Mb0037 Int Bus Mgt

8/2/2019 Mb0037 Int Bus Mgt

1/17

MB0037 INTERNATIONAL BUSINESS MANAGEMENT SET 1 Page 1

MBA SEMESTER IV ASSIGNMENT

NAME: GEORGE VARUGHESE PARADAYIL

ROLL NO.: 530910788

MB0037: INTERNATIONAL BUSINESS MANAGEMENT SET 1

Q.1 a. How has liberalizing trade helped international business? (6 marks)b. What are the merits and demerits of International Trade? (4 marks)

Ans: a. The Benefits of Trade Liberalization

Policies that make an economy open to trade and investment with the rest of the world are

needed for sustained economic growth. No country in recent decades has achieved economic

success, in terms of substantial increases in living standards for its people, without being opento the rest of the world. In contrast, trade opening (along with opening to foreign direct

investment) has been an important element in the economic success of East Asia, where theaverage import tariff has fallen from 30 percent to 10 percent over the past 20 years.

Opening up their economies to the global economy has been essential in enabling manydeveloping countries to develop competitive advantages in the manufacture of certainproducts. In these countries, defined by the World Bank as the "new globalizers," the numberof people in absolute poverty declined by over 120 million (14 percent) between 1993 and1998.

There is considerable evidence that more outward-oriented countries tend consistently to grow

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

Freeing trade frequently benefits the poor especially. Developing countries can ill-afford thelarge implicit subsidies, often channelled to narrow privileged interests that trade protection

provides. Moreover, the increased growth that results from free trade itself tends to increasethe incomes of the poor in roughly the same proportion as those of the population as a whole.New jobs are created for unskilled workers, raising them into the middle class. Overall,

inequality among countries has been on the decline since 1990, reflecting more rapid

economic growth in developing countries, in part the result of trade liberalization.

The potential gains from eliminating remaining trade barriers are considerable. Estimate of thegains from eliminating all barriers to merchandise trade range from US$250 billion to US$680billion per year. About two-thirds of these gains would accrue to industrial countries. But theamount accruing to developing countries would still be more than twice the level of aid theycurrently receive. Moreover, developing countries would gain more from global trade

liberalization as a percentage of their GDP than industrial countries, because their economiesare more highly protected and because they face higher barriers.


2/17


Although there are benefits from improved access to other countries markets, countriesbenefit most from liberalizing their own markets. The main benefits for industrial countrieswould come from the liberalization of their agricultural markets. Developing countries wouldgain about equally from liberalization of manufacturing and agriculture. The group of low-income countries, however, would gain most from agricultural liberalization in industrial

countries because of the greater relative importance of agriculture in their economies.

b. Merits and demerits of international trade?

Advantages to consider:

Enhance your domestic competitiveness Increase sales and profits Gain your global market share Reduce dependence on existing markets Exploit international trade technology Extend sales potential of existing products Stabilize seasonal market fluctuations Enhance potential for expansion of your business Sell excess production capacity Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind:

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

Q. 2. Discuss the impact of culture on International Business. (10 marks)

Ans: The globalizing wind has broadened the mindsets of executives, extended thegeographical reach of firms, and nudged international business (IB) research into some newtrajectories. One such new trajectory is the concern with national culture. Whereas traditional

IB research has been concerned with economic/ legal issues and organizational forms andstructures, the importance of national culture broadly defined as values, beliefs, norms, and

behavioural patterns of a national group has become increasingly important in the last twodecades, largely as a result of the classic work of Hofstede (1980). National culture has beenshown to impact on major business activities, from capital structure (Chui et al., 2002) togroup performance (Gibson, 1999). For reviews, see Boyacigiller and Adler (1991) andEarley and Gibson (2002).

A schematic summary of the various aspects of the cultural dichotomies are given below which

suggests that the topics reviewed are loosely related, and that their juxtaposition in the


3/17


present paper represents our attempt to highlight their importance rather than their coherenceas elements of an integrative framework.

Section Focus Key conceptual question Key implication of IBresearch

Cultural convergence and Are cultures becoming more similar Whether standard business practiceDivergence under the force of globalization? will emerge

Cultural change What are the dynamics of cultural How will business practices changeChange? over time?

Novel constructs of culture What is new about culture? New concepts for understanding culturalDifferences in business practices.

Moderating effects of culture When is culture important? When to adopt standard business practicesExperimental approaches How to test the effects of culture Casual inferences about the effects of

Experimentally? Culture on standard business practice

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

An issue of considerable theoretical significance is concerned with cultural changes andtransformations taking place in different parts of the world. In fact, since the landmark studyof Haire et al. (1966) and the publication of Industrialism and Industrial Man by Kerr et al.(1960), researchers have continued to search for similarities in culture-specific beliefs and

attitudes in various aspects of work related attitudes and behaviours, consumption patterns,and the like. If cultures of the various locales of the world are indeed converging (e.g., Heueret al., 1999), IB-related practices would indeed become increasingly similar. Standard,

culture-free business practices would eventually emerge, and inefficiencies and complexitiesassociated with divergent beliefs and practices in the past era would disappear.

