INTERNATIONAL BUSINESS MANAGEMENT

MB0037

ASSIGNMENT-1

Q1. Are crises, as the recent recession of 2008 shows, the essential feature of
globalization?
Ans. After four years of average annual global real GDP growth of better than 4½
percent, recent data indicate that the pace of advance is slowing in the major
industrial countries, with the US economy on the verge of, and perhaps already
in, outright recession. So far, the evidence points to less of a slowdown in other
industrial countries, while most emerging-market economies appear likely to
maintain quite strong, albeit somewhat slower, growth.

Meanwhile, world consumer price inflation (on a 12-month basis) is up from

barely 2 percent seven years ago to nearly 5 percent as of February 2008.
Among both industrial (except for Japan) and major emerging-market countries,
inflation is now running at, or in most cases somewhat above, rates consistent
with policy objectives. Driven by persistently rising global demand, commodity
prices continue to surge upward across the board, especially measured in US
dollars but also in terms of the rapidly appreciating euro.

In this situation, the world economy really needs what is now forecast for
2008/2009: a significant slowing of economic growth, down to 3.8 percent (year
over year) in 2008 from 4.7 percent in 2007. This slowdown will be led by a
decline of demand growth in the US economy, which is both pronounced and
extends over a considerable period. Indeed, in view of the exceptionally
aggressive easing of macroeconomic policies already in place in the United
States and the likelihood of monetary policy remaining highly accommodative so
long as US financial markets remain under stress, it is now desirable that real
GDP growth for 2008 fall to a forecasted rate of barely more than 1 percent (year
over year)—an outcome consistent with a very mild and brief recession.
Reflecting some risk of a somewhat deeper and more prolonged recession in the
United States, the growth forecast for 2009 (year over year) is set at 2 percent.
For the rest of the world, a mild US recession in 2008 will have a modest
negative effect on real GDP growth, with more significant impacts in Mexico and
Canada. In countries where the slowdown threatens to become excessive and
inflation is under control, some easing of monetary and perhaps fiscal policy is
both likely and appropriate. More generally, however, it is too soon to call for a
general and significant easing of macroeconomic policies. A general slowdown in
global economic growth is needed to cool the clearly apparent upsurge in
worldwide inflation.

Some countries, including Australia, China, and Sweden, have recently tightened
monetary policies in efforts to forestall inflation. Other countries, including
Canada and the United Kingdom, have eased monetary policies modestly in
response to weakening economic growth. Quite appropriately, however, no
country has so far followed the lead of the Federal Reserve in aggressive
monetary easing.
As the custodian of the world's second most important currency, the policy of the
European Central Bank (ECB) is particularly noteworthy. Inflation in the euro
area is running more than a percentage point above the ECB's announced
objective. The euro area economy has recently been growing significantly more
rapidly than its potential rate of about 1½ percent. The unemployment rate has
fallen half a percentage point below the minimum reached in the last expansion.
Key monetary aggregates are surging at rates well above their desired target
ranges. In this situation, one would normally have expected the ECB to have
raised its key policy interest rate a further 100 basis points since last summer.

Instead, with financial turbulence spreading to some extent from the United
States to euro area financial markets and institutions, with evidence that euro

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area economies are beginning to slow, and with a sharp appreciation of the euro
against the dollar, which is likely to slow growth and impede inflation, the ECB
has wisely held back from further interest rate increases. With the euro area
economy now expected to expand by about 1½ percent this year (in line with
potential), the timing and direction of future adjustments in ECB interest rates
remain—appropriately—dependent upon the evolving balance of risks for
inflation and economic growth.

For Japan, the strengthening of the yen against the dollar in recent months and
weakening of exports to the United States, together with likely weakness in
domestic demand growth, suggest a further write-down in the forecast for real
GDP growth for 2008 to 1.2 percent (from 1¾ percent forecast last October). This
reflects the assumption that the surprising upsurge of GDP growth in the final
quarter of 2007 will be partly offset in the first half of this year.
For the industrial countries as a group, real GDP growth this year is now forecast
to be 1.5 percent, and growth for 2009 is projected to be moderately stronger at
about 1.9 percent.

In emerging-market economies, circumstances vary and so do appropriate

policies, but the general prospect is for continued quite strong economic growth,
despite the slowdown in the industrial countries.

Is this "decoupling?" Not really. Mexico, Caribbean and Central American

countries, and Asian economies that are particularly dependent on exports to the
United States are already feeling and will continue to feel the effects of the US
economic slowdown. More broadly, however, strong growth of domestic demand
in many emerging-market economies will sustain reasonably strong GDP growth,
and rising demand for raw materials by key emerging-market economies, most
importantly China, will help keep commodity prices strong and aid growth in other
emerging-market economies.

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Overall, I forecast that growth for developing and emerging-market economies as
a group this year will be about 6½ percent, down from almost a 7½ percent
advance in 2007. For 2009, I now project slightly slower growth. The slowdown
will be more severe, however, if growth in the industrial countries, especially the
United States, turns out to be meaningfully below the present forecast. Exports
from emerging-market countries would then be hit in volume terms, and prices of
commodity exports could take a serious tumble. Some developing countries,
especially among the primary commodity exporters, could face serious economic
challenges and potential crises.

On this occasion, Arvind Subramanian is available to share his expertise on

emerging-market economies, particularly in Asia and especially India.
Accordingly, I will limit my remarks on these economies to selected observations
on some key emerging-market countries. Then, in view of the departure from the
Institute of my colleague Martin Baily and the (at least) temporary absence of
Douglas Holtz-Eakin, I will turn to discuss growth prospects in the industrial
countries, especially the United States. This should provide background for
Morris Goldstein's more in-depth observations on the present financial crisis and
proposals for reform.

Sustained Growth in Emerging Markets

China's economy continues to surge forward, so much so that the authorities are
tightening policies to cool down inflation. Growth will likely slow from 11½ percent
last year to about 10 percent this year and next. On the policy front, the key
action that should be taken—but that the Chinese authorities have so far refused
—is a significant step appreciation of the renminbi against the dollar and in real
effective terms, combined with policies to stimulate domestic demand.

In the rest of emerging Asia, growth will likely moderate somewhat in 2008 and
2009 but stay above 6 percent, with India continuing to grow at nearly 8 percent.

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In Latin America, Mexico will suffer spillover effects from the slowing US
economy, and growth this year is likely to fall to about 2½ percent before
recovering modestly in 2009. In contrast, Brazil should be able to sustain growth
of nearly 5 percent, despite the strong appreciation of the real against the dollar.
Growth in Argentina and Venezuela is expected to slow from the high rates of
recent years, bringing down the growth rate for all of Latin America to about 4½
percent this year and slightly less in 2009.

For Central and Eastern Europe, weak growth in Hungary and Turkey hurt
regional performance in 2007 and partly offset strong results in Bulgaria, the
Czech Republic, Poland, and Slovakia. For 2008 and 2009, regional growth will
likely run about 4 percent, reflecting partly the impact of slower growth in
Western Europe.

In the Commonwealth of Independent States, the dominant Russian economy

should continue to grow at about 7 percent, and growth rates will likely remain
somewhat higher (on average) in the smaller economies.

For the Middle East, high oil prices will help keep growth strong in the energy-
exporting countries. The larger and more diversified economies of Egypt and
Israel should also maintain growth rates in the 5 percent range.
High commodity prices will continue to benefit many African countries, and
growth in the region appears likely to continue at least at a 5 percent rate.

