MB0037 – International Business Management Q.1 a) How has liberalizing trade helped international business?

Answer: The Benefits of Trade Liberalization
Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years. Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not. Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization. The potential gains from eliminating remaining trade barriers are considerable. Estimate of the gains from eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. About two-thirds of these gains would accrue to industrial countries. But the amount accruing to developing countries would still be more than twice the level of aid they currently receive. Moreover, developing countries would gain more from global trade liberalization as a percentage of their GDP than industrial countries, because their economies are more highly protected and because they face higher barriers. Although there are benefits from improved access to other countries’ markets, countries benefit most from liberalizing their own markets. The main benefits for industrial countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. The group of lowincome countries, however, would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies.

B) What are the merits and demerits of international trade? Answer: Advantages and Disadvantages of International Trade
Advantages to consider: • Enhance your domestic competitiveness • Increase sales and profits • Gain your global market share • Reduce dependence on existing markets • Exploit international trade technology

MBA Finance (4th SEM, SET-1)

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In this new millennium.MB0037 – International Business Management • • • • • Extend sales potential of existing products Stabilize seasonal market fluctuations Enhance potential for expansion of your business Sell excess production capacity Maintain cost competitiveness in your domestic market Disadvantages to keep in mind: • You may need to wait for long-term gains • Hire staff to launch international trading • Modify your product or packaging • Develop new promotional material • Incur added administrative costs • Dedicate personnel for traveling • Wait long for payments • Apply for additional financing • Deal with special licenses and regulations Q.. We then examine novel constructs for characterizing cultures. (1966) and the publication of Industrialism and Industrial Man by Kerr MBA Finance (4th SEM. extended the geographical reach of firms. 2 Discuss the impact of culture on International Business. few executives can afford to turn a blind eye to global business opportunities. A schematic summary of our coverage is given in Table 2. and how to enhance the precision of cultural models by pinpointing when the effects of culture are important. 1999). 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. 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. In fact. which suggests that the topics reviewed are loosely related. Whereas traditional IB research has been concerned with economic/ legal issues and organizational forms and structures. from capital structure (Chui et al. we examine the usefulness of experimental methods. and the processes underlying cultural changes. see’ Boyacigiller and Adler’ (1991) and ‘Earley and Gibson’ (2002). norms. beliefs. Finally. 1 Cultural change. and behavioral patterns of a national group – has become increasingly important in the last two decades. The globalizing wind has broadened the mindsets of executives. with an eye toward productive avenues for future research. largely as a result of the classic work of Hofstede (1980). The purpose of this Unit is to provide a state-of-the-art review of several recent advances in culture and IB research. 2002) to group performance (Gibson. and nudged international business (IB) research into some new trajectories. Answer: The following can be looked as the various aspects of the cultural dichotomies. since the landmark study of Haire et al. For reviews. Executives of Hollywood movie studios need to weigh the appeal of an expensive movie in Europe and Asia as much as in the US before a firm commitment. our goal is to spotlight a few highly promising areas for leapfrogging the field in an increasingly boundary-less business world. One such new trajectory is the concern with national culture. It is not our purpose to be comprehensive.1. the importance of national culture – broadly defined as values. Japanese auto-executives monitor carefully what their European and Korean competitors are up to in getting a bigger slice of the Chinese auto-market. SET-1) Page 2 . which are rarely employed in the field of culture and IB. National culture has been shown to impact on major business activities. We first review the issues surrounding cultural convergence and divergence.

