and trade of goods Realising these aims consistently with sustainable development and environmental protection Ensuring that developing countries secure a proper share in the growth of international trade

WTO
Principles of WTO:
Transparency MFN (Most favoured Nation) treatment National treatment: non-discrimination within a country Free trade principle: optimal utilisation of resources Dismantling trade barriers Rule-based trading system Treatment for LDCs Competition principle Environment protection

WTO
Structure of WTO:
1. Ministerial conference 2. General council
Dispute settlement body Trade policy review body

3. Councils
Council for trade in goods Council for trade in services Council for trade related aspects of intellectual property rights

WTO
4. Committee and management bodies Committees
Committee on trade and development Committee on balance of payments Committee on budget, finance and administration

Management bodies in plurilateral agreements: civil aircraft, government procurement...

WTO
Role of WTO
Helping developing and transition economies Specialised help for exports WTO in global economic policy making Taking information Giving information to public Encouraging development and economic reform

WTO
Key subjects in WTO
Agriculture Health and safety measures Helping least developed and food importing countries Textiles and clothing TRIPS TRIMS (Trade Related Investment Measures) GATS (General Agreement on Trade in Services); covers four modes of international service delivery:

Cross-border supply (data flow) Commercial presence (FDI...) Consumption abroad (tourism) Movement of personnel (foreign consultants)

WTO and Trade Liberalisation

WTO and India:
No commitment made for agri sector w.r.t.:
Market access Reduction of tariffs Amount of subsidies attached

WTO and Trade Liberalisation in India

Reduction in excise and customs duties Peak customs duty reduced from 220 % in 91 to 30 % in 02 (EPCG) Lowering corporate tax (35 % + 5 % vs. 40 % + 5 %) Widening of tax base and toning-up the tax administration:
equity (ability-to-pay), efficiency (against market failure) and simplicity (compliance and admin costs to be minimised)

WTO and Trade Liberalisation

Advantages of WTO to India

Boost to exports Security and predictability Policy assistance Trade links Settlement of disputes Special concessions Promotion of competition Technical assistance Sustainable development Policy review mechanism

WTO and Trade Liberalisation

Disadvantages of WTO to India
No export push Prominence to developed nations Price rise Danger to services sector Not really free trade Erosion of autonomy

Regional Trade Blocks

Characteristics of Regional Trade Blocks :
1. Implies a reduction or elimination of trade barriers 2. Are discriminatory and applies only to member countries

Importance of Regional Trade Blocks :

Discussion?

Regional Trade Blocks

Types of Regional Trade Blocks
Preferential trading agreement Free trade area Customs union Common market Economic union Political union

Regional Trade Blocks

Impact of Regional Trade Blocks on International Business
Trade creation and trade diversion Prices and competition Economies of scale Dynamic effects of integration Impact of opportunities Impact of threats

Regional Trade Blocks

Factors responsible for Regional Trade Blocks:
Emphasis on removal of trade barriers Feeling of comfort to trade among countries close to each other Improve bargaining power against other stronger blocks

Trade among regional groups

Intra-regional e.g. EEC Inter-regional e.g.
7 groups identified: EAP, ECA, LAC, MNA, SAS, SSA, developed regions (Nam, EUR, AAs)

Regional Trade Blocks

Major Regional Trade Blocks
EU
European Commission European Council European Parliament European Court of Justice Benefits of the EU and challenges faced

NAFTA
US, Canada and Mexico

Regional Trade Blocks

Scope of NAFTA
Market Access Trade rules Services Investment Intellectual Property Dispute settlement

ASEAN
Vision 2020 AFTA ASEAN Free Trade Agreement

Regional Trade Blocks

Mercosur (South America)
Brazil, Argentina, Paraguay and Uruguay

EFTA European Free Trade Association (1959)

Austria, Norway, Portugal, Sweden and Switzerland Enable free trade in Western Europe

CARICOM: Central American Common Market (early 60s)

Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua Collapsed in 69 after war broke out between Honduras and El Salvador after a soccer match riot!

Regional Trade Blocks

South Asian Association for Regional Cooperation (SAARC)
SAPTA: SAARC Preferential Trading Agreement SAFTA: South Asian Free Trade Agreement

Asia Pacific Economic Cooperation (APEC)

18 countries

Latin American Integration Association (LAIA)

Argentina, Brazil, Chile, Mexico, Paraguay, Peru, Uruguay, Colombia, Ecuador, Venezuela, Bolivia

Regional Trade Blocks

Economic and Social Commission for Asia and The Pacific (ESCAP)
48 members and 10 associate members Subdivided into:
1. 2. 3. 4. 5. 6. Pacific island countries Developing ESCAP countries ASEAN 4 nations Developed ESCAP countries China and new industrialising countries South Asian countries

Extends to: Cook Islands (E), Azerbaijan (W), Mongolia (N), Aus and NZ (S)

Regional Trade Blocks

Andean pact (69)
Bolivia, Chile, Ecuador, Colombia Peru signed the Cartagena Agreement Based on the EU model Collapsed in the 80s