Slowing in Other Industrial Countries

Among the industrial countries other than the United States, growth will slow
significantly from the 2¾ percent advance of 2007 to barely more than 1½
percent this year. However, aside from the United States, I see significant risk of
recession this year only in Japan and possibly Italy. The impact of the yen's
recent appreciation and weakening of exports to the United States, together with
deteriorating sentiment among Japanese businesses and consumers, could push

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GDP into a couple of quarters of negative growth, even if year-over-year growth
remains slightly positive. And the Japanese policy authorities have little room to
provide offsetting stimulus.

The second quarter may see moderation in the pace of decline of residential
investment, but the other elements of domestic demand are likely to remain
weak. Another quarter of modestly negative real GDP growth now seems to be
the most likely outcome. Whether this will be enough to persuade the National
Bureau of Economic Research (NBER) to proclaim an official recession is not
clear, but I would now put the likelihood of such a recession at over 50 percent.

By June, the tax cuts from the recently passed fiscal package will be flowing into
consumers pockets, bumping up consumer spending mainly in the third quarter.
Some, not unreasonable, forecasts suggest that the stimulus could induce as
much as a 5 percent annualized gain of real consumer spending in the third
quarter, implying a considerable temporary boost to GDP growth. My view is
more restrained, partly because I expect that businesses will absorb some of any
surge in consumption spending (particularly for durables) into reductions in
inventories.

On the other hand, businesses have kept inventories quite lean for the past three
years, and there is no indication of a general inventory overhang (aside from the
stockpile of unsold homes, which is not counted in business inventories). Sharp
declines of inventory investment into negative territory have been a feature of all
ten postwar recessions. It is a positive sign that the magnitude of any inventory
correction in the present episode appears likely to be limited.

In sum, the prospect is that with the benefit of the fiscal stimulus, the US
economy will bounce back to moderately positive growth this summer. By then
the massive contraction of residential investment, which began two years ago,
should be complete—with new home building running just below one million

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 units, less than half of its recent peak level. Growth of consumer spending is
likely to be weak after the effects of the stimulus are spent, but inventory
investment should bounce back, and net exports may be expected to continue to
make positive contributions to GDP growth. During the second half of 2008, it is
reasonable to expect growth to rebound to 2 to 3 percent.

The suggested pattern of modestly falling GDP in the first half and moderate
rebound in the second half implies that real GDP will show a very meager
advance of about one-half percent on a fourth-quarter-to-fourth-quarter basis.
Year-over-year real GDP growth would be barely more than 1 percent. In
comparison, in the 2001 recession—the mildest of the postwar era—fourth-
quarter-to-fourth-quarter growth was 0.4 percent and year-over-year growth was
0.8 percent.

The 2001 recession was followed by an initially weak recovery, with real GDP
growing at only a 1.7 percent rate during the six quarters after the official end of
recession, and with the unemployment rate continuing to rise to a peak of 6.3
percent in May 2003. On this occasion, I expect that the economy will remain
quite sluggish through 2009, with growth proceeding at about a 2 percent annual
rate. Weak growth of consumer spending in the face of significant losses of
household net worth associated with lower real home values will be the key
reason for this sluggishness.

Q2. Will culture be eroded in the wake of globalization?

Ans. The purpose of this Unit is to provide a state-of-the-art review of several recent
advances in culture and IB research, with an eye toward productive avenues for
future research. It is not our purpose to be comprehensive; our goal is to spotlight

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a few highly promising areas for leapfrogging the field in an increasingly
boundary-less business world. We first review the issues surrounding cultural
convergence and divergence, and the processes underlying cultural changes.
We then examine novel constructs for characterizing cultures, and how to
enhance the precision of cultural models by pinpointing when the effects of
culture are important. Finally, we examine the usefulness of experimental
methods, which are rarely employed in the field of culture and IB. A schematic
summary of our coverage is given in Table 2.1, which suggests that the topics
reviewed are loosely related, and that their juxtaposition in the present paper
represents our attempt to highlight their importance rather than their coherence
as elements of an integrative framework.

Cultural change, convergence and divergence in an era of partial

globalization
An issue of considerable theoretical significance is concerned with cultural
changes and transformations taking place in different parts of the world. In fact,
since the landmark study of 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., Heuer et al., 1999), IB-related practices would indeed become increasingly
similar. Standard, culture-free business practices would eventually emerge, and
inefficiencies and complexities associated with divergent beliefs and practices in
the past era would disappear. In the following section, we review the evidence on
the issue and conclude that such an outlook pertaining to the convergence of
various IB practices is overly optimistic.

Evolution of partial globalization

Globalization refers to a ‘growing economic interdependence among countries,
as reflected in the increased cross-border flow of three types of entities: goods

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and services, capital, and know-how’ (Govindarajan and Gupta, 2001, 4). Few
spoke of ‘world economy’ 25 years ago, and the prevalent term was ‘international
trade’ (Drucker, 1995). However today, 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 international organizations
such as the North American Free Trade Agreement (NAFTA) and the European
Community; global organizations such as the International Organization for
Standardization (ISO); multinational companies (MNCs); and cross – border
alliances in the form of joint ventures, international mergers, and acquisitions.
These inter – relationships have enhanced participation in the world economy,
and have become a key to domestic economic growth and prosperity.

Yet, globalization is not without its misgivings and discontents. A vivid image
associated with the G8 summits is the fervent protests against globalization in
many parts of the world, as shown in television and reported in the popular
media. Strong opposition to globalization usually originates from developing
countries that have been hurt by the destabilizing effects of globalization, but in
recent times we have also seen heated debates in Western economies triggered
by significant loss of professional jobs as a result of off shoring to low – wage
countries. Indeed, workers in manufacturing and farming in advanced economies
are becoming increasingly wary of globalization, as their income continues to
decline significantly. In parallel to the angry protests against globalization, the
flow of goods, services, and investments across national borders has continued
to fall after the rapid gains of the 1990s. Furthermore, the creation of regional
trade blocs, such as NAFTA, the European Union, and the Association of
Southeast Asian Nations, have stimulated discussions about creating other trade
zones involving countries in South Asia, Africa, and other parts of the world.
Although it is often assumed that countries belonging to the World Trade
Organization (WTO) have embraced globalization, the fact is that the world is
only partially globalized, at best .Many parts of Central Asia and Eastern Europe,
including the former republics of the Soviet Union, parts of Latin America, Africa,

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and parts of South Asia, have been sceptical of globalization (Greider, 1997). In
fact, less than 10% of the world’s population is fully globalized (i.e., being active
participants in the consumption of global products and services) (Schaeffer,
2003). Therefore, it is imperative that we analyze the issues of cultural
convergence and divergence in this partially globalized world.

‘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 of
countries 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, are extensively involved with international
commitments, and travel frequently outside their country. They share the cultural
value of individualism, and believe strongly in market economics and political
democracy. Although those belonging to the Davos group control virtually all of
the world’s important international institutions, many of the world’s governments,
and a great majority of the world’s economic and military capabilities, the cultural
values of the Davos group are probably embraced by only a small fraction of the
six billion people of the world.

