International Business

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INTERNATIONAL BUSINES
INTERNATIONAL BUSINESS
VARIOUS ORGANISATIONAL STRUCTURES IN IB
ORGANIZATION ARCHITECTURE AND PROFITABILITY
Totaty of a frms organzaton, ncudng structure, contro
systems, ncentves, processes, cuture and peope.
Superor organzaton proftabty requres three condtons:
An organzatons archtecture must be nternay consstent.
Strategy and archtecture must be consstent.
Strategy, archtecture and compettve envronments must be
consstent.
ORGANIZATIONAL ARCHITECTURE
2
Organizational str!tr"
Locaton of decson makng responsbtes wthn the structure
(vertca dfferentaton)
Forma dvson of the organzaton nto subunts e.g. product
dvsons (horzonta dfferentaton)
Estabshment of ntegratng mechansms ncudng cross-functona
teams and or pan-regona commttees
Control s#st"$s
Metrcs used to measure performance of subunts and |udge
managera performance
In!"nti%"s
Devces used to reward approprate empoyee behavour
Cosey ted to performance metrcs
Pro!"ss"s

Manner n whch decsons are made and work s performed
Organizational !ltr"
Vaues and norms shared among empoyees of an organzaton
Strategy used to manage human resources
P"o&l" 'E$&lo#""s(
3
Strategy used to recrut, compensate, and retan ndvduas wth
necessary sks, vaues and orentaton
PURPOSE OF ORGANIZATIONAL STRUCTURE
To exercse contro
To estabsh dvson of abour
To factate communcatons
To factate coordnaton & ntegraton
To estabsh accountabty
To deegate responsbty
To estabsh nes of authorty and chan of command
To estabsh rues and reguatons
VERTICAL DIFFERENTIATION
Concerned wth where decsons are made.
Two Approaches
Centrazaton
Decentrazaton
CENTRALIZATION
Factates coordnaton.
Ensure decsons consstent wth organzatons ob|ectves.
Top-eve managers have means to brng about organzatona
change.
Avods dupcaton of actvtes.
DECENTRALIZATION
4
Overburdened top management.
Motvatona research favours decentrazaton.
Permts greater fexbty.
Can resut n better decsons.
Can ncrease contro.
STRATEGY AND ORGANIZATION STRUCTURE
Ma|or strategc decsons are centrazed at the frms headquarters whe
operatng decsons are decentrazed
GLOBAL STRATEGY
Am to reaze ocaton and experence economes
Centrazaton of some operatng decsons
Mut-domestc frms: am for oca responsveness
Decentrazng operatng decsons to foregn subsdares
INTERNATIONAL FIR)S
Mantan centrazed contro over ther core competency and decentraze
other decson to foregn subsdares.
TRANSNATIONAL FIR)S
Am to reaze ocaton and experence curve economes
Centrazed contro over goba producton centers
Need to be ocay responsve
CO)PANY*S INTERNATIONAL DIVISION STRUCTURE
5
Adopted n eary stages of nternatona busness operatons
Coordnate a IB actvtes
Deveop nternatona expertse & sks
Deveop a goba/nternatona mndset
Champon of foregn busness
DISADVANTAGES OF INTERNATIONAL DIVISION
Dependent on domestc product dvsons for R&D, engg., etc.
Confct over prcng and transfer prcng
Power strugges n frm: nt Vs. domestc
Cannot hande too many products
Not approprate f foregn saes over 25%
Heads of foregn subsdares reegated to second-ter poston
+ORLD+IDE AREA STRUCTURE
6
Favoured by frms wth ow degree of dversfcaton
Area s usuay a country
Factates oca responsveness
Favoured by frms wth ow degree of dversfcaton & domestc
structure based on functon
Word s dvded nto autonomous geographc areas
Operatona authorty decentrazed
Factates oca responsveness
Fragmentaton of organzaton can occur
Consstent wth mut domestc strategy
A +ORLD+IDE AREA STRUCTURE
PRODUCT DIVISION
Adopted by frms that s reasonaby dversfed
Orgna domestc frm structure based on product dvson
7
Vaue creaton actvtes of each product dvson coordnated by
that dvson wordwde
Hep reaze ocaton and experence curve economes
Factate transfer of core competences
Probem: area managers have mted contro, subservent to
product dvson managers, eadng to ack of oca responsveness
A +ORLD+IDE PRODUCT DIVISION STRUCTURE
)ATRI, STRUCTURE
Heps to cope wth confctng demands of earer strateges
Two dmensons: product dvson and geographc area
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Product dvson and geographc areas gven equa responsbty for
operatng decsons
PROBLE)S
Bureaucratc structure sows decson makng
Confct between areas and product dvsons
Dffcut to make
Attempts to meet needs of transnatona strategy
A GLOBAL )ATRI, STRUCTURE
THE INTERNATIONAL STRUCTURAL STAGES )ODEL
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ADR - GDR
HO+ DO +E RAISE FUNDS FRO) INTERNATIONAL )AR.ET/
+HAT IS AN ADR 0 GDR/
10
There are some very good proxes that can be used by Non Resdent
Indans (NRIs) and non-Indans for makng nvestments n Inda.
ADR stands for American Depository Receipt. Smary, GDR
stands for Global Depository Receipt.
Every pubcy traded company ssues shares - and these shares
are sted and traded on varous stock exchanges. Thus,
companes n Inda ssue shares whch are traded on Indan stock
exchanges ke BSE (The Stock Exchange, Mumba), NSE (Natona
Stock Exchange), etc.
These shares are sometmes aso sted and traded on foregn
stock exchanges ke NYSE (New York Stock Exchange) or NASDAO
(Natona Assocaton of Securtes Deaers Automated Ouotaton).
But to st on a foregn stock exchange, the company has to
compy wth the poces of those stock exchanges. Many tmes,
the poces of these exchanges n US or Europe are much more
strngent than the poces of the exchanges n Inda. Ths deters
these companes from stng on foregn stock exchanges directly.
But many companes get sted on these stock exchanges
ndrecty- usng ADRs and GDRs.
The company deposts a arge number of ts shares wth a bank
ocated n the country where t wants to st ndrecty.
The bank ssues recepts aganst these shares, each recept havng
a fxed number of shares as an underyng (Usuay 2 or 4).
These recepts are then sod to the peope of ths foregn country
(and anyone who are aowed to buy shares n that country).
These recepts are sted on the stock exchanges. They behave
exacty ke reguar stocks- ther prces fuctuate dependng on
ther demand and suppy, and dependng on the fundamentas of
the underyng company.
These recepts, whch are traded ke ordnary stocks, are caed
Depostory Recepts.
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Each recept amounts to a cam on the predefned number of
shares of that company.
The ssung bank acts as a depostory for these shares- that s, t
stores the shares on behaf of the recept hoders.
+HAT IS THE DIFFERNCE BET+EEN ADR AND GDR/
Both ADR and GDR are depostory recepts, and represent a cam
on the underyng shares. The ony dfference s the ocaton where
they are traded.
If the depostory recept s traded n the Unted States of Amerca
(USA), t s caed an Amercan Depostory Recept (ADR).
If the depostory recept s traded n a country other than USA, t s
caed a Goba Depostory Recept (GDR).
Snce ADRs and GDRs are traded ke any other stock, NRIs and
foregners can buy these usng ther reguar equty tradng
accounts.
INDIAN CO)PANIES HAVING ADRs - GDRs

Co$&an# ADR GDR
Ba|a| Auto No Yes
Dr. Reddys Yes Yes
HDFC Bank Yes Yes
Hndaco No Yes
ICICI Bank Yes Yes
Infosys Technooges Yes Yes
ITC No Yes
L&T No Yes
MTNL Yes Yes
Patn Computers Yes No
Ranbaxy Laboratores No Yes
FUTURE OF ADRs AND GDRs
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If you ook across the spectrum of companes n Centra Europe
(CE), GDR programmes are becomng ess popuar because overa
nsttutons are nvestng drecty.
For a newy sted CE company, a GDR programme st makes
sense: the costs are margna, there are no extra efforts n terms of
compance and ts a good way to get exposure.
Im not sure f havng an ADR programme s reay benefca gven
the amount of paperwork and addtona awyers tme needed to
compy wth the Sarbanes Oxey Act.
There s good emprca evdence to show that, on average, there s
a 10 to 15 per cent ncrease n stock prce when a foregn company
sts an Amercan depostary recept.
The reason s that t has become a new company by agreeng
vountary to pay by a dfferent set of rues.
Termnatng an ADR programme sends the reverse sgna. It says to
nvestors: We, as management, no onger want to be sub|ected to
ths addtona ayer of reguaton and scrutny.
There have been a ot of good names destng over the past few
months snce the rue change that aowed companes to ext f ther
ADR tradng fe beow fve per cent.
The US brokerage system, besdes the arge nsttutona system, s
st doar based. Investors dont want mutpe brokerage accounts,
whch s why an ADR offers such vaue because ts a US doar
securty.
Wth an ADR, you dont face custody costs, tax ssues or get your
dvdends n another currency.
ADR programmes can ether be n Pnk Sheets, whch means the
ssuer has no reatonshp wth us or they can appy for and go
through the process of |onng Internatona OTCOX.
13
RBI RULES FOR ADRs - GDRs
Indan companes are aowed to rase equty capta n the
nternatona market through the ssue of GDR & ADRs.
An appcant company seekng Government's approva n ths regard
shoud have a consstent track record for good performance
(fnanca or otherwse) for a mnmum perod of 3 years.
Ths condton can be reaxed for nfrastructure pro|ects such as
power generaton, teecommuncaton, petroeum exporaton and
refnng, ports, arports and roads.
There s no restrcton on the number of GDRs/ADRs/FCCBs to be
foated by a company or a group of companes n a fnanca year.
There s no such restrcton because a company engaged n the
manufacture of tems covered under Automatc Route s key to
exceed the percentage mts under Automatc Route, whose drect
foregn nvestment after a proposed GDRs/ADRs/FCCBs s key to
exceed 50 % / 51 % / 74 %.
There are no end-use restrctons on GDRs/ADRs ssue proceeds,
except for an express ban on nvestment n rea estate and stock
markets.
ADR - GDR NOR)S FURTHER RELA,ED
Indan bdders aowed rasng funds through ADRs, GDRs and
externa commerca borrowngs (ECBs) for acqurng shares of PSEs
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n the frst stage and buyng shares from the market durng the
open offer n the second stage.
Converson and reconverson (a.k.a. two-way converson or
fungbty) of shares of Indan companes nto depostory recepts
sted n foregn bourses, whe extendng tax ncentves to non-
resdent nvestors, aowed. The re-coverson of ADRs/GDRs woud,
however, be governed by the Foregn Exchange Management Act
notfed by the Reserve Bank of Inda n March 2001.