US. and cross – border alliances in the form of joint ventures. 2002).MB0037 – International Business Management et al. researchers have continued to search for similarities in culture-specific beliefs and attitudes in various aspects of work related attitudes and behaviors. the changes do not diminish the absolute differences between such countries and those of the Anglo countries (i. as reflected in the increased cross-border flow of three types of entities: goods and services. 153). SET-1) Page 3 . multinational companies (MNCs). and inefficiencies and complexities associated with divergent beliefs and practices in the past era would disappear. it may be called integration. Argentina. His findings indicate that cultural shifts are relative as opposed to absolute. and is conducted via government international organizations such as the North American Free Trade Agreement (NAFTA) and the European Community. if there is a significant history of conflict between the cultural groups.. money. we review the evidence on the issue and conclude that such an outlook pertaining to the convergence of various IB practices is overly optimistic. Standard. and the prevalent term was ‘international trade’ (Drucker. (1960). In the following section. 1995). These inter – relationships have enhanced participation in the world economy. However. but remain rather consistent over time. especially in consumer values and lifestyles.. 4). 1994). international mergers.g. as in the case of Israelis and Palestinians. international trade has culminated in the emergence of a global economy. corporation.. Both of these processes are essential for cultural convergence to proceed. In general. 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.g.. Few spoke of ‘world economy’ 25 years ago. presents the view that there is indeed a resurgence of non-Western cultures around the world. In contrast. technology. culture-free business practices would eventually emerge. Hofstede (2001) asserts that mental programs of people around the world do not change rapidly. Although clusters of some countries in given geographical locales (e. IB-related practices would indeed become increasingly similar. which could result in the redistribution of national power in the conduct of international affairs. consumption patterns. 2001. Jung et al.g. 1995. Chile) might indicate significant culture shifts towards embracing Anglo values. it is hard to initiate these processes. UK). or situation is the most important determinant of the cultural identity that people develop in a given locale (Triandis. Brazil.. 4 Implications of convergence and divergence issues One message is clear: while convergence in some domains of IB activity is easily noticeable.. Huntington. capital. Canada. If cultures of the various locales of the world are indeed converging (e.e. or what Triandis (1994) calls subtractive multiculturalism. although there has been some research on the typology of animosity against other nations (e. However today. global organizations such as the International Organization for Standardization (ISO). 2 Evolution of partial globalization Globalization refers to a ‘growing economic interdependence among countries. and people. 3 Role of multiculturalism and cultural identity The broad ideological framework of a country. consisting of flows of information. significant divergence of cultures persists. in his ‘The Clash of Civilizations’ (1996). and have become a key to domestic economic growth and prosperity (Drucker. when people from a cultural group add appropriate skills and characteristics of other groups. The attempt by the Davos group to bring about MBA Finance (4th SEM. we do not know much about how emotional antagonism against other cultural groups affects trade patterns and intercultural cooperation in a business context. and the like. and acquisitions. 1999). The ‘melting pot’ ideology suggests that each cultural group loses some of its dominant characteristics in order to become the mainstream: this is assimilation. Heuer et al. and know-how’ (Govindarajan and Gupta. In fact. or additive multiculturalism.

or without long periods of resistance.MB0037 – International Business Management uniform practices in various aspects of IB and work culture. 1993). culture has been treated as a relatively stable characteristic. with its effects filtering down to the national. which is testable by social consensus. but whether or not these changes will bring about cultural convergence is yet to be seen. changes at micro-levels of culture. and leads to more control over expected behavioral outcomes (Weick and Quinn. Erez and Gati (2004) proposed that the general model of multi-level analysis (Klein and Kozlowski. Reciprocally. Leana and Barry. organizational. as portrayed in Figure 2. 1993). The process of globalization described before has introduced the most significant change in IB. In line with this argument. reciprocal relationships with cultural change. and for international business to flourish it is important to understand its complex. multi-layer construct The proposed model consists of two building blocks. distinguished between theories driven by the underlying assumption that adaptation is the mechanism to cope with change. Yet. The present model proposes that culture as a multi – layer construct exists at all levels – from MBA Finance (4th SEM. cultures influence each other and change. the end of the 20th century and the beginning of the new millennium have been characterized by turbulent political and economical changes. In this section. The second is based on Schein’s (1992) model viewing culture as a multi – layer construct consisting of the most external layer of observed artifacts and behaviors. Cultural stability helps to reduce ambiguity. 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. 2000) could be adopted for understanding the dynamics of culture and cultural change. behavioral norms. the issue of cultural change at the national level has rarely been addressed. 5 Processes of cultural changes In the previous section. and cultural values that are represented in the self at the individual level. However. 2000). through the process of globalization. culminate into macro level phenomena and change the macro-levels of culture. our analysis suggests that there is no guarantee that such convergence will come about easily. although organizational changes as a reaction to environmental changes have been subjected to considerable conceptual analyses. 6 The dynamics of culture as a multi-level. which instigate cultural changes. suggesting that ineffective forms of organization disappear. However. As explained before. Lewin and Kim (2004). the deeper level of values. SET-1) Page 4 . thereby sustaining the forces of globalization. group cultures. In the absence of research models that can shed light on this complex process of cultural change. and the deepest level of basic assumption. reflecting a shared knowledge structure that attenuates variability in values. is certainly worthwhile. which is invisible and taken for granted. organizational cultures. we make the point that. The assumption of cultural stability is valid as long as there are no environmental changes that precipitate adaptation and cultural change. IB is both an agent and a recipient of cultural change. High fit means high adaptation of managerial practices to a given culture and. One is a multi-level approach. and patterns of behaviours (Erez and Earley. For instance. therefore. 1999. through national cultures. and new forms emerge.1. high effectiveness. viewing culture as a multi-level construct that consists of various levels nested within each other from the most macro-level of a global culture. when shared by the members of the society. in their comprehensive chapter on adaptation and selection in strategy and change. we delineate a general model that describes and explains the complex processes underlying cultural changes. group and individual levels. In line with the view of Hofstede (2001) that culture changes very slowly. and theories driven by the underlying assumption of selection and the survival of the fittest.