Popular culture, again mostly Western European and American in origin, also
contributes to a convergence of consumption patterns and leisure activities
around the world. However, the convergence may be superficial, and have only a
small influence on fundamental issues such as beliefs, norms, and ideas about
how individuals, groups, institutions, and other important social 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 is obvious if we reverse the typical situation and put Western
Europeans and Americans in the shoes of recipients of cultural influence. For
instance, while Chinese Kung Fu dominates fight scenes in Hollywood movies

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such as Matrix Reloaded, and Chinese restaurants abound in the West, it seems
implausible that Americans and Europeans have espoused more Chinese values
because of their fondness of Chinese Kung Fu and food. A major argument
against cultural convergence is that traditionalism and modernity may be
unrelated (Smith and Bond, 1998). Strong traditional values, such as group
solidarity, interpersonal harmony, paternalism, and feminism, can co-exist with
modern values of individual achievement and competition. A case in point is the
findings that Chinese in Singapore and China indeed endorsed both traditional
and modern values (Chang et al., 2003; Zhang et al., 2003). It is also
conceivable that, just as we talk about Westernization of cultural values around
the world, we may also talk about Easternization of values in response to forces
of modernity and consumption values imposed by globalization (Marsella and
Choi, 1993).

Although the argument that the world is becoming one culture seems untenable,
there are some areas that do show signs of convergence. 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
avenues for future research.

Role of multiculturalism and cultural identity

The broad ideological framework of a country, corporation, or situation is the
most important determinant 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.

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In contrast, when people from a cultural group add appropriate skills and
characteristics of other groups, it may be called integration, or additive
multiculturalism. Both of these processes 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 the case of Israelis and
Palestinians. In general, although there has been some research on the typology
of animosity against other nations (e.g., Jung et al., 2002), we do not know much
about how emotional antagonism against other cultural groups affects trade
patterns and intercultural cooperation in a business context. 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 this area.

Implications of convergence and divergence issues

One message is clear: while convergence in some domains of IB activity is easily
noticeable, especially in consumer values and lifestyles, significant divergence of
cultures persists. In fact, Hofstede (2001) asserts that mental programs of people
around the world do not change rapidly, but remain rather consistent over time.
His findings indicate that cultural shifts are relative as opposed to absolute.
Although clusters of some countries in given geographical locales (e.g.,
Argentina, Brazil, Chile) might indicate significant culture shifts towards
embracing Anglo values, the changes do not diminish the absolute differences
between such countries and those of the Anglo countries (i.e., US, Canada, UK).
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 the redistribution 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, our analysis suggests that there is no guarantee
that such convergence will come about easily, or without long periods of
resistance.

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IB scholars need to understand that although some countries might exhibit strong
tendencies toward cultural convergence, as is found in Western countries, there
are 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.

Furthermore, reactions to globalization may take other forms. Bhagat et al.

(2003) have recently argued that adaptation is another approach that could
characterize the tendencies of some cultures in the face of mounting pressures
to globalize. Other approaches are rejection, creative synthesis, and innovation
(Bhagat et al., 2003). These different approaches highlight once again the
complex dynamics that underlie cultural convergence and divergence in a
partially globalized world. Also, in discussing issues of convergence and
divergence, it is necessary to recognize that the shift in values is not always from
Western society to others, but can result in the change of Western cultural values
as well. For example, the emphasis on quality and teamwork in the West is partly
a result of the popularity of Japanese management two decades ago.

Scholars of IB should recognize that the issue of convergence and divergence in

this era of partial globalization will remain as a persistent and complex issue
whose direction might only be assessed on a region-by-region basis. It is also
wise to adopt an interdisciplinary perspective in understanding the forces that
create both convergence and divergence of cultures in different parts of the
world. For instance, in Understanding Globalization, Schaeffer (2003) has
provided an insightful discussion of the social consequences of political,
economic and other changes, which have significant implications for IB. The
cause-effect relationships of globalization and its various outcomes, especially
the cultural outcomes, are not only characterized by bi-directional arrows, but are
embedded in a complex web of relationships. How these complex relationships

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and processes play out on the stage of IB remains to be uncovered by IB
researchers.

Processes of cultural changes

In the previous section, we make the point that, through the process of
globalization, cultures influence each other and change, but whether or not these
changes will bring about cultural convergence is yet to be seen. In this section,
we delineate a general model that describes and explains the complex processes
underlying cultural changes. As explained before, IB is both an agent and a
recipient of cultural change, and for international business to flourish it is
important to understand its complex, reciprocal relationships with cultural
change.

In line with the view of Hofstede (2001) that culture changes very slowly, culture
has been treated as a relatively stable characteristic, reflecting a shared
knowledge structure that attenuates variability in values, behavioral norms, and
patterns of behaviors (Erez and Earley, 1993). Cultural stability helps to reduce
ambiguity, and leads to more control over expected behavioural outcomes
(Weick and Quinn, 1999; Leana and Barry, 2000). For instance, 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 given culture and, therefore, high effectiveness. The assumption of cultural
stability is valid as long as 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 characterized by turbulent political
and economical changes, which instigate cultural changes. In line with this
argument, Lewin and Kim (2004), in their comprehensive chapter on adaptation
and selection 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 the underlying assumption of selection and the

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survival of the fittest, suggesting that ineffective forms of organization disappear,
and new forms emerge. However, although organizational changes as a reaction
to environmental changes have been subjected to considerable conceptual
analyses, the issue of cultural change at the national level has rarely been
addressed.

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 evolving adaptations to ecological and socio-political influences,
and views individual psychological characteristics in a population as adaptive to
their cultural context, as well as to the broader ecological and socio-political
influences. Similarly, Kitayama (2002) proposes a system view to understanding
the dynamic nature of culture, as opposed to the entity view that sees culture as
a static entity. This system view suggests that each person’s psychological
processes are organized through the active effort to coordinate one’s behaviours
with the pertinent cultural systems of practices and public meanings. Yet,
concurrently, many aspects of the psychological 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 de Vliert et al. (1999) identified curvilinear relationships between
temperature, masculinity and domestic political violence across 53 countries.
Their findings showed that masculinity and domestic violence are higher in
moderately warm countries than in countries with extreme temperatures.
Inglehart and Baker (2000) examined cultural change as reflected by changes in
basic values in three waves of the World Values Surveys, which included 65
societies and 75% of the world’s population. Their analysis showed that
economic development was associated with shifts away from traditional norms
and values toward values that are increasingly rational, tolerant, trusting, and
participatory. However, the data also showed that the broad cultural heritage of a

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 society, whether it is Protestant, Roman Catholic, Orthodox, Confucian, or
Communist, leaves an enduring imprint on traditional values despite the forces of
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.

Q3. ‘A world wide standardization is a major issue in the wake of globalization’

Discuss.
Ans. With start-ups going global earlier than ever before, companies are rethinking
management of their international operations. In particular, they are giving
special consideration to localization, the process of translating text and
reengineering software components of a particular product to operate in other
languages. As demand for localized products increases, everyone from
established multinational technology vendors, to consumer electronics
companies, and small start-ups are reviewing their internal product globalization
processes. They are finding that localization projects are fragmented and
dispersed throughout the organization and that activities are inconsistent,
unresponsive and unwieldy. As a result, international roll-outs are delayed, and
revenues are unpredictable. Overall globalization strategy should include a
repeatable globalization methodology, independent of target language that
becomes part of the product release cycle.

In fact, one software company estimates that today about 20 percent of all
computer documentation is now translated into 30 languages, but by 2005, the
figure will be 60 percent in 80 languages.