2. Evolution of partial globalization

International trade has culminated in the emergence of a global economy, consisting of flows

of information, technology, money, and people, and is conducted via government internationalorganizations such as the North American Free Trade Agreement (NAFTA) and the EuropeanCommunity; global organizations such as the International Organization for Standardization

(ISO); multinational companies (MNCs); and cross border alliances in the form of jointventures, international mergers, and acquisitions. These inter relationships have enhancedparticipation in the world economy, and have become a key to domestic economic growth andprosperity (Drucker, 1995, 153). Universal culture often refers to the assumptions, values,and practices of people in the West and some elites in non-Western cultures. Huntington

(1996) suggested that it originates from the intellectual elites from a selected group ofcountries who meet annually in the World Economic Forum in Davos, Switzerland. These

individuals are highly educated, work with symbols and numbers, are fluent in English, areextensively involved with international commitments, and travel frequently outside theircountry. They share the cultural value of individualism, and believe strongly in marketeconomics and political democracy. Although those belonging to the Davos group control

virtually all of the worlds important international institutions, many of the worldsgovernments, and a great majority of the worlds economic and military capabilities, thecultural values of the Davos group are probably embraced by only a small fraction of the six

billion people of the world.


4/17


Popular culture, again mostly Western European and American in origin, also contributes to aconvergence of consumption patterns and leisure activities around the world. However, theconvergence may be superficial, and have only a small influence on fundamental issues suchas beliefs, norms, and ideas about how individuals, groups, institutions, and other importantsocial agencies ought to function. In fact, Huntington (1996, 58) noted that The essence of

Western civilization is the Magna Carta, not the Magna Mac. The fact that non-Westerners may

bite into the latter has no implications for their accepting the former. This argument isobvious if we reverse the typical situation and put Western Europeans and Americans in the

shoes of recipients of cultural influence. A major argument against cultural convergence is thattraditionalism and modernity may be unrelated (Smith and Bond, 1998). Strong traditionalvalues, such as group solidarity, interpersonal harmony, paternalism, and feminism, can co-

exist with modern values of individual achievement and competition.

We explore in the following the roles of several factors that simultaneously cause cultures of

the world to either converge or diverge, in an attempt to identify several productive avenuesfor future research.

3. Role of multiculturalism and cultural identity

The broad ideological framework of a country, corporation, or situation is the most importantdeterminant of the cultural identity that people develop in a given locale (Triandis, 1994). The melting pot ideology suggests that each cultural group loses some of its dominant

characteristics in order to become the mainstream: this is assimilation, or what Triandis(1994) calls subtractive multiculturalism.

In contrast, when people from a cultural group add appropriate skills and characteristics ofother groups, it may be called integration, or additive multiculturalism. Both of theseprocesses are essential for cultural convergence to proceed. However, if there is a significant

history of conflict between the cultural groups, it is hard to initiate these processes, as in thecase of Israelis and Palestinians. The issues of cultural identity and emotional reactions to

other cultural groups in an IB context constitute a significant gap in our research effort in thisarea.

4. Implications of convergence and divergence issues

Convergence in some domains of IB activity is easily noticeable, especially in consumer valuesand lifestyles, significant divergence of cultures persists. In fact, Hofstede (2001) asserts thatmental programs of people around the world do not change rapidly, but remain ratherconsistent over time. His findings indicate that cultural shifts are relative as opposed toabsolute. Huntington, in his The Clash of Civilizations (1996), presents the view that there is

indeed a resurgence of non-Western cultures around the world, which could result in theredistribution of national power in the conduct of international affairs. The attempt by the

Davos group to bring about uniform practices in various aspects of IB and work culture,thereby sustaining the forces of globalization, is certainly worthwhile. However, there is noguarantee that such convergence will come about easily, or without long periods of resistance.

Although some countries might exhibit strong tendencies toward cultural convergence, thereare countries that will reject globalization, not only because of its adverse economic impacts(Greider, 1997) but also because globalization tends to introduce distortions (in their view) in

profound cultural syndromes that characterize their national character.


5/17


The issue of convergence and divergence in this era of partial globalization will remain as apersistent and complex issue whose direction might only be assessed on a region-by-regionbasis. It is also wise to adopt an interdisciplinary perspective in understanding the forces thatcreate both convergence and divergence of cultures in different parts of the world.