Permsson to retan ADR/GDR proceeds abroad for future foregn
exchange requrements, remova of the exstng mt of $20,000 for
remttance under the empoyees stock opton scheme (ESOP) and
permttng remttance up to $ 1 mon from proceeds of saes of
assets here.
Companes have been aowed to nvest 100 per cent of the
proceeds of ADR/GDR ssues (as aganst the earer ceng of 50%)
for acqustons of foregn companes and drect nvestments n |ont
ventures and whoy-owned subsdares overseas.
Any Indan company whch has ssued ADRs/GDRs may acqure
shares of foregn companes engaged n the same area of core
actvty upto $100 mon or an amount equvaent to ten tmes of
ther exports n a year, whchever s hgher. Earer, ths facty was
avaabe ony to Indan companes n certan sectors.
FIIs can nvest n a company under the portfoo nvestment route
upto 24 per cent of the pad-up capta of the company. It can be
ncreased to 40% wth approva of genera body of the sharehoders
by a speca resouton. Ths mt has now been ncreased to 49%
from the present 40%.
Two way fungbty n ADR/GDR ssues of Indan companes has
been ntroduced sub|ect to sectora caps wherever appcabe. Stock
brokers n Inda can now purchase shares and depost these wth the
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Indan custodan for ssue of ADRs/GDRs by the overseas depostory
to the extent of the ADRs/GDRs that have been converted nto
underyng shares.
FOR E,A)PLE
Ci&la to rais" 1n2s 1ro$ int"rnational $ar3"t
Cpa on Frday sad t woud rase Rs. 1,500 crore from the nternatona
market by ssung non-convertbe debentures, foregn currency
convertbe bonds, Amercan Depostory Recepts and Goba Depostory
Recepts, Cpa sad n a fng to the Bombay Stock Exchange.
INTERNATIONAL LOGISTICS AND ITS I)PORTANCE IN IB
INTERNATIONAL LOGISTICS
An mportant dmenson of the suppy chan s ogstcs, aso
sometmes caed materas management.
Accordng to the Counc of Logstcs Management, USA, ogstcs
management s the "process of pannng, mpementng and
controng the effcent, cost effectve fow and storage of raw
materas, n process nventory, fnshed goods, and reated
nformaton from pont of orgn to pont of consumpton for the
purpose of conformng to customer requrements."
The dfference between suppy chan management and materas
management s on degree. Materas management, or ogstcs,
focuses much more on the transport and storage of materas and
fna goods, whereas suppy chan management extends beyond
that to ncude the management of supper and customer reatons.
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Logstcs, aso known by such other names as marketng ogstcs,
ndustra ogstcs/ busness ogstcs/ dstrbuton/ channes of
dstrbuton ogstcs/ dstrbuton engneerng materas ogstcs
management suppy chan management s a very mportant
component of operatons management.
CO)PONENTS OF LOGISTICS
Logstcs encompasses the tota movement concept, coverng the
entre range of operatons concerned wth the movement of
materas and products to, through, and out of the frm to the
consumer.
It ncudes a varety of actvtes such as nventory management,
warehousng and storage, transportaton, materas handng, order
processng, dstrbuton, communcatons, packagng, savage and
scrap dsposa, returned goods handng, customer servce etc.
Some of the ma|or components of ogstcs are the foowng:
FI,ED FACILITIES LOCATION
The ma|or consderaton s the ocaton of fxed factes ke
producton and warehousng n such a way as to maxmze the tota
effcency of the ogstcs system.
Factors ke future potenta of the markets, future pans of the
company, compettve factors, potca stabty, etc. are aso
mportant consderatons.
INVENTORY )ANAGE)ENT
The man ob|ectve of nventory management s to mnmze the cost
of the nventory whe ensurng smooth suppes.
17
Deveopments n nventory management by the customers order
processng and n the tota ogstcs system have made nventory
management both chaengng and effcent.
ORDER PROCESSING
The effcency of order processng by the cent as we as the
company have mportant mpcatons for nventory eves and other
aspects of the ogstcs. Rapd order processng shortens the order
cyce and aows for ower safety stocks on the part of the cent.
Exporters from deveopng countres ke Inda face the chaenge of
copng up wth such stuatons.
Matera Handng and Transportaton: Matera handng and
transportaton are aso an mportant part of the ogstcs
management. The technooges n use n matera handng and
transportaton affect the effcency of ogstcs.
I)PORTANCE OF INTERNATIONAL LOGISTICS IN IB
Frms have begun to expore how the ogstcs functon can provde
certan strategc advantages: more effcent dstrbuton networks,
mproved quaty, reduced tota cyce tme, better post sae servce,
and effcent response to customer needs.
When a frm becomes heavy nvoved n nternatona busness,
ogstcs s seen as a crtca part of the strategc pannng process.
An effectve nternatona ogstcs strategy not ony offers
sgnfcant cost savngs but aso can hep frms penetrate new
foregn markets.
Indeed, nternatona ogstcs s recognzed as an ntegra part of the
marketng mx that furthers the goba marketng process.
Wth the assstance of an effcenty managed nternatona ogstcs
functon, frms can gan economes of scae from ncreased
18
producton, obtan technoogca advantages from other countres,
and expand ther markets.
As ogstcs actvtes become a substanta part of a frm's
nternatona operatons, the roe payed by nternatona ogstcs
managers aso ncreases n mportance.
In order to obtan a compettve advantage through such operatons,
a comprehensve and compex ogstcs system (ncudng
nfrastructure and contro systems) must be estabshed. Varous
barrers n nternatona markets, however, tend to offset a frm's
efforts to estabsh an effcent ogstcs system.
These often ead to hgher tota ogstcs costs and decreased
fexbty, a of whch adversey affects the compettve poston of
the frm.

VARIOUS ENTRY )ETHODS FOR INTERNATIONAL
BUSINESS
E,PORT
Exportng s the most tradtona way of enterng nto Internatona
Busness. Export can be done n two ways:
1. Dir"!t E4&ort - Products are sod drecty to buyers n target markets
ether through oca saes representatves or dstrbutors. Saes
representatves promote ther companys products and do not take tte
to the merchandse. Dstrbutors take ownershp of the goods (and the
accompanyng rsk) and usuay on-se through whoesaers and
retaers to end-users.
A2%antag"s o1 Dir"!t E4&orts
19
o Gve a hgher return on your nvestment than seng through an
agent or dstrbutor
o Aows the exportng company to set ower prces and be more
compettve
o Gves the company a cose contact wth ts customers
Disa2%antag"s o1 Dir"!t E4&orts
o The company may not have the servces of a foregn ntermedary,
so t may need more tme to become famar wth the market
o The customers or cents may take onger to get to know the
company and ts products, and such famarty s often mportant
when dong busness nternatonay
2. In2ir"!t E4&ort - Products are sod through ntermedares such as
agents and tradng companes. Agents may represent one or more
ndrect exporters n return for commsson on saes.
FOREIGN DIRECT INVEST)ENT
FDI are nvestments made to acqure a astng nterest by a resdent entty
n one economy n an enterprse resdent n another economy. FDI has
come to pay a ma|or roe n the nternatonazaton of busness. Ths has
happened due to changes n technooges, mproved trade and nvestment
poces of governments, reguatory envronment n terms of berazaton
and easng of restrctons on foregn nvestments and acqustons, and
dereguaton and prvatzaton of many ndustres.
A2%antag"s5
o It can provde a frm wth new markets and marketng channes,
cheaper producton factes, access to new technooges, capta
process, products, organzatona technooges and management sks.
20
o FDI can provde a strong mpetus to economc deveopment of the host
country. Ths s a the more true when arge MNCs enter deveopng
natons through FDI.
o FDI aows companes to avod foregn government pressure for oca
producton.
o It aows makng the move from domestc export saes to a ocay
based natona saes offce.
o Capabty to ncrease tota producton capacty.
Dependng on the ndustry sector and type of busness, a foregn drect
nvestment may be an attractve and vabe opton. Wth rapd
gobazaton of many ndustres and vertca ntegraton rapdy takng
pace on a goba eve, at a mnmum a frm needs to keep abreast of
goba trends n ther ndustry. From a compettve standpont, t s
mportant to be aware of whether a companys compettors are expandng
nto a foregn market and how they are dong that. Often, t becomes
mperatve to foow the expanson of key cents overseas f an actve
busness reatonshp s to be mantaned.
New market access s aso another ma|or reason to nvest n a foregn
country. At some stage, export of product or servce reaches a crtca
mass of amount and cost where foregn producton or ocaton begns to
be more cost effectve. Any decson on nvestng s thus a combnaton of
a number of key factors ncudng:
o Assessment of nterna resources
o Compettveness
o Market Anayss
o Market expectatons
LICENSING
21
Lcensng s a ega agreement between the owner of nteectua property
such as a copyrght, patent or trademark and someone who wants to use
that IP. The censee pays "rent" to the censor for the use of an
dea/product/process that s otherwse protected by IP aw. Lke a ease on
a budng, the cense s for a specfc perod of tme. The censee uses
that dea/product/process to se products or servces and earns money.
A2%antag"s5
o Lcensng appeas to prospectve goba payers because t does not
requre arge capta nvestment not detaed nvovement wth foregn
customers. By generatng royaty ncome, censng provdes an
opportunty to expot research and deveopment aready conducted.
After nta costs, the censor can reap benefts unt the end of cense
contract perod.
o It reduces the rsk of expropraton because the censee s a oca
company that can provde everage aganst government acton.
o Heps avod host country reguatons that are more prevaent n equty
ventures.
o Provdes a way of testng foregn markets wthout sgnfcant resources.
o Can be used as a pre-empton ma|or n new market before the entry of
competton.
Li$itations5
o Lmted form of market entry whch does not guarantee a bass for
expanson.
o Lcensor may create more competton n exchange of royaty.
FRANCHISING
22
Franchsng nvoves grantng of rghts by a parent company to another
(franchsee) to do busness n a prescrbed manner. Ths rght can take the
form of seng the franchsers products, usng ts name, producton and
marketng technques or usng ts genera busness approach.
It aows provdes a network of nterdependent busness reatonshps that
aows a number of peope to share:
o Brand dentfcaton
o Successfu method of dong busness
o Proven marketng and dstrbuton system
Franchse agreement typcay requres the payment of a fee upfront and
then a percentage on saes. In return, the franchser provdes assstance
and at tmes may requre the purchase of goods or suppes to ensure the
same quaty of goods or servces wordwde.
Franchsng s adaptabe to nternatona arena and requres mnor
modfcaton for the oca market. It can be benefca to both groups.