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As demand for localized products increases, everyone from established
multinational technology vendors, to consumer electronics companies, and small
start-ups are reviewing their internal product globalization processes.
They are finding that localization projects are fragmented and dispersed
throughout the organization and that activities are inconsistent, unresponsive and
unwieldy. As a result, international rollouts are delayed, and revenues are
unpredictable.

In the software industry, "simultaneous worldwide release" has become a mantra

to keep increasingly Internet-enabled consumers buying. In the recreational
products industry, companies want a "global brand" and position, regardless of
local eccentricities. Instituting a consistent, dependable localization methodology
is a sure-fire way to maintain high global standards for product introductions and
continued high levels of product service.

Whether outsourcing, vending, or managing the process internally, leading

companies are consolidating their previously disparate localization activities into
one coordinated process with a senior management sponsor. They are reaping
paybacks in lower costs, higher velocity, and sustainable quality.

Successful global companies have recognized the need for localized product
user interfaces. They know that the days are gone when Americans heavy
manufactured exports only needed their "on-off" switch translated into different
languages. With software and semiconductors permeating everything from PCs
to refrigerators to automobiles, companies must adopt more pervasive product
localization programs than ever before.

For instance, a 1998 sports utility vehicle has more computing power than the
original PC. As a result, dashboard displays, controls, brochures and the
traditional glove box material all constitute part of the "user interface." The
challenge for automotive manufacturers is to break the localization activities for

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each of these parts away from their production or functional operating groups,
and centralize localization in order to achieve consistent terminology and an even
"look and feel" for the product.

By internationalizing products at the design phase, companies can communicate

the need for consistent standardization to their R& D organization, development
partners, and subcontractors. Engineers can design everything from product
screens, to help files, and systems diagnostics to be double byte enabled in
order to accommodate the extra space needs of Asian characters. This will
ensure speedy product deployment for that "big Asian order" without expensive
and episodic internationalization campaigns.

Product globalization also includes every step in the sales channel. This means
that both hard copy and on-line versions of sales, dealer and service/support
materials will contribute to the "feel" of your corporation and reinforce the "ethic"
of your product. This attention also ensures consistent terminology, which
reinforces the verbal "identity" of the company, throughout the book-to-deliver
process. Since the purchase and delivery process constitutes an increasingly
large percentage of a product’s perceived value, a consistent channel experience
will directly affect product pricing leverage and after-sale customer satisfaction.

When a company decides to open a direct office or establish new market

segments, the worst case scenario is the discovery that its individual distributors
now "own" the localized version. Equally disconcerting is a localized product that
is undocumented, inconsistent and imprecise.

Distributors’ efforts are nearly always under-managed, which results in variations

from release to release, a tarnished image and uncoordinated release dates from
country to country. Altogether, these drawbacks will undermine a corporate
globalization focus. By centralizing localization activities, a company can avoid

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 the confusion that results when individual distributors try to localize a product on
a site-by-site basis.

Q4. How has WTO benefited economies? Discuss briefly

Ans.
 The system helps to keep the peace
This sounds like an exaggerated claim, and it would be wrong to make too much
of it. Nevertheless, the system does contribute to international peace, and if we
understand why, we have a clearer picture of what the system actually does.

Peace is partly an outcome of two of the most fundamental principles of the

trading system: helping trade to flow smoothly and providing countries with a
constructive and fair outlet for dealing with disputes over trade issues. It is also
an outcome of the international confidence and cooperation that the system
creates and reinforces.

History is littered with examples of trade disputes turning into war. One of the
most vivid is the trade war of the 1930s when countries competed to raise trade
barriers in order to protect domestic producers and retaliate against each others’
barriers. This worsened the Great Depression and eventually played a part in the
outbreak of World War 2.

Two developments immediately after the Second World War helped to avoid a
repeat of the pre-war trade tensions. In Europe, international cooperation
developed in coal, and in iron and steel. Globally, the General Agreement on
Tariffs and Trade (GATT) was created.

Both have proved successful, so much so that they are now considerably
expanded – one has become the European Union, the other the World Trade
Organization (WTO).

19
The WTO trading system plays a vital role in creating and reinforcing that
confidence. Particularly important are negotiations that lead to agreement by
consensus and a focus on abiding by the rules.

 The system allows disputes to be handled constructively

As trade expands in volume, in the number of products traded, and in the
numbers of countries and companies trading, there is a greater chance that
disputes will arise. The WTO system helps resolve these disputes peacefully and
constructively.

There could be a down side to trade liberalization and expansion. More trade
means more possibilities for disputes to arise. Left to themselves, those disputes
could lead to serious conflict. But in reality, a lot of international trade tension is
reduced because countries can turn to organizations, in particular the WTO, to
settle their trade disputes.

Before World War 2 that option was not available. After the war, the world’s
community of trading nations negotiated trade rules which are now entrusted to
the WTO. Those rules include an obligation for members to bring their disputes to
the WTO and not to act unilaterally.

When they bring disputes to the WTO, the WTO’s procedure focuses their
attention on the rules. Once a ruling has been made, countries concentrate on
trying to comply with the rules, and perhaps later renegotiating the rules – not on
declaring war on each other.

Around 300 disputes have been brought to the WTO since it was set up in 1995.
Without a means of tackling these constructively and harmoniously, some could
have led to more serious political conflict.

20
The fact that the disputes are based on WTO agreements means that there is a
clear basis for judging who is right or wrong. Once the judgment has been made,
the agreements provide the focus for any further actions that need to be taken.

The increasing number of disputes brought to GATT and its successor, the WTO,
does not reflect increasing tension in the world. Rather, it reflects the closer
economic ties throughout the world, the GATT/WTO’s expanding membership and
the fact that countries have faith in the system to solve their differences.

Sometimes the exchanges between the countries in conflict can be acrimonious,

but they always aim to conform to the agreements and commitments that they
themselves negotiated.

 A system based on rules rather than power makes life easier for
all
The WTO cannot claim to make all countries equal. But it does reduce some
inequalities, giving smaller countries more voice, and at the same time freeing the
major powers from the complexity of having to negotiate trade agreements with
each of their numerous trading partners

Decisions in the WTO are made by consensus. The WTO agreements were
negotiated by all members, were approved by consensus and were ratified in all
members’ parliaments. The agreements apply to everyone. Rich and poor
countries alike have an equal right to challenge each other in the WTO’s dispute
settlement procedures.

This makes life easier for all, in several different ways. Smaller countries can
enjoy some increased bargaining power. Without a multilateral regime such as the
21
WTO’s system, the more powerful countries would be freer to impose their will
unilaterally on their smaller trading partners. Smaller countries would have to deal
with each of the major economic powers individually, and would be much less
able to resist unwanted pressure.

In addition, smaller countries can perform more effectively if they make use of the
opportunities to form alliances and to pool resources. Several are already doing
this.

There are matching benefits for larger countries. The major economic powers can
use the single forum of the WTO to negotiate with all or most of their trading
partners at the same time. This makes life much simpler for the bigger trading
countries. The alternative would be continuous and complicated bilateral
negotiations with dozens of countries simultaneously. And each country could end
up with different conditions for trading with each of its trading partners, making life
extremely complicated for its importers and exporters.

The principle of non-discrimination built into the WTO agreements avoids that
complexity. The fact that there is a single set of rules applying to all members
greatly simplifies the entire trade regime.

And these agreed rules give governments a clearer view of which trade policies
are acceptable.

 Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our
necessities and luxuries, and everything else in between, are affected by trade
policies.

Protectionism is expensive: it raises prices. The WTO’s global system lowers

trade barriers through negotiation and applies the principle of non-discrimination.
22
The result is reduced costs of production (because imports used in production are
cheaper) and reduced prices of finished goods and services, and ultimately a
lower cost of living.

 It gives consumers more choice and a broader range of qualities to

choose from
Think of all the things we can now have because we can import them: fruits and
vegetables out of season, foods, clothing and other products that used to be
considered exotic, cut flowers from any part of the world, all sorts of household
goods, books, music, movies, and so on.

Think also of the things people in other countries can have because they buy
exports from us and elsewhere. Look around and consider all the things that
would disappear if all our imports were taken away from us. Imports allow us more
choice – both more goods and services to choose from, and a wider range of
qualities. Even the quality of locally – produced goods can improve because of the
competition from imports.

The wider choice isn’t simply a question of consumers buying foreign finished
products. Imports are used as materials, components and equipment for local
production.

This expands the range of final products and services that are made by domestic
producers, and it increases the range of technologies they can use. When mobile
telephone equipment became available, services sprang up even in the countries
that did not make the equipment, for example.

Sometimes, the success of an imported product or service on the domestic

market can also encourage new local producers to compete, increasing the
choice of brands available to consumers as well as increasing the range of goods
and services produced locally.
23
If trade allows us to import more, it also allows others to buy more of our exports.
It increases our incomes, providing us with the means of enjoying the increased
choice.

 Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes – national
incomes and personal incomes. But some adjustment is necessary.

The WTO’s own estimates for the impact of the 1994 Uruguay Round trade deal
were between $109 billion and $510 billion added to world income (depending on
the assumptions of the calculations and allowing for margins of error).

More recent research has produced similar figures. Economists estimate that
cutting trade barriers in agriculture, manufacturing and services by one third would
boost the world economy by $613 billion – equivalent to adding an economy the
size of Canada to the world economy.

In Europe, the EU Commission calculates that over 1989 – 93 EU incomes

increased by 1.1–1.5% more than they would have done without the Single
Market.

So trade clearly boosts incomes. Trade also poses challenges as domestic

producers face competition from imports. But the fact that there is additional
income means that resources are available for governments to redistribute the
benefits from those who gain the most – for example to help companies and
workers adapt by becoming more productive and competitive in what they were
already doing, or by switching to new activities.

 Trade stimulates economic growth and that can be good news for
employment
24
Trade clearly has the potential to create jobs. In practice there is often factual
evidence that lower trade barriers have been good for employment. But the
picture is complicated by a number of factors. Nevertheless, the alternative –
protectionism – is not the way to tackle employment problems.

This is a difficult subject to tackle in simple terms. There is strong evidence that
trade boosts economic growth, and that economic growth means more jobs. It is
also true that some jobs are lost even when trade is expanding. But a reliable
analysis of this poses at least two problems.

 The basic principles make the system economically more efficient,

and they cut costs
Many of the benefits of the trading system are more difficult to summarize in
numbers, but they are still important. They are the result of essential principles at
the heart of the system, and they make life simpler for the enterprises directly
involved in trade and for the producers of goods and services.

Trade allows a division of labour between countries. It allows resources to be

used more appropriately and effectively for production. But the WTO’s trading
system offers more than that. It helps to increase efficiency and to cut costs even
more because of important principles enshrined in the system.

Imagine a situation where each country sets different rules and different customs
duty rates for imports coming from different trading partners. Imagine that a
company in one country wants to import raw materials or components – copper
for wiring or printed circuit boards for electrical goods, for example – for its own
production.

It would not be enough for this company to look at the prices offered by suppliers
around the world. The company would also have to make separate calculations
about the different duty rates it would be charged on the imports (which would
25
 depend on where the imports came from), and it would have to study each of the
regulations that apply to products from each country. Buying some copper or
circuit boards would become very complicated.

 The system shields governments from narrow interests

The GATT – WTO system which evolved in the second half of the 20th Century
helps governments take a more balanced view of trade policy. Governments are
better–placed to defend themselves against lobbying from narrow interest groups
by focusing on trade–offs that are made in the interests of everyone in the
economy

One of the lessons of the protectionism that dominated the early decades of the
20th Century was the damage that can be caused if narrow sectoral interests gain
an unbalanced share of political influence. The result was increasingly restrictive
policy which turned into a trade war that no one won and everyone lost.

Superficially, restricting imports looks like an effective way of supporting an

economic sector. But it biases the economy against other sectors which shouldn’t
be penalized–if you protect your clothing industry, everyone else has to pay for
more expensive clothes, which puts pressure on wages in all sectors, for
example.

Protectionism can also escalate as other countries retaliate by raising their own
trade barriers. That’s exactly what happened in the 1920s and 30s with disastrous
effects. Even the sectors demanding protection ended up losing.
Governments need to be armed against pressure from narrow interest groups,
and the WTO system can help.

The GATT – WTO system covers a wide range of sectors. So, if during a GATT –
WTO trade negotiation one pressure group lobbies its government to be
considered as a special case in need of protection, the government can reject the
26
 protectionist pressure by arguing that it needs a broad-ranging agreement that will
benefit all sectors of the economy. Governments do just that, regularly.

 The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector of
trade, it is difficult to reverse. The rules also discourage a range of unwise
policies. For businesses, that means greater certainty and clarity about trading
conditions. For governments it can often mean good discipline.

The rules include commitments not to backslide into unwise policies.

Protectionism in general is unwise because of the damage it causes domestically
and internationally, as we have already seen.

Q5. Show your understanding of regional economic integration

Ans. Regional 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 subject of 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 in East 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 that the process has continued for decades. In fact, it could be said that
the process began centuries ago – even as far back as the 15th century. By
comparison, European integration has progressed steadily and has gradually
deepened over the last 50 years to reach an advanced 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 quite
dissimilar.

27
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 the development of institutions has been prominent
throughout the process. Thus, regional institutions have been the driving force
behind integration in Europe. In East Asia, the development 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
than policy or institutions. Corporations and the production networks they have
established are driving integration in East Asia.

Until 1917 the Grand Duchy of Finland enjoyed a privileged position as a

relatively advanced part of the Russian Empire, supplying metal products and
ships in exchange for agricultural goods. These ties collapsed, however, when
political tensions between the Bolshevik regime and the Finnish Republic
precluded commercial agreements. The interwar pattern was reversed in the
years following World War II, as reparations payments and barter trade grew into
a close trading relationship in which Finland exported industrial goods, especially
capital goods, in exchange for raw materials and fuels – an arrangement roughly
parallel to that which had existed before 1917.

Starting in the late 1950s, however, Finland broke away from its dependence on
the Soviet market, successfully opening its economy to the two West European
trading blocks, the European Economic Community (EEC – see Glossary) and
the European Free Trade Association (EFTA – see Glossary). Expanded trade
with the West did not imply renunciation of profitable exchanges with the East,
however, because Finnish commercial ties with the Soviet Union and with the
other members of the Council for Mutual Economic Assistance (CMEA, CEMA,
or Comecon – see Glossary) deepened after 1960. By the late 1980s, Finland
provided a unique example of a neutral country with a free-market economy that

28
 had developed increasing economic interdependence with both the market
economies of Western Europe and the planned economies of Eastern Europe.