5. Processes of cultural changes

In line with the view of Hofstede (2001) that culture changes very slowly, culture has beentreated as a relatively stable characteristic, reflecting a shared knowledge structure thatattenuates variability in values, behavioural norms, and patterns of behaviours (Erez and

Earley, 1993). Cultural stability helps to reduce ambiguity, and leads to more control overexpected behavioural outcomes (Weick and Quinn, 1999; Leana and Barry, 2000). Forinstance, most existing models of culture and work behaviour assume cultural stability and

emphasize the fit between a given culture and certain managerial and motivational practices(Erez and Earley, 1993). High fit means high adaptation of managerial practices to a givenculture and, therefore, high effectiveness. The assumption of cultural stability is valid as longas there are no environmental changes that precipitate adaptation and cultural change. Yet,

the end of the 20th century and the beginning of the new millennium have been characterizedby turbulent political and economical changes, which instigate cultural changes. In line withthis argument, Lewin and Kim (2004), in their comprehensive chapter on adaptation andselection in strategy and change, distinguished between theories driven by the underlying

assumption that adaptation is the mechanism to cope with change, and theories driven by theunderlying assumption of selection and the survival of the fittest, suggesting that ineffectiveforms of organization disappear, and new forms emerge. However, although organizational

changes as a reaction to environmental changes have been subjected to considerableconceptual analyses, the issue of cultural change at the national level has rarely beenaddressed.

There are relatively few theories of culture that pertain to the dynamic aspect of culture. One

exception is the eco-cultural model by Berry et al. (2002), which views culture as evolvingadaptations to ecological and socio-political influences, and views individual psychologicalcharacteristics in a population as adaptive to their cultural context, as well as to the broaderecological and socio-political influences. Similarly, Kitayama (2002) proposes a system view tounderstanding the dynamic nature of culture, as opposed to the entity view that sees cultureas a static entity. This system view suggests that each persons psychological processes areorganized through the active effort to coordinate ones behaviours with the pertinent culturalsystems of practices and public meanings. Yet, concurrently, many aspects of thepsychological systems develop rather flexibly as they are attuned to the surrounding socio-cultural environment, and are likely to be configured in different ways across different socio-

cultural groups.

These adaptive views of culture are supported by empirical evidence. For example, Van deVliert et al. (1999) identified curvilinear relationships between temperature, masculinity anddomestic political violence across 53 countries. Their findings showed that masculinity anddomestic violence are higher in moderately warm countries than in countries with extreme

temperatures. Inglehart and Baker (2000) examined cultural change as reflected by changesin basic values in three waves of the World Values Surveys, which included 65 societies and

75% of the worlds population. Their analysis showed that economic development was

associated with shifts away from traditional norms and values toward values that are


6/17


increasingly rational, tolerant, trusting, and participatory. However, the data also showed thatthe broad cultural heritage of a society, whether it is Protestant, Roman Catholic, Orthodox,Confucian, or Communist, leaves an enduring imprint on traditional values despite the forcesof modernization.

The process of globalization described before has introduced the most significant change in IB,

with its effects filtering down to the national, organizational, group and individual levels.Reciprocally, changes at micro-levels of culture, when shared by the members of the society,

culminate into macro level phenomena and change the macro-levels of culture. In the absenceof research models that can shed light on this complex process of cultural change, Erez andGati (2004) proposed that the general model of multi-level analysis (Klein and Kozlowski,

2000) could be adopted for understanding the dynamics of culture and cultural change.

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

The proposed model consists of two building blocks. One is a multi-level approach, viewingculture as a multi-level construct that consists of various levels nested within each other fromthe most macro-level of a global culture, through national cultures, organizational cultures,

group cultures, and cultural values that are represented in the self at the individual level, asportrayed in Figure 2.1. The second is based on Scheins (1992) model viewing culture as amulti layer construct consisting of the most external layer of observed artefacts andbehaviours, the deeper level of values, which is testable by social consensus, and the deepest

level of basic assumption, which is invisible and taken for granted. The present modelproposes that culture as a multi layer construct exists at all levels from the global to theindividual and that at each level change first occurs at the most external layer of behaviour,

and then, when shared by individuals who belong to the same cultural context, it becomes ashared value that characterizes the aggregated unit (group, organizations, or nations).

In the model, the most macro-level is that of a global culture being created by global networksand global institutions that cross national and cultural borders. As exemplified by the effort of

the Davos group discussed earlier, global organizational structures need to adopt commonrules and procedures in order to have a common language for communicating across culturalborders (Kostova, 1999; Kostova and Roth, 2003; Gupta and Govindarajan, 2000).

Figure 2.1: The dynamic of top-downbottom-up processes acrosslevels of culture.
http://resources.smude.edu.in/slm/wp-content/uploads/2009/06/clip-image00457.gif


7/17


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

Below the global level are nested organizations and networks at the national level with their

local cultures varying from one nation or network to another. Further down are localorganizations, and although all of them share some common values of their national culture,

they vary in their local organizational cultures, which are also shaped by the type of industrythat they represent, the type of ownership, the values of the founders, etc. Within eachorganization are sub-units and groups that share the common national and organizational

culture, but that differ from each other in their unit culture on the basis of the differences intheir functions (e.g., R&D vs manufacturing), their leaders values, and the professional andeducational level of their members. At the bottom of this structure are individuals who through

the process of socialization acquire the cultural values transmitted to them from higher levelsof culture. Individuals who belong to the same group share the same values that differentiatethem from other groups and create a group level culture through a bottom-up process ofaggregation of shared values. Both top-down and bottom-up processes reflect the dynamic

nature of culture, and explain how culture at different levels is being shaped and reshaped bychanges that occur at other levels, either above it through top-down processes or below itthrough bottom-up processes. Similarly, changes at each level affect lower levels through atop-down process, and upper levels through a bottom-up process of aggregation. The changes

in national cultures observed by Inglehart and Baker (2000) could serve as an example fortop-down effects of economic growth, enhanced by globalization, on a cultural shift fromtraditional values to modernization. However, in line with Schein (1992), the deep basic

assumptions still reflect the traditional values shaped by the broad cultural heritage of asociety.