For example. Given the dominance of Western MNCs.MB0037 – International Business Management the global to the individual – and that at each level change first occurs at the most external layer of behavior. acceptance and tolerance of diversity. Further down are local organizations. Below the global level are nested organizations and networks at the national level with their local cultures varying from one nation or network to another.g. 2000). 1999. In the model. Within each organization are sub-units and groups that share the common national and organizational culture. Figure 2. and openness to change (Gupta and Govindarajan. the type of ownership. the values that dominate the global context are often based on a free market economy. individual rights. democracy. organizations. and then. when shared by individuals who belong to the same cultural context. the most macro-level is that of a global culture being created by global networks and global institutions that cross national and cultural borders. 2000). At the bottom of this structure are individuals who through the process of socialization acquire the cultural values transmitted to them from higher levels of culture. it becomes a shared value that characterizes the aggregated unit (group. employees of an R&D unit are selected into the unit because of their creative cognitive style and professional expertise. SET-1) Page 5 . R&D vs manufacturing). Gupta and Govindarajan. respect of freedom of choice. their leaders’ values. and although all of them share some common values of their national culture. As exemplified by the effort of the Davos group discussed earlier. the values of the founders. they vary in their local organizational cultures. Individuals who belong to the same group share the same values that differentiate them from other groups and create a group – level culture through a bottom-up process of aggregation of shared values. 2003. global organizational structures need to adopt common rules and procedures in order to have a common ‘language’ for communicating across cultural borders (Kostova. and the professional and educational level of their members. Kostova and Roth. but that differ from each other in their unit culture on the basis of the differences in their functions (e.1: The dynamic of top-down–bottom-up processes across Levels of culture. which are also shaped by the type of industry that they represent. or nations). Their leader also typically facilitates the display of these personal characteristics MBA Finance (4th SEM. etc..

The values of low power distance. Similarly. whereas others hinder it. For example. the deep basic assumptions still reflect the traditional values shaped by the broad cultural heritage of a society. and individualism facilitate change. over time. The changes in national cultures observed by Inglehart and Baker (2000) could serve as an example for top-down effects of economic growth. and caused behavioral changes. The latter insisted on sending the Israeli managers to intensive courses in Six – Sigma. The case of cultural change via international acquisitions demonstrated the two building blocks of our dynamic model of culture: the multi-level structure explains how a lower-level culture is being shaped by topdown effects. These global rules and values filter down to the local organizations that constitute the global company. with the Israeli company being higher on the cultural dimension of innovation and lower on the cultural dimension of attention to detail and conformity to rules and standards as compared with the acquiring company. and different parts of the multinational company. on a cultural shift from traditional values to modernization. low uncertainty avoidance. which MBA Finance (4th SEM. Change threatens stability. having local organizations join a global company may introduce changes into the global company because of its need to function effectively across different cultural boarders. in line with Schein (1992). multinational companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions. and explain how culture at different levels is being shaped and reshaped by changes that occur at other levels. which is an advanced method of quality improvement. Harzing and Hofstede (1996) proposed that certain cultural values facilitate change. and therefore will be avoided in high power distance cultures.MB0037 – International Business Management because they are crucial for developing innovative products. and upper levels through a bottom-up process of aggregation. A study by Erez-Rein et al. The study identified a cultural gap between the two companies. enhanced by globalization. followed by the internalization of quality – oriented values. Change also threatens the power structure. these managers introduced quality improvement work methods and procedures to the local company. 2000). and.. and local organizations that share similar values create the national culture that is different from other national cultures. In the long run. Finally. (2004) demonstrated how a multinational company that acquired an Israeli company that develops and produces medical instruments changed the organizational culture of the acquired company. Thus. That means that there is a continuous reciprocal process of shaping and reshaping organizations at both levels. SET-1) Page 6 . Reciprocally. Both top-down and bottom-up processes reflect the dynamic nature of culture. However. Global organizations and networks are being formed by having local-level organizations join the global arena. either above it through top-down processes or below it through bottom-up processes. Upon returning to their company. they shape the local organizations. and introduces uncertainty. a top-down process of training and education led to changes in work behavior and work values. which differentiate them from other organizational units. and a managerial philosophy that encompasses all organizational functions. Groups that share similar values create the organizational culture through a process of aggregation. change breaks the existing harmony. Sharing common behaviors and values by all employees of the local company then shaped the organizational culture through bottom–up processes. and resistance to change will therefore be higher in cultures of high rather than low uncertainty avoidance (Steensma et al. all members of this unit share similar core values. bottom – up processes of shared behaviors and norms shape the local organizational culture. Thus. 7 Factors that facilitate cultural change Culture itself influences the level of resistance or acceptance of change. and that the cultural layer that changes first is the most external layer of behavior. changes at each level affect lower levels through a top-down process.