Franchser has a new stream of ncome and the franchsee gets tme
proven concept/product whch can be qucky bought to the market.
)a6or For$s o1 Fran!7ising5
- manufacturer-retaer system (e.g. car deaershp)
- manufacturer-whoesaer system (e.g. soft-drnk companes)
- servce frm - retaer system (fast-food, hote) e,g, McDonads, Burger
Kng
8OINT VENTURES
A |ont venture s an agreement nvovng two or more organzatons that
arrange to produce a product or servce through a coectvey owned
enterprse. It has been one of the most popuar way of enterng a new
market.
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Typcay, t s a 50-50 |ont venture n whch each of the party hods 50%
ownershp stake and contrbutes a team of managers to share operatng
contro. At tmes, ths stake can be a ma|orty one so as to ensure tghter
contro.
A2%antag"s5
o Domestc company brngs n the knowedge of the domestc market.
o The rsk s dvded between |ont-venture partners.
o Normay, foregn partner has an opton to se ts stake n the venture
to another entty.
Li$itations5
o Lmted contro over busness approach for foregn entty.
o Profts have to be shared.
e.g. Danone-Brttana, Hero Honda, Marut Suzuk
+HOLLY O+NED SUBSIDIARIES
In a whoy owned subsdary, the company owns 100% of the equty.
Estabshng a whoy owned subsdary n a foregn market can be done n
2 ways:
1. Set up of new operaton
2. Acquston of estabshed frm.
WOS aows a foregn frm compete contro and freedom to execute ts
busness strategy n the foregn country. Ths freedom s accompaned by
a greater rsk due to ack of knowedge of the market. Acquston of an
estabshed company can reduce ths rsk to an extent.
INFLUENCE OF PEST FACTORS ON INTERNATIONAL
BUSINESS
24
OR
RIS. ANALYSIS IN INTERNATIONAL BUSINESS
Any busness s affected by ts externa envronment. The ma|or
macroeconomc factors n the externa envronment that affect the
busness are potca, envronmenta, soca and technoogca.
A9 POLITICAL ENVIRON)ENT
The potca envronment of a country greaty nfuences the busness
operatng n those countres or busness tradng wth those countres. The
success and growth of nternatona busness depends on the stabe,
coaboratve, conducve and secure potca system n the country.
The foowng factors affect the potca envronment n a country.
:9 Ta4 Poli!# 5
The tax pocy of a country affects the proftabty of the busness
there. The Corporate Taxaton aws affect the proftabty drecty.
The drect taxaton aws aso affect the busness because t
nfuences consumer spendng. The structure of ndrect taxaton n
a country ke ts excse duty structure, customs and saes tax
greaty affects the nput costs of a busness.
For "9g9 Countres ke UAE have very ow drect taxaton eves
nducng great spendng and hence tradng and marketng based
busness are successfu. But due to very hgh ndrect taxaton eves
the manufacturng busness s not very successfu.
;9 Go%"rn$"nt s&&ort 5
One of the most mportant potca factor s the Government
support to nternatona busnesses. Busness can be successfu ony
f the oca government provdes support n terms o nfrastructure,
cense cearng f requred, transparent pocy and quck dspute
resouton mechansm. Aso the nature of the potca system .e.
25
democracy, communsm etc. n the country nfuences the
Government support.
For "9g9 the RBI has provded snge wndow cearance for FDI and
hence has greaty ncreased the FDI eves n our country.
<9 La=or La>s 5
The abour aws n a country affect the vabty of a busness n that
country. The penson aws aso pay a crtca roe especay n cross
border acqustons. Many busnesses had to be wthdrawn or cosed
because of the abor unrest n the country.
For "9g95 Wthdrawa of Premer Automobes due to unon strkes
n our country. The probems faced by doctors and nurses n UK due
to the restrctve aws n that country.
4. En%iron$"ntal &oli!# 5
The countres envronmenta pocy (under the Kyoto Protoco or
otherwse) affects many busness ke chemcas, refneres and
heavy engneerng.
5. Tari11s an2 2t# str!tr" 5
The eve of dutes and tarffs that are mposed by the country
nfuence ts mports and exports greaty. Some countres foow a
protectonst pocy to the domestc ndustry by rasng mport
barrers For e.g. Inda n the pre berazaton era, Russa.
?9 Politi!al sta=ilit# an2 &oliti!al $ili" 5
Potca stabty greaty affects the ongevty of the busnesses n a
country. Potca rsk assessment shoud be done to determne the
country rsk on the bass of foowng parameters:
a. Con1is!ation5 The natonazaton of busnesses wthout
compensaton. For e.g. Inda durng the natonast wave durng
Indra Gandhs tenure.
26
b. Nationalization 5 Resource natonazaton s a ma|or rsk for
busnesses nvovng oca resources ke o, mneras etc. For e.g.
the resource natonazaton n Coumba.
c. Insta=ilit# ris3 5 The possbty of mtary takeovers or huge
government changes. For e.g. the coups n Thaand or n F| has
affected the profts of busnesses there by as much as 60% due
to work stoppage and property destructon.
d. Do$"sti!ation 5 The goba company renqushng contro n
favor of domestc nvestors. For e.g. Barcays bank n South
Afrca
B9 ECONO)IC FACTORS
The economc factors n a country greaty nfuence the busness n that
country. The foowng factors are mportant n the macroeconomc
envronment.
1. E!ono$i! s#st"$ 5
The economc system n a country .e. captasm/ communsm/
mxed economy (Inda) s mportant for decdng the nature of the
busnesses. The nature of the system decdes the aocaton of
resources. Due to gobazaton there s a gradua shft toward
market forces to aocate resources even n the communst countres
ke Chna.
2. Int"r"st rat"s 5
The nterest rates n the country affect the cost of capta (f rased
ocay) and the operatona costs. Interest rates aso determne the
confdence of the Government n the economy and consumer
spendng.
<9 E4!7ang" rat"s 5
The exchange rates affect nternatona trade and capta nfows n
the country.
@9 In!o$" l"%"ls an2 s&"n2ing &att"rn 5
Though t s more of a demographc parameter has s very
mportant bearng on the se sde of a nternatona busnesses. For
27
e.g. In a country ke Inda, wth rsng a sprer popuaton there s a
market opportunty for products ke IPod (consdered uxury tems
t now)
C9 SOCIAL FACTORS
Busnesses are drven by peope both as human capta and as consumers.
It s necessary for an nternatona busnessman to understand the soca
and cutura aspects of the country they operate n. The foowng are the
mportant soca factors.
:9 Ag" 2istri=tion 5
The age dstrbuton of the popuaton s mportant to consder the
consumpton patterns n the markets. Age dstrbuton aso
determnes the mndset of the market and heps segmentaton of
the market accordngy. It aso has a bearng on the empoyee
quaty. A young popuaton aso determnes a workforce.
;9 Fa$il# s#st"$ 5
The famy system has a bearng on the decson makers n
consumpton. For e.g. n Isamc countres women have a ess say n
makng consumpton decsons. In emergng economes ke Inda
chdren are ganng mportant roe n consumpton. Ths heps n
postonng of products.
<9 Cltral as&"!ts 5
The cutura aspects nfuence the way the busness s conducted n
countres. In |apan there s a dfferent way n whch contracts are
sgned and executed. In Russa beng a communst orented mndset
the busness s conducted n a cosed manner. Itaans have a
seemngy azy way of dong busness and hence t s very dffcut to
conduct busness n the pacy US way.
@9 Car""r attit2"s 5
The career atttude of the workforce s mportant soca aspect.
28
D9 TECHNOLOGICAL FACTORS
Technoogy has a very mportant roe to pay n determnng the success
of nternatona busnesses because technoogy has made nternatona
busness possbe. The foowng are the technoogca factors that
nfuence the busness.
:9 R-D 5
The support that the Government gves to R&D encourages settng
up R&D busness eves. Aso the ease of a quafed oca workforce
nfuence busness.
For "9g9 The semconductor ndustry n Tawan
;9 T"!7nolog# trans1"r 5
The ease of technoogy transfer nfuences the busness cmate. The
envronment where the technoogy transfer s not vabe graduay
oses out on busness from emergng countres that seek technoogy
transfers. For e.g. n the eary 40s countres ke Czechosovaka (the
Czech Repubc) was a very technoogcay advanced country but
had very ow busness nterest due to the ess chances of technoogy
transfers. For "9g9 GE wthdrew operatons from a |V as there as
they coud not access oca expertse)
29
INTERNATIONAL TRADE THEORIES
:9 Classi!al Contr#ABas"2 T7"ori"s
:9:9 )"r!antilis$ '&r"A:?t7 !"ntr#(
Ths theory takes an "us-versus-them" vew of trade; other countrys
gan s our countrys oss.
Neo-mercantsm vews persst today.
A natons weath depends on accumuated treasure.
Theory says you shoud have a trade surpus.
30
Maxmze exports through subsdes.
Mnmze mports through tarffs and quotas.
Faw: "Zero-sum game".
)"r!antilis$A Z"roAS$ Ga$"
In 1752, Davd Hume ponted out that:
Increased exports ead to nfaton and hgher prces
Increased mports ead to ower prces
Resut: Country A ses ess because of hgh prces and Country B
ses more because of ower prces
In the ong run, no one can keep a trade surpus
:9;9 Fr"" Tra2" s&&orting t7"ori"s
Ths theory shows that specazaton of producton and free fow of goods
grow a tradng partners economes
A=solt" A2%antag" 'A2a$ S$it7B T7" +"alt7 o1 NationsB :CC?(
Mercantsm weakens a country n the ong run and enrches ony a
few segments; t robs ndvduas of the abty to trade freey.
A2a$ S$it7 !lai$"2 $ar3"t 1or!"sB not go%"rn$"nt
!ontrolsB s7ol2 2"t"r$in" t7" 2ir"!tionB %ol$" an2
!o$&osition o1 int"rnational tra2".
Under free (unreguated) trade each naton shoud specaze n
producng those goods t coud produce most effcenty.
Ths theory states that a country s capabe of producng more of a
good wth the same nput than another country9 Hence, a country
shoud specaze n and export products for whch t has absoute
advantage; mport others.
31
A country has a=solt" a2%antag" A "it7"r natral or a!Dir"2
when t s more productve than another country n producng a
partcuar product.
Trade between countres s, therefore, benefca.
Assume that there are |ust two countres n the word, the Inda and
|apan. Pretend aso that they produce ony two goods, shoes and shrts.
The resources of both countres can be used to produce ether shoes or
shrts. Both countres make both products, spendng haf of ther workng
hours on each. But Inda makes more shoes than shrts, and |apan makes
more shrts than shoes.