Global organizations and networks are being formed by having local-level organizations jointhe global arena. That means that there is a continuous reciprocal process of shaping and

reshaping organizations at both levels. For example, multinational companies that operate inthe global market develop common rules and cultural values that enable them to create asynergy between the various regions, and different parts of the multinational company. Theseglobal rules and values filter down to the local organizations that constitute the globalcompany, and, over time, they shape the local organizations. Reciprocally, having localorganizations join a global company may introduce changes into the global company becauseof its need to function effectively across different cultural boarders. A study by Erez-Rein et al.(2004) demonstrated how a multinational company that acquired an Israeli company thatdevelops and produces medical instruments changed the organizational culture of the acquiredcompany. The study identified a cultural gap between the two companies, with the Israeli

company being higher on the cultural dimension of innovation and lower on the culturaldimension of attention to detail and conformity to rules and standards as compared with the

acquiring company. The latter insisted on sending the Israeli managers to intensive courses inSix Sigma, which is an advanced method of quality improvement, and a managerialphilosophy that encompasses all organizational functions. Upon returning to their company,these managers introduced quality improvement work methods and procedures to the local

company, and caused behavioural changes, followed by the internalization of quality oriented values. Thus, a top-down process of training and education led to changes in workbehaviour and work values. Sharing common behaviours and values by all employees of the

local company then shaped the organizational culture through bottomup processes. The case


8/17


of cultural change via international acquisitions demonstrated the two building blocks of ourdynamic model of culture: the multi-level structure explains how a lower-level culture is beingshaped by top-down effects, and that the cultural layer that changes first is the most externallayer of behaviour. In the long run, bottom up processes of shared behaviours and normsshape the local organizational culture.

7. Factors that facilitate cultural change

Culture itself influences the level of resistance or acceptance of change. Harzing and Hofstede(1996) proposed that certain cultural values facilitate change, whereas others hinder it. Thevalues of low power distance, low uncertainty avoidance, and individualism facilitate change.

Change threatens stability, and introduces uncertainty, and resistance to change will thereforebe higher in cultures of high rather than low uncertainty avoidance (Steensma et al., 2000).Change also threatens the power structure, and therefore will be avoided in high power

distance cultures. Finally, change breaks the existing harmony, which is highly valued incollectivistic cultures, and therefore will not be easily accepted by collectivists (Levine andNorenzayan, 1999).

A recent study by Erez and Gati (2004) examined the effects of three factors on the changeprocess and its outcomes: the cultural value of individualism collectivism; the reward structure and its congruence with the underlying cultural values; and

the degree of ambiguity in the reward structure.

The change process examined was a shift from choosing to work alone to a behavioural choice

of working as part of a team, and vice versa. Working alone is more prevalent in individualisticcultures, whereas working in teams dominates the collectivistic ones.

8. Understanding when culture matters: increasing the precision of cultural models

Beyond exploring new cultural constructs and the dynamic nature of culture, we also argue forthe importance of examining contingency factors that enhance or mitigate the effect ofnational culture. Consider the following scenario. A senior human resource manager in amultinational firm is charged with implementing an integrative training program in several of

the firms subsidiaries around the globe. Over the term of her career, the manager has beeneducated about differences in national culture and is sensitive to intercultural opportunitiesand challenges. At the same time, she understands the strategic need to create a unified

global program that serves to further integrate the firms basic processes, creating efficienciesand synergies across the remote sites. She approaches the implementation with trepidation. Akey challenge is to determine whether the program should be implemented in the same

manner in each subsidiary or modified according to the local culture at each site. Put anotherway, in this complex circumstance, does culture matter?

Q.3. a. Explain the brief structure of WTO. (5 marks)

Ans. Structure of World Trade Organization (WTO)The WTOs overriding objective is to help trade flow smoothly, freely, fairly and predictably.It does this by:

Administering trade agreements


9/17


Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues, through technical assistance and

training programs

Cooperating with other international organizations

Structure

The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 othersare negotiating membership.

Decisions are made by the entire membership. This is typically by consensus. A majority voteis also possible but it has never been used in the WTO, and was extremely rare under the

WTOs predecessor, GATT. The WTOs agreements have been ratified in all membersparliaments.

The WTOs top level decision-making body is the Ministerial Conference which meets atleast once every two years.