in this complex circumstance. Over the term of her career. accounting for over 97% of world trade. we also argue for the importance of examining contingency factors that enhance or mitigate the effect of national culture. and therefore will not be easily accepted by collectivists (Levine and Norenzayan. Consider the following scenario. The change process examined was a shift from choosing to work alone to a behavioral choice of working as part of a team. and · the degree of ambiguity in the reward structure. Decisions are made by the entire membership. creating efficiencies and synergies across the remote sites. A majority vote is also possible but it has never been used in the WTO. 1999). Below this is the General Council (normally ambassadors and heads of delegation in Geneva. · the reward structure and its congruence with the underlying cultural values. but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters.3. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. This is typically by consensus. GATT. and was extremely rare under the WTO’s predecessor. 8 Understanding when culture matters: increasing the precision of cultural models Beyond exploring new cultural constructs and the dynamic nature of culture. she understands the strategic need to create a unified global program that serves to further integrate the firm’s basic processes. At the same time. a) Explain the brief structure of WTO? Answer: Structure of World Trade Organization (WTO) The WTO’s overriding objective is to help trade flow smoothly. A senior human resource manager in a multinational firm is charged with implementing an integrative training program in several of the firm’s subsidiaries around the globe. and vice versa. A recent study by Erez and Gati (2004) examined the effects of three factors on the change process and its outcomes: · the cultural value of individualism – collectivism. fairly and predictably. whereas working in teams dominates the collectivistic ones. She approaches the implementation with trepidation. The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. freely. SET-1) Page 7 . Around 30 others are negotiating membership. Working alone is more prevalent in individualistic cultures. The WTO’s agreements have been ratified in all members’ parliaments. does culture matter? Q. the manager has been educated about differences in national culture and is sensitive to intercultural opportunities and challenges. MBA Finance (4th SEM. through technical assistance and training programs · Cooperating with other international organizations Structure The WTO has nearly 150 members. It does this by: · Administering trade agreements · Acting as a forum for trade negotiations · Settling trade disputes · Reviewing national trade policies · Assisting developing countries in trade policy issues. Put another way.MB0037 – International Business Management is highly valued in collectivistic cultures. A key challenge is to determine whether the program should be implemented in the same manner in each subsidiary or modified according to the local culture at each site.

The countries make their decisions through various councils and committees. Its annual budget is roughly 160 million Swiss francs. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. to provide technical assistance for developing countries. either by ministers (who meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Services Council and Intellectual Property (TRIPS) Council report to the General Council. consensus-based organization. Reaching decisions by consensus among some 150 members can be difficult. SET-1) Page 8 . It does not have branch offices outside Geneva. The Secretariat’s main duties are to supply technical support for the various councils and committees and the ministerial conferences. Decisions are normally taken by consensus. Its main advantage is that decisions made this way are more acceptable to all members. some remarkable agreements have been reached. to analyze world trade. and to explain WTO affairs to the public and media. In this respect. the Goods Council. whose membership consists of all WTO members. development. the rules are enforced by the members themselves under agreed procedures that they negotiated. All major decisions are made by the membership as a whole. They report to the Ministerial Conference. Nevertheless. proposals for the creation of a smaller executive body – perhaps like a board of directors each representing different groups of countries – are heard periodically. The Secretariat also provides some forms of legal assistance in the dispute settlement process and advises governments wishing to become members of the WTO. although they meet under different terms of reference. the WTO is different from some other international organizations such as the World Bank and International Monetary Fund. influence a country’s policy by threatening to withhold credit. The WTO is run by its member governments. and authorized by the membership as a whole. working groups and working parties deal with the individual agreements and other areas such as the environment. When WTO rules impose disciplines on countries’ policies. Second level: General Council in three guises Day-to-day work in between the ministerial conferences is handled by three bodies: · The General Council · The Dispute Settlement Body · The Trade Policy Review Body All three are in fact the same – the Agreement Establishing the WTO states they are all the General Council. based in Geneva. the Secretariat does not have the decision-making role that other international bureaucracies are given with. the WTO is a member-driven.MB0037 – International Business Management At the next level. MBA Finance (4th SEM. But those sanctions are imposed by member countries. power is not delegated to a board of directors or the organization’s head. for example. including the possibility of trade sanctions. Numerous specialized committees. And despite the difficulty. This is quite different from other agencies whose bureaucracies can. all three consist of all WTO members. the WTO belongs to its members. membership applications and regional trade agreements. Highest authority: the Ministerial Conference So. has around 600 staff and is headed by a directorgeneral. Since decisions are taken by the members themselves. But for now. The WTO is ‘member-driven’. In the WTO. that are the outcome of negotiations among WTO members. Again. Topmost is the ministerial conference which has to meet at least once every two years. Secretariat The WTO Secretariat. with decisions taken by consensus among all member governments.