Although many Western observers saw in Finnish foreign economic policy the
dominance of security concerns over economic interests, close inspection
revealed a mixture of motives. The guiding principles of postwar foreign policy –
Finland’s need to assure the Soviet Union that it did not have to fear threats from
(or through) Finnish territory as well as Finland’s practice of active neutrality –
influenced trade policies toward the East, especially in the immediate postwar
years. Such concerns blocked Finnish participation in the Marshall Plan and in
the Organization for European Economic Co-operation (OEEC), which was
established to coordinate the use of Marshall Plan aid Trade with the East also
served important economic interests, however, driving the rapid development of
the metalworking industries during the 1950s and helping to absorb labor
released from the modernizing farm sector. In the years after the 1973 oil crisis,
Finnish exports to the Soviet Union also provided an essential market at a time of
recession in Western markets. Commentators suggested that by the 1980s, the
Finns, less concerned with security than they had been in the early postwar
years, based policy decisions almost exclusively on market considerations.

Q6. Describe the current issues in globalization.

Ans. Nonfarm payrolls increased by 169,000 in March led by temporary and health
services, as well as federal employment related to the 2010 Census. The
Household Survey still was showing unemployment unchanged at 15 million, with
44% having been jobless for 27 weeks or more. The official rate of
unemployment remains at 9.7%.

The Bureau of Economic Analysis (BEA) early estimate that the GDP grew in Q4
of 2009 by 5.7% was, on February 26th, revised up to 5.9% and, as we expected,
revised down to 5.6% on March 26th. We expected it to be a much lower figure.
BEA admits that most of the increase was due to additional building of
29
inventories and deceleration of imports. My interview on Jan 31, 2010, with John
Williams, pre-eminent expert on deconstructing US official statistics at confirmed
my distrust of this revised Q4 2009 GDP-growth of 5.9%. Williams agrees with us
that "GDP is the worst quality information from the US government." The
inventory buildup accounts for over 3.6% of that 5.9% GDP-growth estimate;
1.5% as an over-statement of the Personal Consumption Expenditure which
GDP states as up by 2% and another 0.5% as related to the actual widening of
the overall trade deficit – even though BEA emphasized that the deceleration of
imports is accounted for as part of its rise of 5.9% in GDP. The non-farm payroll
jobs lost in February were 36,000, leaving the number of unemployed persons at
14.9 million and the official unemployment rate at 9.7%. Since the start of the
recession in December 2007, payroll jobs have fallen by 8.4 million. Discouraged
workers bring the total unemployment rate to approximately 16.8%. Many
economic reports indicate that the US recovery was illusory .I have long explored
the entire range of distortions that make GDP a perverse measure of US
progress, and TIME's article agrees, pointing to our Calvert-Henderson Quality of
Life Indicators and others including the United Nations Human Development
Index (HDI).

At last, better measures of human progress are gaining mainstream media

attention: the excellent Canadian Index of Wellbeing (CIW) at www.ciw.ca and
the new report by British researchers Richard Wilkinson and Kate Pickett linking
equality with quality of life within and across countries. They find that countries
with the most equal income distribution (by GINI) have the largest socially and
politically prosperous middle class while unequal countries do worse on most
quality of life indicators (www.equalitytrust.org.uk). The USA scores poorly and
confirms John Williams' and our view that a massive overhaul of GDP,
unemployment, inflation, money supply and other US statistics is now urgent if
we are to address the need for more jobs.

30
Why has the weak US recovery produced so few jobs? Companies, big and
small are not hiring, as January 2010's revised job losses of another 26,000 were
reported by the BLS, after December's revised losses of another 104,000. This
BLS "Establishment Survey" differed from the broader "Household Survey" which
recorded the civilian labor force dropped in January by 661,000, due to small
companies failing or unable to obtain financing, which the Establishment Survey
cannot detect. For 20 years, I have pointed to reasons the USA has experienced
"jobless growth" - rooted in the abstractions of macroeconomics theories and
methods. The faith in "free trade" has prevented government agencies from
making use of futurists' broader forecasting and planning methods used by most
global corporations. Their economic advisors' market fundamentalism warned
against "industrial policy" except for that covertly practiced by the Department of
Defense and activities in the name of "national security." Thus, the "hollowing
out" of US manufacturing has continued for two decades at the behest of global
corporations and their investment bankers. President Bush I famously held that it
did not matter whether the US manufactured computer chips or potato chips,
while President Bush II's chair of the Council of Economic Advisors, Gregory
Mankin, maintained that outsourcing was good for American workers who could
take their severance pay and 401Ks and become day traders on the stock
markets.

Add to these idiocies the stout denials by economists that increasing capital-
intensive technological change, automating manufacturing and services would
create the structural unemployment we see today. Conventional measures of
output per capita masked this technological unemployment as beneficial
"increases in productivity" for decades, as we have pointed out. Unfortunately,
Obama administration economic advisors are mostly steeped in conventional
theories and models which continue to serve Wall Street and corporate interests
at the expense of workers and individuals

31
Much of the US GDP increase in 2009 was due to "cash for clunkers" and the
$8,000 offered to first-time homebuyers. February 2010's job losses of another
36,000 kept the official unemployment rate 9.7%, still the highest since April
1983. Adding "discouraged" and "part-timers" still makes the total 16.8%.
Although the recession is deemed officially ended, any recovery will be fragile
until job creation picks up. This may not get big banks to step up lending to
domestic companies since they make more money with proprietary trading,
hoarding their bailout funds or sending them offshore. The good news of the
4th quarter’s GDP uptick must be seen in the context of four successive quarters
of negative growth. These numbers underline what most Americans have
experienced for the past years, along with the loss of over 8.4 million jobs since
December 2007. States facing their new fiscal year are wrestling with budget
shortfalls with California's at $24 billion, while Illinois and Arizona have much
smaller deficits. North Dakota still stars with continuing budget surpluses, as we
discuss later.

Trickle down economics of bailing out Wall Street is colliding with the bottom-up
demands of middle class voters for fairness, accountability and transparency. It's
about time for this debate and the deeper debate about whether money is more
important than the other forms of wealth that GDP counts and why Wall Street
doesn't count: human "capital," knowledge, ecological assets and productivity.
President Obama campaigned for recognition of these uncounted forms of wealth
and of the higher values of Americans: trust in each other and our institutions and
fairness in rewarding hard work in an economy designed to include opportunities
for a better future for all. Many new investors see these opportunities, as I
describe in "The New Financiers."

Now for the good news. The confluence of the financial meltdown and increasing
threats to climate stability are leading to much creativity by these new financiers
in devising new ways of investing in the needed global transition to a low carbon
"re-industrialization." The weakness of the Waxman-Markey energy bill passed in

32
the US Congress by 7 votes focused the critiques of its reliance on Wall Street-
centric cap and trade markets which have so far failed to reduce carbon
emissions.

This rapid deployment of solar, wind, geothermal, ocean power sources as well
as retro fitting for maximum energy efficiency over 10 years is projected to cost
$10 trillion. This can be covered by issuance of several classes of new assets:
long-bonds, zero coupon bonds, with hedging against the main risk:
Governments back-sliding on their greenhouse gas emissions targets under the
Kyoto Protocol. While this seems like a large sum, it is less than 10% of the $120
trillion in pension funds and other institutional portfolios. Since pension funds and
other government bonds focus on long maturities, they are ideally suited to
finance climate prosperity bonds out of the savings they will produce: from
energy efficiency and in reducing the cost of renewable energy (with free fuel
sources from the Earth) over the costs of fossil fuels (projected to keep slowly
rising). More good news is the collapse of gas prices due to the availability of gas
deposits in shale in the USA and other countries. This allows coal-fired power
plants to replace coal with cheaper natural gas for base loads as well as peak
power. Thus, many coal-fired plants may be retired and few will now be built.