Below this is the General Council (normally ambassadors and heads of delegation in Geneva,but sometimes officials sent from members capitals) which meets several times a year in theGeneva headquarters. The General Council also meets as the Trade Policy Review Body andthe Dispute Settlement Body.

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

Numerous specialized committees, working groups and working parties deal with theindividual agreements and other areas such as the environment, development, membershipapplications and regional trade agreements.

Secretariat

The WTO Secretariat, based in Geneva, has around 600 staff and is headed by a director-general. Its annual budget is roughly 160 million Swiss francs. It does not have branch officesoutside Geneva. Since decisions are taken by the members themselves, the Secretariat doesnot have the decision-making role that other international bureaucracies are given with. The

Secretariats main duties are to supply technical support for the various councils andcommittees and the ministerial conferences, to provide technical assistance for developingcountries, to analyze world trade, and to explain WTO affairs to the public and media.

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

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

governments.

The WTO is run by its member governments. All major decisions are made by the membershipas a whole, either by ministers (who meet at least once every two years) or by their

ambassadors or delegates (who meet regularly in Geneva). Decisions are normally taken byconsensus.


10/17


In this respect, the WTO is different from some other international organizations such as theWorld Bank and International Monetary Fund. In the WTO, power is not delegated to a boardof directors or the organizations head.

When WTO rules impose disciplines on countries policies, that is the outcome of negotiations

among WTO members, the rules are enforced by the members themselves under agreed

procedures that they negotiated, including the possibility of trade sanctions. But thosesanctions are imposed by member countries, and authorized by the membership as a whole.

This is quite different from other agencies whose bureaucracies can, for example, influence acountrys policy by threatening to withhold credit.Reaching decisions by consensus among some 150 members can be difficult. Its main

advantage is that decisions made this way are more acceptable to all members. And despitethe difficulty, some remarkable agreements have been reached. Nevertheless, proposals forthe creation of a smaller executive body perhaps like a board of directors each representing

different groups of countries are heard periodically. But for now, the WTO is a member-driven, consensus-based organization.

Highest authority: the Ministerial Conference

So, the WTO belongs to its members. The countries make their decisions through variouscouncils and committees, whose membership consists of all WTO members. Topmost is theministerial conference which has to meet at least once every two years. The Ministerial

Conference can take decisions on all matters under any of the multilateral trade agreements.

Second level: General Council in three guises

Day-to-day work in between the ministerial conferences is handled by three bodies: The General Council

The Dispute Settlement Body The Trade Policy Review Body

All three are in fact the same the Agreement Establishing the WTO states they are all theGeneral Council, although they meet under different terms of reference. Again, all threeconsist of all WTO members. They report to the Ministerial Conference.The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It meetsas the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures forsettling disputes between members and to analyze members trade policies.

Third level: councils for each broad area of trade, and more back to top

Three more councils, each handling a different broad area of trade, report to the GeneralCouncil:

The Council for Trade in Goods (Goods Council) The Council for Trade in Services (Services Council) The Council for Trade Related Aspects of Intellectual Property Rights (TRIPS Council)

As their names indicate, the three are responsible for the workings of the WTO agreementsdealing with their respective areas of trade. Again they consist of all WTO members. Thesethree also have the subsidiary bodies.
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org1_e.htm#top#tophttp://www.wto.org/english/thewto_e/whatis_e/tif_e/org1_e.htm#top#top


11/17


Six other bodies report to the General Council. The scope of their coverage is smaller, so theyare committees. But they still consist of all WTO members. They cover issues such as tradeand development, the environment, regional trading arrangements, and administrative issues.The Singapore Ministerial Conference in December 1996 decided to create new working groupsto look at investment and competition policy, transparency in government procurement, and

trade facilitation.

Two more subsidiary bodies dealing with the plural-lateral agreements (which are not signedby all WTO members) keep the General Council informed of their activities regularly.

Fourth level: down to the nitty-gritty

Each of the higher level councils has subsidiary bodies. The Goods Council has 11committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping measures and so on). Again, these consist of all member countries. Also reporting to

the Goods Council is the Textiles Monitoring Body, which consists of a chairman and 10members acting in their personal capacities, and groups dealing with notifications(governments informing the WTO about current and new policies or measures) and statetrading enterprises.

The Services Councils subsidiary bodies deal with financial services, domestic regulations,GATS rules and specific commitments.

At the General Council level, the Dispute Settlement Body also has two subsidiaries: thedispute settlement panels of experts appointed to adjudicate on unresolved disputes, andthe Appellate Body that deals with appeals.

Heads of Delegations and other boards: the need for informalityImportant breakthroughs are rarely made in formal meetings of these bodies, least of all in

the higher level councils. Since decisions are made by consensus, without voting, informalconsultations within the WTO play a vital role in bringing a vastly diverse membership round

to an agreement.