The key is to ensure that everyone is kept informed about what is going on (the process must be “transparent”) even if they are not in a particular consultation or meeting. report to the General Council: · The Council for Trade in Goods (Goods Council) · The Council for Trade in Services (Services Council) · The Council for Trade – Related Aspects of Intellectual Property Rights (TRIPS Council) As their names indicate. GATS rules and specific commitments. Again they consist of all WTO members. Since decisions are made by consensus. The Services Council’s subsidiary bodies deal with financial services. and the Appellate Body that deals with appeals. These smaller meetings have to be handled sensitively. The scope of their coverage is smaller. in twos or threes. without voting.MB0037 – International Business Management The General Council acts on behalf of the Ministerial Conference on all WTO affairs. regional trading arrangements. The Singapore Ministerial Conference in December 1996 decided to create new working groups to look at investment and competition policy. But they still consist of all WTO members. One term has become controversial. the Dispute Settlement Body also has two subsidiaries: the dispute settlement “panels” of experts appointed to adjudicate on unresolved disputes. such as those of the Heads of Delegations (HOD). least of all in the higher level councils. usually at the level of heads of delegations. domestic regulations. market access. At the General Council level. or in groups of 20 – 30 of the most interested delegations. The “Green Room” is a phrase taken from the informal name of the directorgeneral’s conference room. More difficult issues have to be thrashed out in smaller groups. Also reporting to the Goods Council is the Textiles Monitoring Body. Third level: councils for each broad area of trade. These three also have the subsidiary bodies. Heads of Delegations and other boards: the need for informality Important breakthroughs are rarely made in formal meetings of these bodies. anti-dumping measures and so on). and groups dealing with notifications (governments informing the WTO about current and new policies or measures) and state trading enterprises. SET-1) Page 9 . These meetings can take place elsewhere. It is used to refer to meetings of 20 – 40 delegations. but more among some outside observers than among delegations. the environment. and administrative issues. transparency in government procurement. subsidies. each handling a different broad area of trade. A common recent practice is for the chairperson of a negotiating group to attempt to forge a compromise by holding consultations with delegations individually. Two more subsidiary bodies dealing with the plural-lateral agreements (which are not signed by all WTO members) keep the General Council informed of their activities regularly. They cover issues such as trade and development. such as at MBA Finance (4th SEM. informal consultations within the WTO play a vital role in bringing a vastly diverse membership round to an agreement. these consist of all member countries. and that they have an opportunity to participate or provide input (it must be “inclusive”). It meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures for settling disputes between members and to analyze members’ trade policies. and more back to top Three more councils. One step away from the formal meetings is informal meetings that still include the full membership. and trade facilitation. the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade. so they are “committees”. Six other bodies report to the General Council. Again. The Goods Council has 11 committees dealing with specific subjects (such as agriculture. Fourth level: down to the nitty-gritty Each of the higher level councils has subsidiary bodies. which consists of a chairman and 10 members acting in their personal capacities.