TABLE A
Shoes Shrts
Inda 100 75
|apan 80 100
Tota 180 175
What w happen when each country specazes and spends a ts
workng hours makng one product? It w make twce as much of that
product and none of the other, as shown n Tabe B.
TABLE B
Shoes Shrts
Inda 200 0
|apan 0 200
Tota 200 200
The word now has both more shoes and more shrts. Inda can trade 100
unts of shoes for 100 unts of shrts, and both countres w beneft.
32
In ths exampe, Inda coud make more shoes than |apan wth the same
resources. It has an absolute advantage at shoemakng. |apan, on the
other hand, had an absolute advantage at shrt makng.
Ass$&tions5
Perfect competton and no transportaton costs n a word of two
countres and two products
One unt of nput (combnaton of and, abor, and capta)
Each naton has two nput unts t can use to produce ether rce or
automobes
Each country uses one unt of nput to produce each product
Co$&arati%" A2%antag" 'Da%i2 Ri!ar2oB Prin!i&als o1 Politi!al
E!ono$#B :E:C( F Also 3no>n as O&&ortnit# Cost T7"or#
Davd Rcardo, n hs theory of comparatve costs, suggested that
countres w specaze and trade n goods and servces n whch
they have a comparatve advantage.
A country has a comparatve advantage n the producton of a good
or servce that t produces at a ower opportunty cost than ts
tradng partners.
The theory of comparatve costs argues that, put smpy, t s better
for a country that s neffcent at producng a good to specaze n
the producton of that good t s east neffcent at, compared wth
producng other goods.
Now suppose one country has an absoute advantage n both products.
Tabe C shows what producton mght be ke f Inda had an absoute
advantage at makng both shoes and shrts.
TABLE C
Shoes Shrts
33
Inda 100 80
Chna 80 75
Tota 180 155
In ths case, the Inda can produce more of each good wth the same set of
resources than Chna can. The Inda coud produce ether 200 unts of
shoes or 160 unts of shrts. Chna coud produce ether 160 unts of shoes
or 150 unts of shrts. If the Inda produces ony shoes, t gves up 80 unts
of shrts to gan 100 unts of shoes. If Chna produces ony shoes, t gves
up 75 unts of shrts to gan 80 unts of shoes. For Inda, the opportunty
cost of producng shrts s hgher and the opportunty cost of producng
shoes s ower; vce-versa for Chna. Hence, Inda has a comparative
advantage n shoemakng and Chna has a comparative advantage n shrt
makng.
Tabe D shows what happens when each country specazes n the
product n whch t has a comparatve advantage.
TABLE D
Shoes Shrts
Inda 200 0
Chna 0 150
Tota 200 150
By specazng n ths way, the Inda and Chna have ncreased the
producton of shoes by twenty unts over what they produced before, from
180 to 200. But the word has ost fve unts of shrts, gong from 155 to
150.
34
Producton n the Inda coud be ad|usted to make up the dfference. For
exampe, f the Inda gave up 10 unts of shoes, t coud produce 8 unts of
shrts. Tabe E shows the resuts of such a tradeoff.
TABLE E
Shoes Shrts
Inda 190 8
Chna 0 150
Tota 190 158
In ths way, the tota producton of both goods coud be ncreased.
For Inda, the opportunty cost of choosng to produce 80 unts of shrts
was the 100 unts of shoes that coud have been produced wth the same
resources. In the ke manner, Chna's opportunty cost of producng 80
unts of shoes was 75 unts of shrts.
In the terms of trade each reduce each country's opportunty cost of
acqurng the good traded for, trade w take pace. In ths exampe,
Chna w not accept fewer than 80 unts of shoes for 75 unts of shrts
and the Inda w not pay more than 100 unts of shoes for 80 unts of
shrts. Both countres must beneft for trade to occur.
The rea word s much more compex than ths two-country, two-product
mode. Trade nvoves many dfferent countres and products. And t s not
aways cear where a country's comparatve advantage es.
S$$ar#
35
Country shoud specaze n the producton of those goods n whch
t s reatvey more productve, even f t has absoute advantage n
a goods t produces.
Ths extends free trade argument.
Effcency of resource utzaton eads to more productvty.
:9<9 Fr"" Tra2" r"1in"2
:9<9:9 Fa!torA&ro&ortions 'H"!3s!7"rAO7linB :G:G(
E Heckscher and Bert Ohn deveoped the theory of r"lati%"
1a!tor "n2o>$"nts, now often referred to as the Heckscher-Ohn
theory. The theory states that the pattern of nternatona trade
depends on dfferences n factor endowments not on dfferences n
productvty.
Reatve endowments of the factors of producton (and, abour, and
capta) determne a country's comparatve advantage.
Countres have comparatve advantage n those goods for whch the
requred factors of producton are reatvey abundant. Ths s
because the prces of goods are utmatey determned by the prces
of ther nputs.
Goods that requre nputs that are ocay abundant w be cheaper
to produce than those goods that requre nputs that are ocay
scarce.
For exampe, a country where capta and and are abundant but abour s
scarce w have comparatve advantage n goods that requre ots of
capta and and, but tte abour - grans, for exampe.
Snce capta and and are abundant, ther prces w be ow. Those ow
prces w ensure that the prce of the gran that they are used to produce
w aso be ow - and thus attractve for both oca consumpton and
export.
36
Labour ntensve goods on the other hand w be very expensve to
produce snce abor s scarce and ts prce s hgh. Therefore, the country
s better off mportng those goods.
S$$ar#
Factor endowments vary among countres
Products dffer accordng to the types of factors that they need as
nputs
A country has a comparatve advantage n producng products that
ntensvey use factors of producton (resources) t has n abundance
Ass$&tions
A gven technoogy was unversay avaabe.
Reatve factor endowments are dfferent n each country
Tastes and preferences are dentca n both countres
A gven product was ether abor- or capta-ntensve
The theory gnored transportaton costs.
:9<9;9 Pro2!t Li1" C#!l" 'Ra# V"rnonB :G??(
As products mature, both ocaton of saes and optma producton
changes
Affects the drecton and fow of mports and exports
Gobazaton and ntegraton of the economy makes ths theory ess
vad
Classi! T7"or# Li$itations5
A the cassca theores are based on the foowng assumptons that no
onger hod true -
37
Smpe word (two countres, two products)
No transportaton costs
No prce dfferences n resources
Resources mmobe across countres
Constant returns to scae
Each country has a fxed stock of resources & no effcency gans n
resource use from trade
Fu empoyment
;9 )o2"rn Tra2" T7"or#
In ndustres wth hgh fxed costs:
Specazaton ncreases output, and the abty to enhance
economes of scae ncreases
Learnng effects are hgh.
These are cost savngs that come from "earnng by dong"
N"> Tra2" T7"or#AA&&li!ations
Typcay, requres ndustres wth hgh, fxed costs
o Word demand w support few compettors
o Compettors may emerge because of " Frst-mover advantage"
Economes of scae may precude new entrants
o Roe of the government becomes sgnfcant
Some argue that t generates government nterventon and strategc
trade pocy
T7"or# o1 National Co$&"titi%" A2%antag"
The theory attempts to anayze the reasons for a natons success n
a partcuar ndustry
Porter studed 100 ndustres n 10 natons
38
- Postuated determnants of compettve advantage of a naton
were based on four ma|or attrbutes
Factor endowments
Demand condtons
Reated and supportng ndustres
Frm strategy, structure and rvary
Fa!tor "n2o>$"nts5 A natons poston n factors of producton such as
sked abor or nfrastructure necessary to compete n a gven ndustry
Basc factor endowments
Advanced factor endowments
Basi! Fa!tor En2o>$"nts
Basi! 1a!tors5 Factors present n a country
- Natura resources
- Cmate
- Geographc ocaton
- Demographcs
Whe basc factors can provde an nta advantage they must
be supported by advanced factors to mantan success
A2%an!"2 Fa!tor En2o>$"nts
39
A2%an!"2 1a!tors: The resut of nvestment by peope,
companes, and government are more key to ead to
compettve advantage
If a country has no basc factors, t must nvest n advanced
factors
- Communcatons
- Sked abor
- Research
- Technoogy
- Educaton
Port"r*s T7"or#APr"2i!tions
Porters theory shoud predct the pattern of nternatona trade that
we observe n the rea word.
Countres shoud be exportng products from those ndustres where
a four components of the damond are favourabe, whe mportng
n those areas where the components are not favourabe
<9 Ot7"r T7"ori"s5
<9:9 T7" &ro2!ti%it# t7"or# =# H9 )#in2
It s crtczed that the comparatve cost theores are not appcabe
to deveopng countres. Hence, H. Mynt proposed productvty
theory and the vent for surpus theory.
The &ro2!ti%it# t7"or# ponts toward ndrect and drect benefts.
Ths theory emphaszes that the process of specazaton nvoves
adaptng and reshapng the producton structure of a tradng
country to meet the export demands.
Countres ncrease productvty n order to utze the gans of
exports. Ths theory encourages the deveopng countres to go for
cash crops, ncrease productvty by enhancng the effcency of
human resources, adaptng atest technoogy etc.
Li$itations5
Labour productvty dd not ncrease after certan eve
40
Increase n workng hours
Increase n proporton of ganfuy empoyed abour n proporton to
dsgused unempoyed abour
<9;9 T7" %"nt 1or sr&ls t7"or#
Internatona trade absorbs the output of unempoyed factors.
If the countres produce more than the domestc requrements, they
have to export the surpus to other countres. Otherwse, a part of
the productve abour of the country must cease and the vaue of ts
annua Produce dmnshes.
In the absence of foregn trade, they woud be surpus productve
capacty n the country. Ths surpus productve capacty s taken by
another country and n turn gves the beneft under nternatona
trade.
A&&ro&riat"n"ss o1 t7is T7"or# 1or D"%"lo&ing Contri"s5
Accordng to ths theory, the factors of producton of deveopng
countres are fuy utzed.
The unempoyed abour of the deveopng countres s proftaby
empoyed when the vent for surpus s exported.
<9<9 )ills* t7"or# o1 r"!i&ro!al 2"$an2
Comparatve cost advantage theores do not expan the ratos at
whch commodtes are exchanged for one another. |.S. M
ntroduced the concept of recproca demand to expan the
determnatons of the equbrum terms of trade.
41
Recproca demand ndcates a countrys demand for one
commodty n terms of the other commodty; t s prepared to gve
up n exchange. It determnes the terms of trade and reatve share
of each country.
EDili=ri$:
Ouaty of a product exported by country A = Ouaty of another product
exported by country B
Ass$&tions5
Exstence of two countres
Trade n ony two goods - both the goods are produced under the
aw of constant returns
Absence of transportaton Costs.