One step away from the formal meetings is informal meetings that still include the fullmembership, such as those of the Heads of Delegations (HOD). More difficult issues have tobe thrashed out in smaller groups. A common recent practice is for the chairperson of anegotiating group to attempt to forge a compromise by holding consultations with delegationsindividually, in twos or threes, or in groups of 20 30 of the most interested delegations.

These smaller meetings have to be handled sensitively. The key is to ensure that everyone iskept informed about what is going on (the process must be transparent) even if they are not

in a particular consultation or meeting, and that they have an opportunity to participate orprovide input (it must be inclusive).

One term has become controversial, but more among some outside observers than amongdelegations. The Green Room is a phrase taken from the informal name of the director -

generals conference room. It is used to refer to meetings of 20 40 delegations, usually at

the level of heads of delegations. These meetings can take place elsewhere, such as atMinisterial Conferences, and can be called by the minister chairing the conference as well asthe director-general. Similar smaller group consultations can be organized by the chairs of


12/17


committees negotiating individual subjects, although the term Green Room is not usually usedfor these.

In the past delegations have sometimes felt that Green Room meetings could lead tocompromises being struck behind their backs. So, extra efforts are made to ensure that the

process is handled correctly, with regular reports back to the full membership.

The way countries now negotiate has helped somewhat. In order to increase their bargainingpower, countries have formed coalitions. In some subjects such as agriculture virtually all

countries are members of at least one coalition and in many cases, several coalitions. Thismeans that all countries can be represented in the process if the coordinators and other keyplayers are present. The coordinators also take responsibility for both transparency and inclusiveness by keeping their coalitions informed and by taking the positions negotiatedwithin their alliances.

In the end, decisions have to be taken by all members and by consensus. The membership asa whole would resist attempts to impose the will of a small group. No one has been able tofind an alternative way of achieving consensus on difficult issues, because it is virtuallyimpossible for members to change their positions voluntarily in meetings of the full

membership.

Market access negotiations also involve small groups, but for a completely different reason.The final outcome is a multilateral package of individual countries commitments, but those

commitments are the result of numerous bilateral, informal bargaining sessions, which dependon individual countries interests. (Examples include the traditional tariff negotiations, andmarket access talks in services.)

So, informal consultations in various forms play a vital role in allowing consensus to bereached, but they do not appear in organization charts, precisely because they are informal.

They are not separate from the formal meetings, however. They are necessary for making

formal decisions in the councils and committees. Nor are the formal meetings unimportant.They are the forums for exchanging views, putting countries positions on the record, andultimately for confirming decisions. The art of achieving agreement among all WTO membersis to strike an appropriate balance, so that a breakthrough achieved among only a fewcountries can be acceptable to the rest of the membership.

b. Highlight the drawbacks of GATT. (5 marks)

Ans. Given its provisional nature and limited field of action, the success of GATT in promoting

and securing the liberalization of much of world trade over 47 years is incontestable. Continualreductions in tariffs alone helped spur very high rates of world trade growth around 8 per

cent a year on average during the 1950s and 1960s. And the momentum of tradeliberalization helped ensure that trade growth consistently out-paced production growththroughout the GATT era. The rush of new members during the Uruguay Round demonstratedthat the multilateral trading system, as then represented by GATT, was recognized as an

anchor for development and an instrument of economic and trade reform.

The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of

difficult times to come. GATTs success in reducing tariffs to such a low level, combined with a


13/17


series of economic recessions in the 1970s and early 1980s, drove governments to deviseother forms of protection for sectors facing increased overseas competition. High rates ofunemployment and constant factory closures led governments in Europe and North America toseek bilateral market-sharing arrangements with competitors and to embark on a subsidiesrace to maintain their holds on agricultural trade. Both these changes undermined the

credibility and effectiveness of GATT.

Apart from the deterioration in the trade policy environment, it also became apparent by theearly 1980s that the General Agreement was no longer as relevant to the realities of world

trade as it had been in the 1940s. For a start, world trade had become far more complex andimportant than 40 years before: the globalization of the world economy was underway,international investment was exploding and trade in services not covered by the rules of

GATT was of major interest to more and more countries and, at the same time, closely tiedto further increases in world merchandise trade. In other respects, the GATT had been foundwanting: for instance, with respect to agriculture where loopholes in the multilateral system

were heavily exploited and efforts at liberalizing agricultural trade met with little success and in the textiles and clothing sector where an exception to the normal disciplines of GATTwas negotiated in the form of the Multi-fibre Arrangement. Even the institutional structure ofGATT and its dispute settlement system were giving cause for concern.

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

Q.4. a. Give a short note on the regional economic integration. (5 marks)

Ans. Regional Economic IntegrationRegional integration can take many forms, and nowhere is this more evident than in the vastly

different integration processes taking place in the regions of Europe and East Asia. The subjectof this paper is regional integration as it has developed in East Asia with a focus on the drivers

of that integration. While the paper is not intended as a direct comparison of integration inEast Asia and Europe, it will include some comparisons between the two regions.