as then represented by GATT. GATT’s success in reducing tariffs to such a low level. because it is virtually impossible for members to change their positions voluntarily in meetings of the full membership. High rates of unemployment and constant factory closures led governments in Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. and ultimately for confirming decisions. countries have formed coalitions. B) Highlight the drawbacks of GATT? Answer: Given its provisional nature and limited field of action. was recognized as an anchor for development and an instrument of economic and trade reform. SET-1) Page 10 . In order to increase their bargaining power. but they do not appear in organization charts. The membership as a whole would resist attempts to impose the will of a small group. The final outcome is a multilateral package of individual countries’ commitments. In the past delegations have sometimes felt that Green Room meetings could lead to compromises being struck behind their backs. was a sign of difficult times to come. Both these changes undermined the credibility and effectiveness of GATT. In the end. In some subjects such as agriculture virtually all countries are members of at least one coalition – and in many cases.MB0037 – International Business Management Ministerial Conferences. precisely because they are informal. which depend on individual countries’ interests. They are not separate from the formal meetings. Continual reductions in tariffs alone helped spur very high rates of world trade growth – around 8 per cent a year on average during the 1950s and 1960s. and market access talks in services. So. however. informal consultations in various forms play a vital role in allowing consensus to be reached. The art of achieving agreement among all WTO members is to strike an appropriate balance. Market access negotiations also involve small groups. the success of GATT in promoting and securing the liberalization of much of world trade over 47 years is incontestable. The rush of new members during the Uruguay Round demonstrated that the multilateral trading system. extra efforts are made to ensure that the process is handled correctly. MBA Finance (4th SEM. drove governments to devise other forms of protection for sectors facing increased overseas competition. They are necessary for making formal decisions in the councils and committees. decisions have to be taken by all members and by consensus. so that a breakthrough achieved among only a few countries can be acceptable to the rest of the membership. The limited achievement of the Tokyo Round. (Examples include the traditional tariff negotiations. They are the forums for exchanging views. The way countries now negotiate has helped somewhat. and can be called by the minister chairing the conference as well as the director-general.) So. And the momentum of trade liberalization helped ensure that trade growth consistently out-paced production growth throughout the GATT era. although the term Green Room is not usually used for these. This means that all countries can be represented in the process if the coordinators and other key players are present. putting countries’ positions on the record. The coordinators also take responsibility for both “transparency” and “inclusiveness” by keeping their coalitions informed and by taking the positions negotiated within their alliances. combined with a series of economic recessions in the 1970s and early 1980s. outside the tariff reduction results. with regular reports back to the full membership. several coalitions. informal bargaining sessions. but those commitments are the result of numerous bilateral. Nor are the formal meetings unimportant. Similar smaller group consultations can be organized by the chairs of committees negotiating individual subjects. No one has been able to find an alternative way of achieving consensus on difficult issues. but for a completely different reason.

Mention the benefits of WTO? Answer: Ten Benefits of WTO 1. SET-1) Page 11 . and the development of institutions has been prominent throughout the process.4. 4. the drivers behind the integration process in each region are different. Nevertheless. at the same time. By comparison. That effort resulted in the Uruguay Round. it will include some comparisons between the two regions. these and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. 6. it could be said that the process began centuries ago – even as far back as the 15th century. Together.MB0037 – International Business Management Apart from the deterioration in the trade policy environment. closely tied to further increases in world merchandise trade. and nowhere is this more evident than in the vastly different integration processes taking place in the regions of Europe and East Asia. Thus. the GATT had been found wanting: for instance. For a start. Q. 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. A) Give a short note on the regional economic integration? Answer: Regional Economic Integration Regional integration can take many forms. with respect to agriculture where loopholes in the multilateral system were heavily exploited – and efforts at liberalizing agricultural trade met with little success – and in the textiles and clothing sector where an exception to the normal disciplines of GATT was negotiated in the form of the Multi-fiber Arrangement. Corporations and the production networks they have established are driving integration in East Asia. Integration in East Asia has progressed very slowly and is still in an early stage despite that the process has continued for decades. the speed of progression and the level of integration attained in the two regions are quite dissimilar. Thus. B). regional integration is taking place in 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. international investment was exploding and trade in services – not covered by the rules of GATT – was of major interest to more and more countries and. regional institutions have been the driving force behind integration in Europe. it also became apparent by the early 1980s that the General Agreement was no longer as relevant to the realities of world trade as it had been in the 1940s. In Europe. 5. The system helps to keep the peace The system allows disputes to be handled constructively A system based on rules rather than power makes life easier for all Freer trade cuts the cost of living It gives consumers more choice and a broader range of qualities to choose from Trade raises incomes Trade stimulates economic growth and that can be good news for employment MBA Finance (4th SEM. In addition to these differences. In fact. In other respects. 3. 7. but the driving force is the market rather than policy or institutions. however. progress in this area has been slow and the few existing institutions are fairly weak and ineffective. world trade had become far more complex and important than 40 years before: the globalization of the world economy was underway. While the paper is not intended as a direct comparison of integration in East Asia and Europe. the development of regional institutions has also occurred. In East Asia. Even the institutional structure of GATT and its dispute settlement system were giving cause for concern. the origins of integration have been institutional in nature. 2.