Business leaders met in Copenhagen in May 2009 to address climate risks in

their companies' fossil-fueled processes and agreed that the opportunities in
shifting to a green, solar, wind, geothermal, ocean and energy-efficient global
economy were enormous. The 700 business leaders participating in the meeting
declared that immediate action would be cheaper than any further delays. While
193 governments failed to agree at the UN Conference in Climate in
Copenhagen in December 2009, investments in low-carbon technology sectors
continue to grow.

The key will be to keep pressure on governments to stop back-sliding and

pandering to the fossil-fueled industry sectors with toothless cap and trading

33
which will only make Wall Street players richer. Downsizing bloated financial
sectors will be imperative. Those on Wall Street and in London grew to 25% of
U.S. and U.K. GDP. An efficient financial sector should be less than 10% of a
country's GDP. Yet Washington has still to follow through with vital reforms, while
Britain's head of their Financial Services Authority agrees that financial sectors
must be downsized and recommended a tax on financial transactions. Debate is
growing that such a tax is the best way to assess Wall Street for its cleanup costs
– rather than taxpayers.

So today's GDP figures still force us to re-examine our rearview-mirror focus on

the costly past and reformulate statistics themselves which only measure money
transactions. They overlook the savings in shifting to the new green economy
and the vast riches in our society from energy-efficiency while ignoring the almost
50% of all productive work that is unpaid and therefore omitted from GDP. From
caring for our homes, children, the elderly and sick and volunteering in our
communities to exchanging and bartering goods and services, this vast unpaid
"love economy" is thriving and increasingly electronically traded on e-Bay,
Craigslist, Freecycle, time-banking and hundreds of other websites, flea markets
and on radio programs and via cell phones. My monograph with physicist Fritjof
Capra, "Qualitative Growth," published by Britain's Society of Chartered
Accountants and Tomorrow's Company, was launched in the House of Lords in
Britain's Parliament in November, 2009, co-sponsored by WWF, the World
Wildlife Fund.

President Obama's team includes Google CEO Eric Schmidt who understands
the transition to the green economy and sees all the new possibilities in this
explosion of internet and community trading such as Making Change Without
Money, the title of a new series of papers by Gwendolyn Hallsmith and Edgar
Cahn, both pioneer community organizers. I have been pointing to all these
alternatives to government-printed money as well as all the local currencies

34
helping to clear local markets: e.g., the Schumacher Society's Berkshares in
Massachusetts and time-based currencies based on Paul Glover's Ithaca Hours

China devised its own changes to GDP accounting to subtract pollution and
resource depletion (The Economist, "Greening of China," Oct 22, 2005, p. 43).
This "Green GDP" deducted 3% of environmental costs of the current GNP-
growth economic model according to a Task Force Interim Report (2007).
However, local officials still judged by GDP-growth managed to suspend the
Green GDP. As China's pollution is now visible on TV worldwide, after the
Olympic Games, we believe the Green GDP will be reinstated. The British
government report by Sir Nicholas Stern, the former chief economist of the World
Bank, states that stabilizing CO2 emissions at 550 parts per million could cost
one percent of global GDP growth and would prevent a likely global depression
and economic losses of from 5-20% of global GDP (Financial Times, Oct 20,
2006). China is moving rapidly to create its own green economy and is already
the world's largest producer of solar panels, a leader in wind power and has the
first plug-in hybrid car on sale now which will reach the US market in 2010
costing $22,000.

35
 INTERNATIONAL BUSINESS MANAGEMENT

MB0037

Assignment Set- 2

Q1. Describe briefly the exchange rate arrangements of developing and transition
countries.

Ans. There is considerable diversity in exchange rate regimens of developing &

transition countries from very hard currency pegs to relatively free floats & with
many variations in between. However as these countries have adapted to
expanding opportunities arising from deeper involvement in an increasing
integrated global economy & to change in their own economic situation. The
following conditions are likely to favour the adoption by a country of some form of
pegged exchange rate regime:

Its degree of involvement with international capital markets is low Its share of
trade with the country to whose currency a peg is being considered is high.
The economic shocks its faces are similar to those facing the country to whose
currency a peg is being considered.
It economy & financial system already extensively rely on its partners currency
Fiscal policy is flexible & sustainable

It has high international reserves

When these criteria are applied one group of countries for which pegged
exchange rates would seem to remain sensible are small economic with a
dominant trading partners that pursues a reasonably stable monetary policy
including small carribean & pacific Island economic for such countries. There is
generally little point in incurring the cost of attempting to run an independent
monetary policy.

36
 Under all exchange rate regimen other than absolutely free floating, ancillary
policy to affect the foreign exchange market through official intervention &
controls merit attention. The key point is that benign neglect of the exchange rate
is unlikely to be desirable. When the foreign exchange market is then dominated
by a relatively small number of agents, it is likely that the exchange rate will be
volatile if the authorities do not provide some guidance & support.

Q2. Write a note on bill of lading.

Ans. A bill of lading is a type of document that is used to acknowledge the receipts of
a shipment of goods & is an essential document in transporting goods overland
to the exporter international carriers. A bill of Lading involve the use of at least
two different modes of transport from road, rail, air & sea. The term drives from
the noun Bill a schedule of cost for services supplied or to be supplied & from the
verb to lade which means to load a cargo onto a ship or other form of transport.

A bill of lading indicates the particular vessel on which the goods have been
placed, their intended destination & the terms for transporting the shipment to its
final destination. Inland, ocean through airway bill are the name given to bill of
lading.

Q3. Discuss in brief the five major product strategies in international marketing
Ans. a. Product communications extension-This strategy is very low cost and
merely takes the same product and communication strategy into other markets.
However, it can be risky if misjudgments are made. For example, CPC
International believed the US consumer would take to dry soups, which dominate
the European market. It did not work.

b. Extended product – communications adaptation-If the product basically fits

the different needs or segments of a market it may need an adjustment in
marketing communications only. Again this is a low cost strategy, but different
37
 product functions have to be identified and a suitable communications mix
developed.

c. Product adaptation – communications extension: The product is adapted

to fit usage conditions but the communication stays the same. The assumption is
that the product will serve the same function in foreign markets under different
usage conditions.

d. Product adaptation–communications adaptation-: Both product and

communication strategies need attention to fit the peculiar need of the market.

e. Product invention-This needs a totally new idea to fit the exclusive conditions
of the market. This is very much a strategy which could be ideal in a Third World
situation. The development costs may be high, but the advantages are also very
high.

The choice of strategy will depend on the most appropriate product/market

analysis and is a function of the product itself defined in terms of the function or
need it serves, the market defined in terms of the conditions under which the
product is used, the preferences of the potential customers and the ability to buy
the product in question,

Q4. How was ‘protectionism’ practiced?

Ans. Protectionism is levying of additional tariffs or other protectionist measures by
other countries in retaliation, reduced competition (which results in inflation and
less choice for consumers), a weakening of the trade balance (due in part to
diminished export abilities resulting from foreign retaliations and in part because
of the domestic currency loses power as there is less demand for it). This may
lead to a vicious cycle of trade wars as each country responds to the other with a
"tit for tat."