Exstence of perfect competton
Exstence of fu empoyment
TEN REASONS +HY FDI HAPPENS
1. Foregn Drect Investments (FDI) as defned n the BOP Manua, are
nvestments made to acqure a astng nterest by a resdent entty n
one economy n an enterprse resdent n another economy. The
purpose of the nvestor s to have a sgnfcant nfuence, an effectve
voce n the management of the enterprse. The defnton of the
Organzaton for Economc Cooperaton and Deveopment (OECD)
whch consders as drect nvestment enterprse an ncorporated or
unncorporated enterprse n whch a drect nvestor who s resdent n
another economy owns ten percent or more of the ordnary shares or
42
votng power (for ncorporated enterprse) or the equvaent (for an
unncorporated enterprse).
2. It provdes a frm wth new markets and marketng channes, cheaper
producton factes, access to new technoogy, products, sks and
fnancng. For a host country or the foregn frm whch receves the
nvestment, t can provde a source of new technooges, capta,
processes, products, organzatona technooges and management
sks, and as such can provde a strong mpetus to economc
deveopment.
3. FDI nfows are consdered as channes of entrepreneurshp,
technoogy, management sks, and of resources that are scarce n
deveopng countres. Hence, they coud hep ther host countres n
ther ndustrazaton.
4. For sma and medum szed companes, FDI represents an opportunty
to become more actvey nvoved n nternatona busness actvtes.
In the past 15 years, the cassc defnton of FDI as noted above has
changed consderaby, over 2/3 of drect foregn nvestment s st
made n the form of fxtures, machnery, equpment and budngs.
5. FDI s vewed as a bass for gong "goba". FDI aows companes to
accompsh foowng tasks:
Avodng foregn government pressure for oca producton
Crcumventng trade barrers, hdden and otherwse
Makng the move from domestc export saes to a ocay-based
natona saes offce
Capabty to ncrease tota producton capacty.
Opportuntes for co-producton, |ont ventures wth oca partners,
|ont marketng arrangements, censng, etc
6. Foregn drect nvestment s vewed as a way of ncreasng the
effcency wth whch the word's scarce resources are used. A recent
and specfc exampe s the perceved roe of FDI n efforts to stmuate
economc growth n many of the word's poorest countres. Party ths s
because of the expected contnued decne n the roe of deveopment
43
assstance (on whch these countres have tradtonay reed heavy),
and the resutng search for aternatve sources of foregn capta.
7. FDI enabes the frm owns assets to be proftaby expoted on a
comparatvey arge scae, ncudng nteectua property (such as
technoogy and brand names), organzatona and managera sks,
and marketng networks. And t s more proftabe for the producton
utzng these assets to take pace n dfferent countres than to
produce n and export from the home country excusvey.
8. FDI may resut n a greater dffuson of know-how than other ways of
servng the market. Whe mports of hgh-technoogy products, as we
as the purchase or censng of foregn technoogy, are mportant
channes for the nternatona dffuson of technoogy, FDI provdes
more scope for spovers. For exampe, the technoogy and
productvty of oca frms may mprove as foregn frms enter the
market and demonstrate new technooges, and new modes of
organzaton and dstrbuton, provde technca assstance to ther oca
suppers and customers, and tran workers and managers who may
ater be empoyed by oca frms.
9. FDI ncreases empoyment n host country. Infows of FDI aso ncrease
the amount of capta n the host country. Even wth sk eves and
technoogy constant, ths w ether rase abour productvty and
wages, aow more peope to be empoyed at the same eve of wages,
or resut n some combnaton of the two.
10. Proponents of foregn nvestment pont out that the exchange of
nvestment fows benefts both the home country (the country from
whch the nvestment orgnates) and the host country (the destnaton
of the nvestment). Opponents of FDI note that mutnatona
congomerates are abe to wed great power over smaer and weaker
economes and can drve out much oca competton. The truth mght
e somewhere n between but they surey become reasons for
companes to nvest n foregn markets.
44
+TO ROUNDS +RT INDIA
The WTO came nto beng on |anuary 1, 1995, and s the successor to the
Genera Agreement on Tarffs and Trade (GATT), whch was created n
1948. Inda was one of the 76 countres that sgned the accesson to the
WTO and s one of the founder members of the WTO.
TRADE I)PLICATIONS OF SIGNING THE +TO FOR INDIA
The mpcatons of sgnng the WTO agreement for Indan trade have been
mxed. Inda has benefted n the areas of garment exports, agrcutura
products exports and n market access to foregn markets n automobes
and eectroncs. Inda has a dsadvantage many n areas of TRIPs, drug
prces, patents n agrcuture, TIS ( trade n servces ) and TRIMS
especay n bomedca areas, AoA export subsdes etc.
BENEFITS
1. Gar$"nt "4&orts 5
The Mut Fber Arrangement (MFA) that requred Indan garment
exporters to have quotas for exportng to deveoped countres was
phased out n 2005. The readymade garment exports from Inda has
reached Rs 800 crores n 2007 and expected to reach Rs 1000 crores n
2008. Ths s thrce the exports n 2004-05.
2. )ar3"t a!!"ss 5
As a sgnatory to the WTO Inda automatcay gets the MFN ( most
favored naton ) status. Ths gves Inda access to markets n Europe
and US n sectors ke automobes and engneerng. Inda aso benefts
from the causes reated to trade wthout dscrmnaton and beneft
from capta good exports.

3. Anti D$&ing $"asr"s 5
Inda suffered from persistent dumping by Romanan and Russan stee
ma|ors n the areas of stee casngs, ppes affectng Indan domestc
45
ndustry greaty. Aso Inda suffered from dumpng by Chnese stee
ndustry. The ant dumpng provsons and countervang dutes end
securty to Indas domestc ndustres.
4. T7" Agr""$"nt on Agri!ltr" 5
The AOA stpuates that the deveoped countres w reduce tarffs on
agrcuture mports (up to 35%) thus hepng Indas agrcuture
exports. It aso promses reducton of domestc subsdes n the
deveoped countres hepng exports from Inda.
5. Compettve advantage 5 Inda has compettve advantage n the areas
of merchandse trade. Inda can utze ts compettve advantage n
processng, beverages, gems and |eweer compared to the tradtona
centers n Europe ke Amsterdam or Manchester etc ncreasng ts
trade wth both the Euro regon and the US.
DISADVANTAGES
1. TRIPS 5
The Indan Patent Act s not compatbe wth the TRIPS agreement
under the WTO. The Indan Patent Act aows ony process patents n
areas of foods, chemcas and medcnes. Under the TRIPS the IPA w
have to modfy to aow product patents aso. Aso products deveoped
outsde Inda can cam nternatona patents appcabe to Inda. Ths
w hurt our agrcuture foods. E.g. the Aphanso mango and the
Basmat strand controversy.
2. Drg &ri!"s 5
The grantng of the product patents n Inda w hurt the Indan generc
drugs ndustry and beneft the foregn pharma companes that own the
formuaton patents. Ths w ead to ncrease n drug prces n Inda.
(Ths resuted n reguatory nterventon n the recent budget n fe
savng drugs) e.g. The Pfzer controversy
3. G"n"ti!s 5
46
Indan seed and genetc research organzatons are Government
funded and w not be abe to compete wth the MNCs ke Montessanto
etc that have economes of scae. Ths w ncrease seed prces for
Indan farmers and aso end our genetc resources to the MNCs
4. S"r%i!"s 5
The openng up of the bankng sector n 2009 w affect Indan banks
due to the foregn banks wth huge baance sheets.
5. TRI)S 5
The Trade Reated Investment Measures resuted n probems n trade
n nvestment ssues ke transt charges, formates etc. together
caed as Sngapore ssues. Indan companes woud have to ose n the
dfferenta charges that are apped. These ssues were dropped n the
Chachun mnstera conferences.

6. Anti 2$&ing5
The ant dumpng rues were mposed on Indan nen n EU. Smary
Indan textes faced ant dumpng reguatons n US. There s no
mechansm to resove ant dumpng dutes ssues.
INDIA*S STAND IN THE DOHA ROUND AND THE FOLLO+ING
)INISTERIAL CONFERENCES
:9 Do7a ron2:
The Do7a D"%"lo&$"nt Ron2 commenced at Doha, Oatar n
November 2001 and s st contnung. Its ob|ectve s to ower trade
barrers around the word, permttng free trade between countres of
varyng prosperty. As of 2008, taks have staed over a dvde between
the deveoped natons ed by the European Unon, the Unted States
and |apan and the ma|or deveopng countres (represented by the G20
deveopng natons), ed and represented many by Inda, Braz, Chna
and South Afrca.
47
Singa&or" iss"s: The ssues reated to the trade factaton and
dfferenta charges n nvestment vehces affected Indan nvestment and
venture companes. Ths affected the Indan servces.
Agri!ltral s=si2i"s5 The EU, US and |apan support domestc
agrcuture by subsdes. Ths was opposed by countres ke Inda and
Braz.
;9 Can!n !on1"r"n!" ;HH< 5
The ob|ectve of ths conference was to forge the agreement dscussed n
Doha.
Iss"s5 Market access to foregn markets. Ths agreement on market
access for the deveopng countres n capta and ndustra goods
ncreased strength of G20 countres.
Inda benefted greaty n the capta goods export.
The Sngapore ssues were resoved that resuted n removng the undue
advantage for countres ke US and |apan n nvestment arena. Ths aso
benefted the Indan fnanca sector nternatonay.
<9 G"n"%a ;HH@5 In Geneva conference the deveoped natons reduced
subsdares on manufactured goods. Ths resuted n Indan sma
manufacturers ke stee forgng, castng to export argey and beneft
from the constructon boom n US.
@9 Paris ;HHI5 France reduced subsdes on farm products. However US
and |apan dd not reent. Hong Kong 2006 and Potsdam 2007 taks
faed n resovng the farm subsdes. So the recent rounds are n a
staemate stuaton from Indas pont of vew.
48
DISCUSS NAFTA0 EU0 ASEAN0 SAARC0 )ERCUSOR
)ERCOSUR
Mercosur s a regona trade agreement among Argentna, Braz
,Paraguay & Uruguay founded n 1991 by the Treaty of Asuncn, whch
was ater amended and updated by the 1994 Treaty of Ouro Preto. Its
purpose s to promote free trade and the fud movement of goods,
peope, and currency. Bova, Che, Coomba, Ecuador and Peru currenty
have assocate member status. Venezuea sgned a membershp
agreement on 17 |une 2006, but before becomng a fu member ts entry
has to be ratfed by the Paraguayan and the Brazan paraments.