5. Bayus (1994) claims that knowledge is being applied faster.MB0037 – International Business Management 8. The EOL element requires that a decision be made about the preceding version at each major redesign: continue production. such as with Caterpillar’s innovative high-drive bulldozers. as the horizon over which the element curves vary. 5 a. must take into account company strategy. Regardless of whether life cycles are actually being compressed or knowledge is simply being applied faster. process engineering. and the state of the competitive environment. Production has one activity peak that results from demand management and production planning through master production scheduling. That the five-element wave is grounded in reality becomes apparent when considering the recent research that suggests product introduction cycles are being compressed. The effect of this is a compression of the design engineering. and product marketing elements of the wave model. it is apparent that firms are increasing the speed with which they bring their products to market. The last wave begins shortly before original production ceases and ends when the product is no longer manufactured or supported by the EOL Company or division. Finally. The first wave is associated with the "A" version of a product or service. uses trigger points. rather than time. represented by the vertical axis. Rather. core capabilities. or discontinue production. and product marketing. the varying activity levels are a direct result of product introductions and redesigns that. and manufacturing curves before the final crest at EOL activity. there are an increasing number of product variations on the market. Changes in magnitude. For the sake of parsimony. do not necessarily determine the trigger points. lagged somewhat for product introduction. In reality. The system encourages good government Q. The five-element product wave. Product marketing also has activity level spikes that closely match engineering design activity. and survives through the traditional PLC introduction and growth phases. there may be hundreds of significant redesigns. as system changes will be contemplated and made to facilitate the changes made in the product or service. process engineering. production. The basic principles make the system economically more efficient. Figure 4. Explain five-element product wave model? Answer: The Five-Element Product Wave As illustrated in Figure 4. the EOL curve peaks at each redesign. product marketing. production. SET-1) Page 12 . in and of themselves. Vesey (1992) reports that the strategy for the 1990s is speed to market and discusses the pressures the market is exerting to shorten product introduction lead times. forming swells in design engineering. Slater (1993) observes that product life cycles are growing shorter and shorter. It starts just before the traditional life cycle maturity stage and lives until sales decline to a point at which an EOL decision must be made. The system shields governments from narrow interests 10. further distancing that product from the competition. and end-of-life activities as elements. For example. Yet since product removals are not keeping pace with introductions. Simple changes in levels of dollar or unit product sales. keep blueprints active so that parts can be made as ordered. A second wave begins with the "B" version. and they cut costs 9. enter into a manufacturing and support agreement with another entity. result from differing activity levels within the five elements. from the outset. the markedly improved second model. resulting in increasing levels of new product introductions. Process engineering activity shadows that of design engineering. (The EOL curve may remain unchanged because accelerated introductions do not necessarily MBA Finance (4th SEM. The wave effect comes from the fact that the process repeats for the successful firm. process engineering. the wave model employs design engineering. make a short-term run of spares. Note that design engineering has a peak of activity level at each upgrade. or FPW.5 shows only a two-product model ("A" and "B" versions). a product with strong sales may be redesigned in a preemptive strike against competitors.

whether a given firm’s product is a service or a manufactured good. conference rooms. urban industries. Forget quality. It refers to the increasing integration of economies around the world. design changes required after initial production began were reduced by some 76 percent. At its most basic. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity – village markets. (Note that the authors have taken a great deal of artistic license here! No meaning should be attached to the actual measure of overlap area in Figure 4. more and more information is thrown over the wall. As the elements compress. Furthermore. design changes. Markets promote efficiency through competition and the division of labor – the specialization that allows people and economies to focus on what they do best. But markets do not necessarily ensure that the benefits of increased MBA Finance (4th SEM. Global markets offer greater opportunity for people to tap into more and larger markets around the world. The system is totally interactive and bound together. Each element is connected to all of the others and is focused on the customer.) What is the recent experience with teams? There is evidence that using concurrent design teams speeds the product to market and provides substantial savings. political and environmental dimensions of globalization that are not covered here. The term has come into common usage since the 1980s. That way. and floors are soon gridlocked and littered with unanswered correspondence and things to do. or financial centers.MB0037 – International Business Management affect EOL efforts. cheaper imports. B) What do you mean by globalization? Answer: Economic "globalization" is a historical process. Boeing expects that concurrent design will save some $4 billion in the development of its 777 airliner. The method tears down barriers between departments and speeds the introduction process. The focal point becomes the customer. SET-1) Page 13 . desks.) The five-element wave clearly shows the inefficiency of traditional "overthe-wall" systems as speed to market increases. thus decreasing costs. particularly through trade and financial flows. production itself grinds to a halt. The solution is to maximize the advantage of the relationships within the five-element wave and work in concurrent teams. rather than the task. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. The strength of the five-element product wave is the fact that it illuminates critical decision points in the life of a product or service. responsibility is shared throughout the system. Westinghouse recently suggested that concurrent engineering would eliminate 200 duplicate processes in a project that consisted of 600 using traditional over-the-wall approaches. reflecting technological advances that have made it easier and quicker to complete international transactions – both trade and financial flows. In addition. there is nothing mysterious about globalization. Ford’s Team Taurus was able to cut a full year out of model turnaround. in-baskets. and larger export markets. and end-of-life decisions in teams. technology. The interrelationships of the elements clearly illustrate the benefit of working product introductions. as illustrated in Figure 6. This is particularly true in today’s rapidly compressing environment of speeding products to market. the result of human innovation and technological progress. Taken to the extreme. Recipients find themselves with less and less time to take action. Members from each discipline optimize the system. phone lines. There are also broader cultural. It means that they can have access to more capital flows. Thus. the model is flexible and may be expanded or contracted to include those functional areas relevant to the production team. the five-element wave is a powerful tool that can be deployed to accelerate effective decision making in markets demanding ever-increasing levels of speed and agility.6.

