“Trends in International Business”Chapter 1

• Victor Haislop

• Trev Hall

• Ali Kanawati

• Luis Ochoa

• Mike Wiley

The World Trade Organization: Perspectives and Prospects

• 1948- International Trade Organization (ITO) with 50 nations

• World trade was valued at over $58 billion

• 1950 - President Truman didn’t resubmit to Congress for ratification, due to perceived threats of national sovereignty, and too much ITO intervention in markets.

• 1994 - World Trade Organization - similar to ITO

• Today world trade is over $4 trillion. US over 12 percent

• New Players The tigers of Asia: Hong Kong, Singapore, Taiwan and South Korea.

International Currency Rates

• Exchanged rates used to be fixed

– Based on actual supply and demand for currency relating to international trade of goods and services

– Also determined on interest rates between countries.

• Today, currency rates float.

– Examples of Currency Margin: ADR’s, Golondrinas’ Capital, Petroleum and Coffee (Commodities in general).

International Currency Rates (Cont.)

• Rates are determined largely by currency traders.

• Today, there is over 1.5 trillion dollars a day of traded currencies.

• This compares to a world trade of products and services of almost 4 trillion annually.

• The end result is an increase volatility of exchange rates, which drastically shifts export and import prices.

The Corporate Perspective

• Brand new corporate environment• “Fixed parameters became fluid”• This change requires an increased flexibility in decision-making.

– “Instant worldwide communication”

• Due to a dramatic increase in the speed and ease of technology transfer.

• Technological Innovation can be exchanged very quickly.• Today’s revolutionary product can be tomorrow’s industry

commonplace.• More international joint ventures sharing risks, costs, capabilities

and profits.

The Context of a New Global Trade Framework

• Government changing goals in the context of worldwide competition.– Ensure success for firms - foreign/abroad.

– Create employment.

– Increase public standard of living.

• US has lost it’s world trade dominance.• World wide competitiveness has leveled the international

playing field.• This has created a need for cross cultured products and services

with less ethnocentricity.• Free market access governs the new global trade framework.

The Future of the World Trade Organization

• The WTO should focus on the core mission of world trade and global business.

• The WTO should not be distracted/overload with social issues.• Such issues detract from trade and investment which slows

progress and world trade efficiency.• Together with the other pillars of a global economy- the World

Bank for development, and the international monetary fund for finance, the WTO can form the underpinning for a world economic platforms.

• Further social dimensions focusing on compassion and social issues should come later.

America’s New World Trade Order

• Improve quality and amount of information that government and business share.

• Policies should encourage cooperation between government and businesses.

• American industry must overcome its export reluctance and short term financial focus.

• America must invest in its people providing education and training needed to compete in the global business environment.

America’s World Trade Challenges

• Japanese import barriers

• Structure of Japanese distribution channels / Keirtsu

• Unreasonable Product testing standards

• Inadequate intellectual property protections.

• Policy makers should pursue government collaboration with businesses.

• Should focus on information sharing, collaboration, export promotion, and human capital.

Japan’s Problems Identified

• Distribution and cultural impediments

• Government trade barriers

• Very demanding customers

• Bureaucratic practices

Solutions to Japanese Problems

• Need Anti-trust structure to reduce the overall collusive power of the Keirtsu.

• The Keirtsu by design inhibits the free flow evolution of a market economy.– Reduces Competition.– Props up the weak and inefficient.– Lessens Innovation and Incentive

• US needs to increase market research in Japan.

• Better Product Adaptation and service orientation to the Japanese Consumer.

• Japanese and American collaborative ventures and long range vision.

Filling International Gaps of Efficiency

• Distribution costs are high in emerging industrialized nations.

• Japan and US should assist these nations in developing more efficient distribution systems.

• 40 percent of US shipments are under a J.I.T./Quick response structure.

• US and Japan are roughly 11 percent of GNP for distribution costs.

• Eastern Europe and Russia are well above 30 percent of GNP.

• By helping reduce distribution costs, international products will cost less to distribute, thus resulting in lower prices to the consumer.

Shifting Global Competitiveness

• Innovation is a critical measure to future competitiveness in international trade.

• A Patent is a legal document issued by a governmental agency that establishes ownership of a piece of intellectual property for a specified period. – Protect the property rights of the inventor.

– Encourage the inventiveness and technical progress of societies by rewarding innovation and creativity.

– Serve as a measure of innovation and subsequent global competitiveness.

• Patent information will be scrutinized to determine country specific competitiveness.

Domestic and International Patent Data

• In 1991, 40 percent of US patents were given to foreigners.

• Top four companies receiving patents were all Japanese firms.

• 20 percent of patents granted in the US were awarded to Japan.

• In Japan, only 14 percent of Patents were held by foreigners.

• Only 7 percent were awarded to US companies.

Comparison of the US and Japanese Patent System

• The US patent system awards based on “first to invent”

• The Japan patent system awards on “first to file/obtain a patent”

• The US patent system is conducted in secrecy

• The Japan patent system is conducted publicly.

– Meaning that it seeks input from industry to determine uniqueness or novelty.

– This dramatically increases the risk of Japanese companies stealing this information and the patent rights.

Patent System Comparison (Cont.)

• The Japanese Patent system is not as stringent in the requirements of uniqueness and novelty.

• This fact reflects more patents applied for and filed as a whole.

• The US is soliciting help from Japanese patent consultants to better learn the patent system.