The boc comprses a popuaton of more than 263 mon peope, and the
combned Gross Domestc Product of the fu-member natons s n excess
of US$2.78 tron a year (Purchasng power party, PPP) accordng to
Internatona Monetary Fund (IMF) numbers, makng Mercosur the ffth
argest economy n the Word.
OB8ECTIVES OF )ERCOSUR
Free transt of producton goods, servces and factors between the
member states wth nter aa, the emnaton of customs rghts and
ftng of nontarff restrctons on the transt of goods or any other
measures wth smar effects;
Fxng of a common externa tarff (TEC) and adoptng of a common
trade pocy wth regard to non member states or groups of states, and
the coordnaton of postons n regona and nternatona commerca
and economc meetngs;
49
Coordnaton of macroeconomc and sectora poces of member states
reatng to foregn trade, agrcuture, ndustry, taxes, monetary system,
exchange and capta, servces, customs, transport and
communcatons, and any others they may agree on, n order to ensure
free competton between member states; and
The commtment by the member states to make the necessary
ad|ustments to ther aws n pertnent areas to aow for the
strengthenng of the ntegraton process. The Asuncon Treaty s based
on the doctrne of the recproca rghts and obgatons of the member
states.
MERCOSUR ntay targeted free-trade zones, then customs unfcaton
and, fnay, a common market, where n addton to customs unfcaton
the free movement of manpower and capta across the member natons'
nternatona fronters s possbe, and depends on equa rghts and dutes
beng granted to a sgnatory countres. Durng the transton perod, as a
resut of the chronoogca dfferences n actua mpementaton of trade
berazaton by the member states, the rghts and obgatons of each
party w ntay be equvaent but not necessary equa. In addton to
the recprocty doctrne, the Asuncon Treaty aso contans provsons
regardng the most-favored naton concept, accordng to whch the
member natons undertake to automatcay extend--after actua
formaton of the common market--to the other Treaty sgnatores any
advantage, favor, enttement, mmunty or prvege granted to a product
orgnatng from or ntended for countres that are not party to ALADI.
SAARC
The South Asan Assocaton for Regona Cooperaton (SAARC) s an
economc and potca organzaton of eght countres n Southern Asa. It
was estabshed on December 8, 1985 by Inda, Pakstan, Bangadesh, Sr
Lanka, Nepa, Madves and Bhutan. In Apr 2007, at the Assocaton's
14th summt, Afghanstan became ts eghth member.Sheekant Sharma s
50
the current secretary & Mahnda Ra|apaksa s the current charman of
SAARC whch s headquartered at Kathmandu.
OB8ECTIVES OF SAARC
To promote the wefare of the peopes of South Asa and to mprove
ther quaty of fe;
To acceerate economc growth, soca progress and cutura
deveopment n the regon and to provde a ndvduas the
opportunty to ve n dgnty and to reaze ther fu potenta;
To promote and strengthen coectve sef-reance among the
countres of South Asa;
To contrbute to mutua trust, understandng and apprecaton of
one another's probems;
To promote actve coaboraton and mutua assstance n the
economc, soca, cutura, technca and scentfc feds;
To strengthen cooperaton wth other deveopng countres;
To strengthen cooperaton among themseves n nternatona
forums on matters of common nterest; and
To cooperate wth nternatona and regona organzatons wth
smar ams and purposes.
FREE TRADE AGREE)ENT
Over the years, the SAARC members have expressed ther unwngness
on sgnng a free trade agreement. Though Inda has severa trade pacts
wth Madves, Nepa, Bhutan and Sr Lanka, smar trade agreements wth
Pakstan and Bangadesh have been staed due to potca and economc
concerns on both sdes. Inda has been constructng a barrer across ts
borders wth Bangadesh and Pakstan. In 1993, SAARC countres sgned
an agreement to graduay ower tarffs wthn the regon, n Dhaka. Eeven
years ater, at the 12th SAARC Summt at Isamabad, SAARC countres
devsed the South Asa Free Trade Agreement whch created a framework
for the estabshment of a free trade area coverng 1.4 bon peope. Ths
51
agreement went nto force on |anuary 1, 2006. Under ths agreement,
SAARC members w brng ther dutes down to 20 per cent by 2007.
The ast summt (15
th
) was hed n Coombo where four ma|or agreements
- the SAARC deveopment fund, the estabshment of a SAARC standard
organzaton, the SAARC conventon on mutua ega assstance n crmna
matters, and the protoco on Afghanstan's admsson to the South Asa
Free Trade Agreement (SAFTA) were adopted wth emphass on regon-
wde food securty.
NAFTA
The North Amercan Free Trade Agreement (NAFTA) s a tratera trade
boc n North Amerca created by the governments of the Unted States,
Canada, and Mexco. In terms of combned purchasng power party GDP
of ts members, as of 2007 the trade boc s the argest n the word and
second argest by nomna GDP comparson. It aso s one of the most
powerfu, wde-reachng treates n the word.
The North Amercan Free Trade Agreement (NAFTA) has two suppements,
the North Amercan Agreement on Envronmenta Cooperaton (NAAEC)
and the North Amercan Agreement on Labor Cooperaton (NAALC).
Impementaton of the North Amercan Free Trade Agreement (NAFTA)
began on |anuary 1, 1994. Ths agreement w remove most barrers to
trade and nvestment among the Unted States, Canada, and Mexco.
Under the NAFTA, a non-tarff barrers to agrcutura trade between the
Unted States and Mexco were emnated. In addton, many tarffs were
emnated mmedatey, wth others beng phased out over perods of 5 to
15 years. Ths aowed for an ordery ad|ustment to free trade wth
Mexco, wth fu mpementaton begnnng |anuary 1, 2008.
The agrcutura provsons of the U.S.-Canada Free Trade Agreement, n
effect snce 1989, were ncorporated nto the NAFTA. Under these
provsons, a tarffs affectng agrcutura trade between the Unted States
52
and Canada, wth a few exceptons for tems covered by tarff-rate quotas,
were removed by |anuary 1, 1998.
Mexco and Canada reached a separate batera NAFTA agreement on
market access for agrcutura products. The Mexcan-Canadan agreement
emnated most tarffs ether mmedatey or over 5, 10, or 15 years.
U.S. trade wth Mexco and Canada has grown more rapdy than tota U.S.
trade snce 1994. The automotve, texte, and appare ndustres have
experenced the most sgnfcant changes n trade fows, whch may aso
have affected empoyment eves n these ndustres. The fve ma|or U.S.
ndustres that have hgh voumes of trade wth Mexco and Canada are
automotve ndustry, chemcas and aed products, computer equpment,
textes and appare, and mcroeectroncs.
The effects of NAFTA, both postve and negatve, have been quantfed by
severa economsts. Some argue that NAFTA has been postve for Mexco,
whch has seen ts poverty rates fa and rea ncome rse (n the form of
ower prces, especay food), even after accountng for the 1994-1995
economc crss. Others argue that NAFTA has been benefca to busness
owners and etes n a three countres, but has had negatve mpacts on
farmers n Mexco who saw food prces fa based on cheap mports from
U.S. agrbusness, and negatve mpacts on U.S. workers n manufacturng
and assemby ndustres who ost |obs. Crtcs aso argue that NAFTA has
contrbuted to the rsng eves of nequaty n both the U.S. and Mexco.
EU
The European Unon (EU) s a potca and economc unon of 27 member
states, ocated prmary n Europe. The EU generates an estmated 30%
share of the word's nomna gross domestc product (US$16.8 tron n
2007). Thus EU presents an enormous export and nvestor market that s
both mature and sophstcated.
The EU has deveoped a snge market through a standardsed system of
aws whch appy n a member states, guaranteeng the freedom of
53
movement of peope, goods, servces and capta. It mantans a common
trade pocy. Ffteen member states have adopted a common currency,
the euro.
OB8ECTIVES OF THE EU
Its prncpa goa s to promote and expand cooperaton among members
states n economcs, trade, soca ssues, foregn poces, securty,
defense, and |udca matters. Another ma|or goa of the EU s to
mpement the Economc and Monetary Unon, whch ntroduced a snge
currency, the Euro for the EU members.
The snge market refers to the creaton of a fuy ntegrated market wthn
the EU, whch aows for free movement of goods, servces and factors of
producton. The EU, n con|uncton wth Member States, has a number of
poces desgned to assst the functonng of the market. Some of the
poces are gven beow:
Co$&"tition Poli!#5 The man competton ed n energy and transport
sector. The unon desgned ths strategy to prevent prce fxng, couson
(secret agreement), and abuse of monopoy.
Fr"" $o%"$"nt o1 goo2s5 A custom unon coverng a trade n goods
was estabshed and a common customs tarff was adopted wth respect to
countres outsde the unon.
S"r%i!"s5 Any member naton has a rght to provde servces n other
Member States.
Ca&ital5 There are no restrctons on the movement of capta and on
payments wth the EU and between member states and thrd countres.
TRADE BET+EEN THE EUROPEAN UNION AND INDIA
Inda was one of the frst Asan natons to accord recognton to the
European Communty n 1962. The EU s Indas argest tradng partner
and bggest source of FDI. It s a ma|or contrbutor of deveopmenta ad
54
and an mportant source of technoogy. Over the years, EU - Inda trade
has grown from 4.4 bn to 28.4 bn US$.
Top tems of trade between Inda and EU
Indas exports to EU J Indas Imports from EU J
Texte and cothng 35 Gemstones and |eweery 31
Leather and eather products 25 Power generatng equpment 28
Gemstones and |eweery 12 Chemca products 15
Agrcuture products 10 Offce machnery 10
Chemca products 9 Transport equpment 6
Inda s EUs 17
th
argest supper and 20
th
argest destnaton for
exports.
Tarff and non-tarffs have been reduced, but compared to Internatona
standards they are st hgh.
Under the Batera trade between Inda and EU, t accounts for 26% of
Indas exports and 25% of ts mports.
The European Unon (EU) and Inda agreed on September 29,2008 at
the EU-Inda summt n Marsee, France's argest commerca port, to
expand ther cooperaton n the feds of nucear energy and
envronmenta protecton and deepen ther strategc partnershp.
Trade between Inda and the 27-naton EU has more than doubed from
25.6 bon euros ($36.7 bon) n 2000 to 55.6 bon euros ast year,
wth further expanson to be seen.
ASEAN
The Assocaton of Southeast Asan Natons or ASEAN was estabshed on 8
August 1967 n Bangkok by the fve orgna Member Countres, namey,
Indonesa, Maaysa, Phppnes, Sngapore, and Thaand. Brune
Darussaam |oned on 8 |anuary 1984, Vetnam on 28 |uy 1995, Laos and
Myanmar on 23 |uy 1997, and Camboda on 30 Apr 1999.