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

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

different. In Europe, the origins of integration have been institutional in nature, and thedevelopment of institutions has been prominent throughout the process. Thus, regionalinstitutions have been the driving force behind integration in Europe. In East Asia, thedevelopment of regional institutions has also occurred; however, progress in this area has

been slow and the few existing institutions are fairly weak and ineffective. Nevertheless,regional integration is taking place in East Asia, but the driving force is the market rather thanpolicy or institutions. Corporations and the production networks they have established are

driving integration in East Asia.


14/17


b. Mention the benefits of WTO. (5 marks)

Ans.

Ten Benefits of WTO

1. The system helps to keep the peace

2. The system allows disputes to be handled constructively3. A system based on rules rather than power makes life easier for all

4. Freer trade cuts the cost of living5. It gives consumers more choice and a broader range of qualities to choose from6. Trade raises incomes

7. Trade stimulates economic growth and that can be good news for employment8. The basic principles make the system economically more efficient, and they cut costs9. The system shields governments from narrow interests

10. The system encourages good government

Q. 5 a. Explain five-element product wave model. (7 marks)

Ans. The Five-Element Product Wave:The wave model employs design engineering, process engineering, product marketing,production, and end-of-life activities as elements. The first wave is associated with the "A"version of a product or service, and survives through the traditional PLC introduction and

growth phases. A second wave begins with the "B" version, the markedly improved secondmodel. It starts just before the traditional life cycle maturity stage and lives until sales declineto a point at which an EOL decision must be made.

Note that design engineering has a peak of activity level at each upgrade. Process engineeringactivity shadows that of design engineering, as system changes will be contemplated and

made to facilitate the changes made in the product or service. Product marketing also hasactivity level spikes that closely match engineering design activity, lagged somewhat for

product introduction. Production has one activity peak that results from demand managementand production planning through master production scheduling.

Finally, the EOL curve peaks at each redesign. The last wave begins shortly before originalproduction ceases and ends when the product is no longer manufactured or supported by theEOL Company or division. The EOL element requires that a decision be made about thepreceding version at each major redesign: continue production, make a short-term run ofspares, keep blueprints active so that parts can be made as ordered, enter into amanufacturing and support agreement with another entity, or discontinue production.In reality, there may be hundreds of significant redesigns. The wave effect comes from the

fact that the process repeats for the successful firm, forming swells in design engineering,process engineering, product marketing, and manufacturing curves before the final crest at

EOL activity.

The five-element product wave, or FPW, uses trigger points, rather than time, as the horizonover which the element curves vary. Changes in magnitude, represented by the vertical axis,

result from differing activity levels within the five elements. Simple changes in levels of dollaror unit product sales, in and of themselves, do not necessarily determine the trigger points.Rather, the varying activity levels are a direct result of product introductions and redesigns

that, from the outset, must take into account company strategy, core capabilities, and the


15/17


state of the competitive environment. For example, a product with strong sales may beredesigned in a pre-emptive strike against competitors, further distancing that product from

the competition, such as with Caterpillars innovative high-drive bulldozers.

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

recent research that suggests product introduction cycles are being compressed. Bayus (1994)

claims that knowledge is being applied faster, resulting in increasing levels of new productintroductions. Yet since product removals are not keeping pace with introductions, there are

an increasing number of product variations on the market. Slater (1993) observes thatproduct life cycles are growing shorter and shorter. Vesey (1992) reports that the strategy forthe 1990s is speed to market and discusses the pressures the market is exerting to shorten

product introduction lead times.

Regardless of whether life cycles are actually being compressed or knowledge is simply being

applied faster, it is apparent that firms are increasing the speed with which they bring theirproducts to market. The effect of this is a compression of the design engineering, processengineering, production, and product marketing elements of the wave model. (The EOL curvemay remain unchanged because accelerated introductions do not necessarily affect EOL

efforts.) The five-element wave clearly shows the inefficiency of traditional "over-the-wall"systems as speed to market increases. As the elements compress, more and more informationis thrown over the wall. Recipients find themselves with less and less time to take action.Taken to the extreme, in-baskets, phone lines, conference rooms, desks, and floors are soon

gridlocked and littered with unanswered correspondence and things to do. Forget quality;production itself grinds to a halt.

The solution is to maximize the advantage of the relationships within the five-element waveand work in concurrent teams, as illustrated in Figure 6. That way, responsibility is sharedthroughout the system. Members from each discipline optimize the system. The method tears

down barriers between departments and speeds the introduction process, thus decreasingcosts. The focal point becomes the customer, rather than the task. The system is totally

interactive and bound together. Each element is connected to all of the others and is focusedon the customer.

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

The strength of the five-element product wave is the fact that it illuminates critical decision

points in the life of a product or service. The interrelationships of the elements clearlyillustrate the benefit of working product introductions, design changes, and end-of-lifedecisions in teams. This is particularly true in todays rapidly compressing environment ofspeeding products to market. Furthermore, the model is flexible and may be expanded or

contracted to include those functional areas relevant to the production team. Thus, whether agiven firms product is a service or a manufactured good, the five-element wave is a powerfultool that can be deployed to accelerate effective decision making in markets demanding ever-

increasing levels of speed and agility.