38
Although trade generally benefits a country as a whole, powerful interests within
countries frequently put obstacles – i.e., they seek to inhibit free trade.

There are several ‘protectionism’ can be done:

a. Tariff barriers: A duty, or tax or fee, is put on products imported. This is
usually a percentage of the cost of the good.

b. Quotas: A country can export only a certain number of goods to the importing
country. For example, Mexico can export only a certain quantity of tomatoes to
the United States, and Asian countries can send only a certain quota of textiles
here.

c. "Voluntary" export restraints: These are not official quotas, but involve
agreements made by countries to limit the amount of goods they export to an
importing country. Such restraints are typically motivated by the desire to avoid
more stringent restrictions if the exporters do not agree to limit themselves. For
example, Japanese car manufacturers have agreed to limit the number of
automobiles they export to the United States.

d. Subsidies to domestic products: If the government supports domestic

producers of a product, these may end up with a cost advantage relative to
foreign producers who do not get this subsidy. U.S. honey manufacturers
receive such subsidies.

e. Non-tariff barriers, such as differential standards in testing foreign and

domestic products for safety, disclosure of less information to foreign
manufacturers needed to get products approved, slow processing of imports at
ports of entry, or arbitrary laws which favour domestic manufacturers.

Justifications for protectionism:

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Several justifications have been made for the practice of protectionism. Some
appear to hold more merit than others:

a. Protection of an "infant" industry: Costs are often higher, and quality lower,
when an industry first gets started in a country, and it thus be very difficult
for that country to compete. However, as the industry in the country
matures, it may be better able to compute. Thus, for example, some
countries have attempted to protect their domestic computer markets
while they gained strength. The U.S. attempted to protect its market for
small autos. American manufacturers were caught unprepared for the
switch in demand away from the larger cars. This is generally an accepted
reason in trade agreements, but the duration of this protection must be
limited (e.g., a maximum of five to ten years).

b. Resistance to unfair foreign competition: The U.S. sugar industry contends

that most foreign manufacturers subsidize their sugar production, so the
U.S. must follow to remain competitive. This argument will hold little merit
with the dispute resolution mechanism available through the World Trade
Organization.

c. Preservation of a vital domestic industry: The U.S. wants to be able to

produce its own defence products, even if foreign imports would be
cheaper, since the U.S. does not want to be dependent on foreign
manufacturers with whose countries conflicts may arise. Similarly, Japan
would prefer to be able to produce its own food supply despite its
exorbitant costs. For an industry essential to national security, this may be
a compelling argument, but it is often used for less compelling ones (e.g.,
manufactures of funeral caskets or honey).

d. Intervention into a temporary trade balance: A country may want to try to

reverse a temporary decline in trade balances by limiting imports. In

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 practice, this does not work since such moves are typically met by
retaliation.

e. Maintenance of domestic living standards and preservation of jobs. Import

restrictions can temporarily protect domestic jobs, and can in the long run
protect specific jobs (e.g., those of auto makers, farmers, or steel
workers). This is less of an accepted argument – these workers should
instead by retrain to work in jobs where their country has a relative
advantage.

f. Retaliation: The proper way to address trade disputes is now through the
World Trade Organization. In the past, where enforcement was less
available, this might have been a reasonable argument.

Note that while protectionism generally hurts a country overall, it may be

beneficial to specific industries or other interest groups. Thus, while sugar price
supports are bad for consumers in general, producers are an organized group
that can exert a great deal of influence. In contrast, the individual consumer does
not have much of an incentive to take action to save

Q5. Describe some strategies adopted by McDonald to spread their chain worldwide.
Ans. McDonald may pursue business strategies that are home country – oriented or
host country – oriented or world – oriented.
Perlmutter uses such terms as ethnocentric, polycentric and geocentric.
However, "ethnocentric" is misleading because it focuses on race or ethnicity,
especially when the home country itself is populated by many different races,
whereas "polycentric" loses its meaning when the MNCs operate only in one or
two foreign countries.

According to Franklin Root (1994), an MNC is a parent company that

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a. engages in foreign production through its affiliates located in several
countries,
b. exercises direct control over the policies of its affiliates,
c. implements business strategies in production, marketing, finance and
staffing that transcend national boundaries.

Business strategy of a MNC can be analyzed with the help of Three Stages of
Evolution

1. Export stage
• initial inquiries - firms rely on export agents
• expansion of export sales
• further expansion - foreign sales branch or assembly operations (to save
transport cost)

1. Foreign Production Stage

There is a limit to foreign sales (tariffs, NTBs).Once the firm chooses foreign
production as a method of delivering goods to foreign markets, it must decide
whether to establish a foreign production subsidiary or license the technology to
a foreign firm.

Licensing is usually first experience (because it is easy)

• it does not require any capital expenditure
• it is not risky
• payment = a fixed % of sales
e.g.: Kentucky Fried Chicken in the U.K.

Problem that may arise while following a particular business strategy: The
mother firm may find it difficult in exercise of any managerial control over the
licensee (as it is independent).

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 Secondly, the licensee may transfer industrial secrets to another independent
firm, thereby creating a rival.

The next stage for supplementing any particular business strategy is

Investments involved.

It requires the decision of top management because it is a critical step.

 it is risky (lack of information) (for example-US firms tend to establish

subsidiaries in
 Canada first. Singer Manufacturing Company established its foreign plants
in Scotland
 and Australia in the 1850s)
 plants are established in several countries
 licensing is switched from independent producers to its subsidiaries.
 export continues

1. Multinational Stage: The company becomes a multinational enterprise when

it begins to plan, organize and coordinate production, marketing, R&D, financing,
and staffing. For each of these operations, the firm must find the best location.

McDonald has offered its customer what they want at the best available prices.
Since the need of customer change with time Mcdonald has introduced new
products by terminating the old one.

Q6. In the wake of globalization what is role of supply chain management?

Ans. A supply chain is a network of supplier, manufacturing, assembly, distribution &
logistic facilities that perform the function of procurement of material,

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transformation of these materials into intermediate & finished goods, the
distribution of these products to customer. Supply chain arise in both
manufacturing & service organization. Supply chain management is a system
approach to manage the entire flow of information, material & service from raw
material supplier through factories & warehouse to hand customers.

SCM has emerged as the new key to productivity & competitiveness of

manufacturing & service enterprises the importance of this area is shown by a
significant spurt in research the last 5 years & also proliferation of supply chain
solutions & supply chain companies. It is a major application area for Internet
Technologies & Electronic Commerce (ITEC). In facts advances in ITEC hace
contributed to growing importance of SCM.

It is having 2 major Phases

1. Phase-1: It can be called loosely as the back end comprises the physical
building blocks such as the supply facilitates, production facilitates,
warehouse, distributors, retailers & logistic facility. Major decision
here includes
Procurement : Supplier selection, Optimal procurement
Manufacturing : Plant location, product line selection, capacity
planning, production
Logistics : Selection of Port, direct delivery, etc Global Decision
2. Phase-2 : is where IT & ITEC play a key role. This phase involves processing
& use of information to facilitate & optimize the back end operation.
Key technologies here include EDI Exchange for important
information across different players in supply chain, Electronic
payment protocols, Internet auctions etc.

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