55
OB8ECTIVES
The ASEAN Decaraton states that the ams and purposes of the
Assocaton are:
() To acceerate the economc growth, soca progress and cutura
deveopment n the regon through |ont endeavors.
() To promote regona peace and stabty through abdng respect for
|ustce and the rue of aw n the reatonshp among countres n the
regon and adherence to the prncpes of the Unted Natons
Charter.
() To mantan cose cooperaton wth the exstng nternatona and
regona organzatons wth smar ams.
+OR.ING OF ASEAN
The member countres of ASEAN have Preferenta Tradng Arrangements
(PTA), whch reduces tarffs on products traded among member countres.
In 1992, ASEAN deveoped a Common Effectve Preferenta Tarffs (CEPT)
pan to reduce tarffs systematcay for manufactured and processed
products.
The members have aso estabshed a seres of co-operatve efforts to
encourage |ont partcpaton n ndustra, agrcutura and technca
deveopment pro|ects and to ncrease foregn nvestments n ther
economes. These efforts ncude an ASEAN fnance corporaton, the
ASEAN Industra |ont Ventures Programme (A|IV) etc. ASEAN natons
have ntroduced some programmes for greater dversfcaton n ther
economes.
INDIA AND ASEAN
Inda s nterested n mantanng cose economc reatons wth the
members of ASEAN, as these countres are coser to Inda. The ASEAN
countres are offerng co-operaton to Inda n the fed of trade,
56
nvestment, scence and technoogy and tranng of personne. Aso,
Indas trade wth ASEAN countres s satsfactory n recent years.
EFFECT OF CURRENT ECONO)IC )ELTDO+N ON INTERNATIONAL
BUSINESS
1. Slower global growth5 Goba growth stood at 5 percent n 2007, but
the IMF expects word growth to sow to 3 percent n 2009 - 0.9
percentage ponts ower than forecasted n |uy 2008.
2. Economic contraction in some countries5 In G7 countres except
for the Unted States and Canada, GDP growth was sower n O2 of
2008 compared to O1. Three ma|or European economes (Itay, France
and Germany) experenced negatve GDP growth n O2, and forecasts
are for a contnued decne n O3. The IMF forecasts around 0 percent
growth for advanced economes n 2009.
3. Depth of slowdown5 It s observed that economc sowdowns,
preceded by fnanca stress tend to be more severe. Athough
empoyment has contracted n severa countres n recent months, t
has not been as severe as that durng 1990-91.
57
4. Financing challenges for governments5 State and oca
governments may be faced wth fnanca crss. Even admnstratve
costs may be dffcut to come by. The governments woud be hard
pressed for funds for guarantees and deveopment work. For e.g. In the
case of Iceand the bankng sector has assets of around 300% of GDP,
somethng no government coud ever guarantee, at east not on a
short-term bass.
5. Rising unemployment5 Accordng to IMF, unempoyment n the
advanced economes w rse from 5.7 percent n 2008 to 6.5 percent
n 2009.
6. Large employment losses in sectors5 Some sectors ke
constructon, rea estate servces w experence dsproportonate
empoyment decnes. In addton there w be sgnfcant |ob osses n
the fnanca sector.
7. Reduced world trade volume5 Accordng to the IMF, the word trade
w grow ony at the rate of 1.9% as aganst the earer estmate of
4.1% for 2009. A drop n exports, as we as capta nfow, may trgger
a faoff n nvestments.
8. Rising income insecurity and disproportionate impact on low-
income groups5 As stock markets around the word have eroded
trons of doars n weath and roed back some of the nvestment
gans of the past 5 years, the nvestment and retrement savngs of
many ndvduas have ost sgnfcant vaue. There s a rsk that ow-
ncome countres and ower-ncome groups wthn countres w bear
the brunt of chaenges, as "the most poor are the most defenseess,"
says Word Bank Presdent Robert Zoeck.
9. Return to ariff and !on-ariff "arriers5 Deveoped economes n
order to ward off unempoyment and fnanca crss may erect barrers
to free trade. Ths mght start a oca busness envronment. For e.g.
Presdent-eect Barrack Obama has aready announced hs ntenton to
reduce outsourcng from US by 30%.
58
10. Surplus #roduction $apacities5 In ne wth demand destructon,
many branded products may face surpus capactes. For e.g. Car, Stee
& Arcrafts manufacturers are aready starng at excess capacty.
11. %ncrease in Government $ontrols5 In order to ba out snkng
Corporates the governments, woud buy out or contro the operatons
of arge companes. For e.g. AIG and Ctbank
:;9 %mpact on %ndia5
a. BPO Operatons: Inda s key to face a severe crunch on the IT and
ITes servces, rendered by Indan BPO Companes.
b. Increase n Trade Defct: Aready n the ast quarter, Indas trade
defct has grown where exports are not meetng the set targets
whe mports contnue to grow.
c. Fang Currency: as the demand for doars ncreases the Indan
rupee s key to weaken. The rupee has aready deprecated to Rs.
50 a doar.
d. Pressure on Servces Sector: As the demand for servces s
destroyed, these sunshne ndustres such as BPOs, Arnes, and
Teecommuncaton etc. w face saary and empoyment cutbacks.
DISCUSS S+APSB OPTIONSB FUTURES
S+APS
a) A s>a& s a dervatve n whch two counterpartes agree to exchange
one stream of cash fows aganst another stream. These streams are
caed the legs of the swap.
59
b) The cash fows are cacuated over a notona prncpa amount, whch
s usuay not exchanged between counterpartes. Consequenty, swaps
can be used to create unfunded exposures to an underyng asset,
snce counterpartes can earn the proft or oss from movements n
prce wthout havng to post the notona amount n cash or coatera.
c) Swaps can be used to hedge certan rsks such as nterest rate rsk, or
to specuate on changes n the underyng prces.
d) Most swaps are traded over-the-counter (OTC), "taor-made" for the
counterpartes. Some types of swaps are aso exchanged on futures
markets such as the Chcago Mercante Exchange Hodngs Inc., the
argest U.S. futures market, the Chcago Board Optons Exchange and
Frankfurt-based Eurex AG.
e) The fve generc types of swaps, n order of ther quanttatve
mportance, are: nterest rate swaps, currency swaps, credt swaps,
commodty swaps and equty swaps.
FUTURES
a) A futures contract s a standardzed contract, traded on a futures
exchange, to buy or se a standardzed quantty of a specfed
commodty of standardzed quaty at a certan date n the future, at a
prce determned by the nstantaneous equbrum between the forces
of suppy and demand among competng buy and se orders on the
exchange at the tme of the purchase or sae of the contract.
b) The future date s caed the 2"li%"r# 2at" or 1inal s"ttl"$"nt 2at".
The offca prce of the futures contract at the end of a day's tradng
sesson on the exchange s caed the s"ttl"$"nt &ri!" for that day of
busness on the exchange.
c) A futures contract gves the hoder the o=ligation to make or take
devery under the terms of the contract,
d) Both partes of a "futures contract" $st fuf the contract on the
settement date. The seer devers the underyng asset to the buyer,
or, f t s a cash-setted futures contract, then cash s transferred from
60
the futures trader who sustaned a oss to the one who made a proft.
To ext the commtment pror to the settement date, the hoder of a
futures poston has to offset hs/her poston by ether seng a ong
poston or buyng back (coverng) a short poston, effectvey cosng
out the futures poston and ts contract obgatons.
e) Futures contracts, or smpy futures, are exchange traded dervatves.
The exchange's cearnghouse acts as counterparty on a contracts,
sets margn requrements, and crucay aso provdes a mechansm for
settement.
OPTIONS
a) An o&tion s a contract wrtten by a seer that conveys to the buyer
the rght - but not the obgaton - to buy (n the case of a call opton)
or to se (n the case of a put opton) a partcuar asset, such as a pece
of property, or shares of stock or some other underyng securty, such
as, among others, a futures contract. In return for grantng the opton,
the seer coects a payment (the premium) from the buyer.
b) For exampe, buyng a ca opton provdes the rght to buy a specfed
quantty of a securty at a set strke prce at some tme on or before
expraton, whe buyng a put opton provdes the rght to se. Upon
the opton hoder's choce to exercse the opton, the party who sod, or
wrote, the opton must fuf the terms of the contract.
c) The theoretca vaue of an opton can be evauated accordng to
severa modes. These modes, whch are deveoped by quanttatve
anaysts, attempt to predct how the vaue of the opton w change n
response to changng condtons. Hence, the rsks assocated wth
grantng, ownng, or tradng optons may be quantfed and managed
wth a greater degree of precson, perhaps, than wth some other
nvestments.
d) Exchange-traded optons form an mportant cass of optons whch
have standardzed contract features and trade on pubc exchanges,
factatng tradng among ndependent partes. Over-the-counter
61
optons are traded between prvate partes, often we-captazed
nsttutons that have negotated separate tradng and cearng
arrangements wth each other.
e) Another mportant cass of optons, partcuary n the U.S., are
empoyee stock optons, whch are awarded by a company to ther
empoyees as a form of ncentve compensaton
f) Other types of optons exst n many fnanca contracts, for exampe
rea estate optons are often used to assembe arge parces of and,
and prepayment optons are usuay ncuded n mortgage oans9
INTERNATIONAL HU)AN RESOURCE )ANAGE)ENT
Internatona human resource management (HRM) nvoves
ascertanng the corporate strategy of the company and assessng
the correspondng human resource needs; determnng the
recrutment, staffng and organzatona strategy; recrutng,
nductng, tranng and deveopng and motvatng the personne;
puttng n pace the performance apprasa and compensaton pans
and ndustra reatons strategy and the effectve management of
a these.
"The strategc role of HRM s compex enough n a purey domestc
frm, but t s more compex n an nternatona busness, where
staffng, management deveopment, performance evauaton, and
compensaton actvtes are compcated by profound dfferences
between countres n abour markets, cuture, ega systems,
economc systems, and the ke."
It s not enough that the peope recruted ft the sk requrement,
but t s equay mportant that they ft n to the organzatona
cuture and the demand of the dverse envronments n whch the
organzaton functons.
62
FACTORS AFFECTING INTERNATIONAL HR)
The foowng are some of the mportant factors, whch make nternatona
HRM compex and chaengng:
DIFFERENCES IN LABOUR )AR.ET CHARACTERISTICS
The sk eves, the demand and suppy condtons and the
behavour characterstcs of abour vary wdey between countres.
Whe some countres experence human resource shortage n
certan sectors, many countres have abundance.