16/17


b. What do you mean by globalization? (3 marks)

Ans. Economic "globalization" is a historical process, the result of human innovation andtechnological progress. It refers to the increasing integration of economies around the world,

particularly through trade and financial flows. The term sometimes also refers to the

movement of people (labor) and knowledge (technology) across international borders. Thereare also broader cultural, political and environmental dimensions of globalization that are not

covered here.

At its most basic, there is nothing mysterious about globalization. The term has come into

common usage since the 1980s, reflecting technological advances that have made it easierand quicker to complete international transactions both trade and financial flows. It refers toan extension beyond national borders of the same market forces that have operated for

centuries at all levels of human economic activity village markets, urban industries, orfinancial centers.

Markets promote efficiency through competition and the division of labor the specialization

that allows people and economies to focus on what they do best. Global markets offer greateropportunity for people to tap into more and larger markets around the world. It means thatthey can have access to more capital flows, technology, cheaper imports, and larger exportmarkets. But markets do not necessarily ensure that the benefits of increased efficiency are

shared by all. Countries must be prepared to embrace the policies needed, and in the case ofthe poorest countries may need the support of the international community as they do so.

Q. 6. Give some examples of companies doing international business and discusshow they have they have managed their business in the international markets. (10marks)

Ans. A PERSPECTIVE OF THE NORTHEN ISLAND SOFTWARE COMPANIES, RAPD MUP

Within six months of announcing it would invest $4.5 million to establish its new softwaredevelopment center in Northern Ireland, IMR was up and running with more than one-third itstarget staff.

"The fast start-up of the Belfast facility reaffirms our confidence to locate in Northern Ireland,"said Sanan. "The success to date in building a quality work force has surpassed ourexpectations and opens up new ambitions for our interests in Northern Ireland."According to Arthur "Bro" McFerran, president of IMR (NI) Ltd., the company is hiring 12 to 18programmers a month in Northern Ireland and is well on its way to meeting its staffing goal of

300 by 1999. McFerran credited Northern Irelands Training & Employment Agency (T&EA)with helping place the companys staffing on the fast track.

"The T&EA not only has helped us to identify and recruit qualified software graduates fromNorthern Irelands universities, it is also assisting us with a unique initiative to bring additionalsources of high quality talent to the company," McFerran said.

Innovation in TrainingImpressed by the number and quality of information technology graduates from the regionsuniversities, IMR recognized an untapped resource in the well-educated, versatile graduates of

other fields in Northern Ireland. Working with the T&EA, IMR developed "IMR Academy," an


17/17


intensive 20 week training program at Belfast Institute of Further andHigher Education, to expand the skills of qualified applicants who are not computer softwaregraduates, but who are equally well-educated in other disciplines and who have demonstratedaptitude for learning computer software programming.

Tom Scott of the T&EA said IMR applicants are assessed throughout the program and those

who successfully complete the course are awarded a National Computing Certificate and full-time employment with IMR. Approximately 40 trainees have already participated in the

program.

"IMR is extremely pleased with the T&EAs ability to design and deliver a training program

customized to our needs, and one that is delivering us an impressive pool of incrementalprogramming talent," McFerran said.

Smart and Available"The recent software investments by IMR and other companies provide a new opportunity forNorthern Irelands computer graduates," McFerrin said. Recruitment research by IMR indicates

that traditionally, nearly half of the regions computer graduates have been forced to seek jobs

outside Northern Ireland due to the lack of available information technology positions.Now IT graduates have the chance to find good jobs in Northern Ireland, and graduates fromother fields can take advantage of the IMR Academy training program to get a head start on acareer in the growing software sector.

McFerrin said. Recruitment research by IMR indicates that traditionally, nearly half of theregions computer graduates have been forced to seek jobs outside Northern Ireland due tothe lack of available information technology positions.

Competitive AdvantageNorthern Ireland recently has attracted information technology based investments from

other multinational companies such as BT, Fujitsu, Liberty Mutual Group, Seagate Technology,STB Systems and UniComp. These companies cite Northern Irelands work force and favorable

cost base in their decisions to locate in the region."The availability of high-quality graduates combined with the regions competitive operatingcosts and attractive incentives made Northern Ireland the best possible location for STB," saidRichard W. Cooke, STBs director of engineering operations.

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

Typical starting salaries for IT graduates in Northern Ireland are $22,000 to $25,000 annually.At less than three percent annually, Northern Irelands employee turnover rate is a fraction of

the rates typically experienced in other parts of Europe and the United States. Annual costsper square foot for office space, exclusive of property taxes and service charges, range fromas low as $5 per square foot in some development areas, to approximately $14 in Belfast.These costs can be as much as 50 percent lower than office space costs in other European

cities.

======

Mb0037 Int Bus Mgt

Documents

Transcript of Mb0037 Int Bus Mgt