versatile graduates of other fields in Northern Ireland." an intensive 20-week training program at the Belfast Institute of Further and Higher Education. "IMR is extremely pleased with the T&EAs ability to design and deliver a training program customized to our needs. Innovation In Training Impressed by the number and quality of information technology graduates from the region’s universities. Approximately 40 trainees have already participated in the program." McFerran said. IMR developed "IMR Academy. Recruitment research by IMR indicates that traditionally. Q.MB0037 – International Business Management efficiency are shared by all. Now IT graduates have the chance to find good jobs in Northern Ireland. "The success to date in building a quality work force has surpassed our expectations and opens up new ambitions for our interests in Northern Ireland. SET-1) Page 14 . "The fast start-up of the Belfast facility reaffirms our confidence to locate in Northern Ireland. the company is hiring 12 to 18 programmers a month in Northern Ireland and is well on its way to meeting its staffing goal of 300 by 1999. nearly half of the region’s computer graduates have been forced to seek jobs outside Northern Ireland due to the lack of available information technology positions. MBA Finance (4th SEM." According to Arthur "Bro" McFerran." McFerran said. it is also assisting us with a unique initiative to bring additional sources of high quality talent to the company. Tom Scott of the T&EA said IMR applicants are assessed throughout the program and those who successfully complete the course are awarded a National Computing Certificate and fulltime employment with IMR.5 million to establish its new software development center in Northern Ireland. 6.. McFerran credited Northern Ireland’s Training & Employment Agency (T&EA) with helping place the company’s staffing on the fast track. McFerrin said. IMR was up and running with more than one-third its target staff. Recruitment research by IMR indicates that traditionally. president of IMR (NI) Ltd. and one that is delivering us an impressive pool of incremental programming talent. Working with the T&EA. but who are equally well-educated in other Disciplines and who have demonstrated aptitude for learning computer software programming. Give some examples of companies doing international business and discuss how they have they have managed their business in the international markets? Answer: A PERSPECTIVE OF THE NORTHEN ISLAND SOFTWARE COMPANIES. IMR recognized an untapped resource in the well-educated." said Sanan. nearly half of the region’s computer graduates have been forced to seek jobs outside Northern Ireland due to the lack of available information technology positions. Countries must be prepared to embrace the policies needed. to expand the skills of qualified applicants who are not computer software graduates. and graduates from other fields can take advantage of the IMR Academy training program to get a head start on a career in the growing software sector." McFerrin said. "The T&EA not only has helped us to identify and recruit qualified software graduates from Northern Ireland’s universities. and in the case of the poorest countries may need the support of the international community as they do so. RAPD M–UP Within six months of announcing it would invest $4. Smart and Available "The recent software investments by IMR and other companies provide a new opportunity for Northern Ireland’s computer graduates.

1 of MB0037 – International Business Management ************************************************************************ MBA Finance (4th SEM. and low employee turnover and favorable rates for office space. SET-1) Page 15 . Typical starting salaries for IT graduates in Northern Ireland are $22. These costs can be as much as 50 percent lower than office space costs in other European cities. Annual costs per square foot for office space." said Richard W.000 annually. range from as low as $5 per square foot in some development areas. to approximately $14 in Belfast. Liberty Mutual Group. With salaries and fringe costs for well trained software engineers in Northern Ireland approximately 50 percent lower than costs for US engineers. Seagate Technology. STB Systems and UniComp. These companies cite Northern Ireland’s work force and favorable cost base in their decisions to locate in the region. "The availability of high-quality graduates combined with the region’s competitive operating costs and attractive incentives made Northern Ireland the best possible location for STB. the overall annual per capita operational costs to develop high quality software can be significantly less compared with these same costs in the United States. Fujitsu. STB’s director of engineering operations. Cooke. exclusive of property taxes and service charges. ************************************************************************ END OF SET. Northern Ireland’s employee turnover rate is a fraction of the rates typically experienced in other parts of Europe and the United States. At less than three percent annually.MB0037 – International Business Management Competitive Advantage Northern Ireland recently has attracted information technology – based investments from other multinational companies such as BT.000 to $25.

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