In the past, deveopng countres were regarded, generay, as poos
of unsked abour. Today, however, many deveopng countres
have abundance of sked and scentfc manpower as we as
unsked and semsked abour.
Ths changng trend s ncasng sgnfcant shft of ocaton of
busness actvtes. Hard dsk drve manufacturers are reported to be
shftng ther producton base from Sngapore to cheaper ocatons
ke Maaysa, Thaand and Chna.
Whe n the past unsked and semsked abour ntensve actvtes
tended to be ocated n the deveopng countres, today
sophstcated actvtes aso fnd favour wth deveopng countres.
The changng quaty attrbutes of human resources n the
deveopng countres and wage dfferentas are causng a ocaton
shft n busness actvtes, resutng n new trends n the goba
suppy chan management.
Inda s reported to be emergng as a goba R&D hub. Inda and
severa other deveopng countres are arge sources of IT personne.
63
In short, the abour changng abour market characterstcs have
been causng goba restructurng of busness processes and
ndustres. And ths causes a great chaenge for strategc HRM.
CULTURAL DIFFERENCES
Cutura dfferences cause a great chaenge to HRM.
The behavoura atttude of workers, the soca envronment, vaues,
beefs, outooks etc., are mportant factors, whch affect ndustra
reatons, oyaty, productvty etc.
There are aso sgnfcant dfferences n aspects reated to abour
mobty. Cutura factors are very reevant n nter persona
behavour aso.
In some countres t s common to address the boss Mr. so and so
but n countres ke Inda addressng the boss by name woud not be
wecome.
In countres ke Inda peope attach great vaue to desgnatons and
herarchca eves. Ths makes deverng and organsatona
restructurng dffcut.
DIFFERENCES IN REGULATORY ENVIRON)ENT
A frm operatng n dfferent countres s confronted wth dfferent
envronments wth respect to government poces and reguatons
regardng abour.
The atttude of empoyers and empoyees towards empoyment of
peope show great varatons s dfferent natons. In some countres
hire and fire s the common thng whereas n a number of countres
the dea norm has been fetme empoyment.
64
In countres ke Inda workers generay fet that whe they, have
the rght to change organsatons, as they preferred, they had a
rght to fetme empoyment n the organsaton they were
empoyed wth.
In such stuatons t s very dffcut to get rd of neffcent or surpus
manpower. The stuaton, however, s changng n many countres,
ncudng Inda.
DIFFERENCE IN CONDITIONS OF E)PLOY)ENT
Besdes the tenancy of empoyment, there are severa condtons of
empoyment the dfferences of whch cause sgnfcant chaenge to
nternatona HRM.
The system of rewards, promoton, ncentves and motvaton,
system of abour wefare and soca securty etc., vary sgnfcanty
between countres.
CASE STUDY5 ORGANIZATIONAL CHANGE AT UNILEVER
Unever s a very od mutnatona wth wordwde operatons n the
detergent and food ndustres. For decades, Unever managed ts
wordwde detergents actvtes n an arm's-ength manner. A subsdary was
set up n each ma|or natona market and aowed to operate argey
autonomousy, wth each subsdary carryng out the fu range of vaue cre-
aton actvtes, ncudng manufacturng, marketng, and R&D. The
65
company had 17 autonomous natona operatons n Europe aone by the
md-1980s.
In the 1990s, Unever began to transform ts wordwde detergents
actvtes from a oose confederaton nto a tghty managed busness wth
a goba strategy. The shft was prompted by Unever's reazaton that ts
tradtona way of dong busness was no onger effectve n an arena where
t had become essenta to reaze substanta cost economes, to nnovate,
and to respond qucky to changng market trends.
The pont was drven home n the 1980s when the company's archrva,
Procter & Gambe, repeatedy stoe the ead n brngng new products to
market. Wthn Unever, "persuadng" the 17 European operatons to adopt
new products coud take four to fve years. In addton, Unever was
handcapped by a hgh-cost structure from the dupcaton of manufacturng
factes from country to country and by the company's nabty to en|oy
the same knd of scae economes as P&G. Unever's hgh costs rued out ts
use of compettve prcng.
To change ths stuaton, Unever estabshed product dvsons to coord-
nate regona operatons. The 17 European companes now report
drecty to Lever Europe. Impct n ths new approach s a bargan:
The 17 companes are renqushng autonomy n ther tradtona markets
n exchange for opportuntes to hep deveop and execute a unfed pan-
European strategy. As a consequence of these changes, manufacturng s
now beng ratonazed, wth detergent producton for the European
market concentrated n a few key ocatons. The number of European
pants manufacturng soap has been cut from 10 to 2, and some new
products w be manufactured at ony one ste. Product szng and packagng
are beng harmonzed to cut purchasng costs and to pave the way for
unfed pan-European" advertsng. By takng these steps, Unever
estmates t may save as much as $400 mon a year n ts European
operatons.
66
Lever Europe s attemptng to speed ts deveopment of new products and
to synchronze the aunch of new products throughout Europe. Its efforts
seem to be payng off: A dshwasher detergent ntroduced n Germany n the
eary 1990s was avaabe across Europe a year ater-a dstnct
mprovement.
But hstory st mposes constrants. Procter & Gambe's eadng aundry
detergent carres the same brand name across Europe, but Unever ses ts
product under a varety of names. The company has no pans to change ths.
Havng spent 100 years budng these brand names, t beeves t woud
be foosh to scrap them n the nterest of pan-European standardzaton.
http://www.unever.com
G;H
+HAT IS THE GA;H
The Group of Twenty (G-20) Fnance Mnsters and Centra Bank Governors
was estabshed n 1999 to brng together systemcay mportant
ndustrazed and deveopng economes to dscuss key ssues n the
goba economy. The naugura meetng of the G-20 took pace n Bern,
on December 15 & 16, 1999, hosted by German and Canadan fnance
mnsters.
)ANDATE
67
The G-20 s an nforma forum that promotes open and constructve
dscusson between ndustra and emergng-market countres on key
ssues reated to goba economc stabty. By contrbutng to the
strengthenng of the nternatona fnanca archtecture and provdng
opportuntes for daogue on natona poces, nternatona co-operaton,
and nternatona fnanca nsttutons, the G-20 heps to support growth
and deveopment across the gobe.
ORIGINS
The G-20 was created as a response both to the fnanca crses of
the ate 1990s and to a growng recognton that key emergng-
market countres were not adequatey ncuded n the core of goba
economc dscusson and governance.
The proposas made by the G-22 and the G-33 to reduce the word
economy's susceptbty to crses showed the potenta benefts of a
reguar nternatona consutatve forum embracng the emergng-
market countres.
Such a reguar daogue wth a constant set of partners was
nsttutonazed by the creaton of the G-20 n 1999.
)E)BERSHIP
The G-20 s made up of the fnance mnsters and centra bank governors
of 19 countres:
Argentna
Austraa
68
Braz
Canada
Chna
France
Germany
Inda
Indonesa
Itay
|apan
Mexco
Russa
Saud Araba
South Afrca
South Korea
Turkey
Unted Kngdom
Unted States of Amerca
The European Unon, who s represented by the rotatng Counc
presdency and the European Centra Bank, s the 20th member of
the G-20.
To ensure goba economc for a and nsttutons work together, the
Managng Drector of the Internatona Monetary Fund (IMF) and the
69
Presdent of the Word Bank, pus the chars of the Internatona
Monetary and Fnanca Commttee and Deveopment Commttee of
the IMF and Word Bank, aso partcpate n G-20 meetngs on an ex-
offco bass.
The G-20 thus brngs together mportant ndustra and emergng-
market countres from a regons of the word. Together, member
countres represent around 90 per cent of goba gross natona
product, 80 per cent of word trade (ncudng EU ntra-trade) as we
as two-thrds of the word's popuaton.
The G-20's economc weght and broad membershp gves t a hgh
degree of egtmacy and nfuence over the management of the
goba economy and fnanca system.
ACHIEVE)ENTS
The G-20 has progressed a range of ssues snce 1999, ncudng
agreement about poces for growth, reducng abuse of the fnanca
system, deang wth fnanca crses and combatng terrorst
fnancng.
The G-20 aso ams to foster the adopton of nternatonay
recognzed standards through the exampe set by ts members n
areas such as the transparency of fsca pocy and combatng
money aunderng and the fnancng of terrorsm.
In 2004, G-20 countres commtted to new hgher standards of
transparency and exchange of nformaton on tax matters. Ths ams
to combat abuses of the fnanca system and ct actvtes
ncudng tax evason. The G-20 aso pays a sgnfcant roe n
matters concerned wth the reform of the nternatona fnanca
archtecture.
70
The G-20 has aso amed to deveop a common vew among
members on ssues reated to further deveopment of the goba
economc and fnanca system and hed an extraordnary meetng n
the margns of the 2008 IMF and Word Bank annua meetngs n
recognton of the current economc stuaton.
)EETINGS AND ACTIVITIES
It s norma practce for the G-20 fnance mnsters and centra bank
governors to meet once a year.
The mnsters' and governors' meetng s usuay preceded by two
deputes' meetngs and extensve technca work.
Ths technca work takes the form of workshops, reports and case
studes on specfc sub|ects, that am to provde mnsters and
governors wth contemporary anayss and nsghts, to better nform
ther consderaton of pocy chaenges and optons.
INTERACTION +ITH OTHER INTERNATIONAL ORGANIZATIONS
The G-20 cooperates cosey wth varous other ma|or nternatona
organzatons and for a, as the potenta to deveop common
postons on compex ssues among G-20 members can add potca
momentum to decson-makng n other bodes.
The partcpaton of the Presdent of the Word Bank, the Managng
Drector of the IMF and the chars of the Internatona Monetary and
Fnanca Commttee and the Deveopment Commttee n the G-20
meetngs ensures that the G-20 process s we ntegrated wth the
actvtes of the Bretton Woods Insttutons.
The G-20 aso works wth, and encourages, other nternatona
groups and organzatons, such as the Fnanca Stabty Forum, n
progressng nternatona and domestc economc pocy reforms. In
71
addton, experts from prvate-sector nsttutons and non-
government organsatons are nvted to G-20 meetngs on an ad
hoc bass n order to expot synerges n anayzng seected topcs
and avod overap.
E,TERNAL CO))UNICATION
The country currenty charng the G-20 posts detas of the group's
meetngs and work program on a dedcated webste.
Athough partcpaton n the meetngs s reserved for members, the
pubc s nformed about what was dscussed and agreed
mmedatey after the meetng of mnsters and governors has
ended.
After each meetng of mnsters and governors, the G-20 pubshes a
communqu whch records the agreements reached and measures
outned. Matera on the forward work program s aso made pubc.
72

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