mb0037 -aka assignment-set 1

8/8/2019 MB0037 -AKA Assignment-Set 1

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MB0037 International Business Management-Set-1

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Q.1 a. How has liberalizing trade helped international business ?Sol.The Benefits of Trade Liberalization Policies that make an economy open to trade and investment with the rest of the world areneeded for sustained economic growth. The evidence on this is clear. No country in recentdecades has achieved economic success, in terms of substantial increases in living standards forits people, without being open to the rest of the world. In contrast, trade opening (along withopening 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 past20 years.Opening up their economies to the global economy has been essential in enabling manydeveloping 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 inabsolute poverty declined by over 120 million (14 percent) between 1993 and 1998.There is considerable evidence that more outward-oriented countries tend consistently to growfaster than ones that are inward-looking. Indeed, one finding is that the benefits of tradeliberalization can exceed the costs by more than a factor of 10. Countries that have opened theireconomies in recent years, including India, Vietnam, and Uganda, have experienced fastergrowth and more poverty reduction. On average, those developing countries that lowered tariffssharply in the 1980s grew more quickly in the 1990s than those that did not.Freeing trade frequently benefits the poor especially. Developing countries can ill-afford thelarge implicit subsidies, often channeled to narrow privileged interests that trade protectionprovides. Moreover, the increased growth that results from free trade itself tends to increase theincomes 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, inequalityamong countries has been on the decline since 1990, reflecting more rapid economic growth indeveloping countries, in part the result of trade liberalization.The potential gains from eliminating remaining trade barriers are considerable. Estimate of thegains from eliminating all barriers to merchandise trade range from US$250 billion to US$680billion per year. About two-thirds of these gains would accrue to industrial countries. But theamount accruing to developing countries would still be more than twice the level of aid theycurrently receive. Moreover, developing countries would gain more from global tradeliberalization as a percentage of their GDP than industrial countries, because their economies aremore highly protected and because they face higher barriers.Although there are benefits from improved access to other countries markets, countries benefitmost from liberalizing their own markets. The main benefits for industrial countries would comefrom the liberalization of their agricultural markets. Developing countries would gain aboutequally from liberalization of manufacturing and agriculture. The group of low-incomecountries, however, would gain most from agricultural liberalization in industrial countriesbecause of the greater relative importance of agriculture in their economies.


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b. What are the merits and demerits of international trade?Sol.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 Extend sales potential of existing products Stabilize seasonal market fluctuations Enhance potential for expansion of your business Sell excess production capacity Maintain cost competitiveness in your domestic market

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

Q. 2 Discuss the impact of culture on International Business .Sol.

The following can be looked as the various aspects of the cultural dichotomies. In this newmillennium, few executives can afford to turn a blind eye to global business opportunities.Japanese auto-executives monitor carefully what their European and Korean competitors are upto in getting a bigger slice of the Chinese auto-market. Executives of Hollywood movie studiosneed to weigh the appeal of an expensive movie in Europe and Asia as much as in the US beforea firm commitment. The globalizing wind has broadened the mindsets of executives, extendedthe geographical reach of firms, and nudged international business (IB) research into some newtrajectories. One such new trajectory is the concern with national culture. Whereas traditional IBresearch has been concerned with economic/ legal issues and organizational forms andstructures, the importance of national culture broadly defined as values, beliefs, norms, and


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behavioral patterns of a national group has become increasingly important in the last twodecades, largely as a result of the classic work of Hofstede (1980). National culture has beenshown to impact on major business activities, from capital structure (Chui et al., 2002) to groupperformance (Gibson, 1999). For reviews, see Boyacigiller and Adler (1991) and Earley andGibson (2002).The purpose of this Unit is to provide a state-of-the-art review of several recent advances inculture and IB research, with an eye toward productive avenues for future research. It is not ourpurpose to be comprehensive; our goal is to spotlight a few highly promising areas forleapfrogging the field in an increasingly boundary-less business world. We first review the issuessurrounding cultural convergence and divergence, and the processes underlying cultural changes.We then examine novel constructs for characterizing cultures, and how to enhance the precisionof cultural models by pinpointing when the effects of culture are important. Finally, we examinethe usefulness of experimental methods, which are rarely employed in the field of culture and IB.A schematic summary of our coverage is given in Table 2.1, which suggests that the topicsreviewed are loosely related, and that their juxtaposition in the present paper represents ourattempt to highlight their importance rather than their coherence as elements of an integrativeframework.

1 Cultural change, convergence and divergence in an era of partial globalizationAn issue of considerable theoretical significance is concerned with cultural changes andtransformations taking place in different parts of the world. In fact, since the landmark study of Haire et al. (1966) and the publication of Industrialism and Industrial Man by Kerr et al. (1960),researchers have continued to search for similarities in culture-specific beliefs and attitudes invarious aspects of work related attitudes and behaviors, consumption patterns, and the like. If cultures of the various locales of the world are indeed converging (e.g., Heuer et al., 1999), IB-related practices would indeed become increasingly similar. Standard, culture-free business

practices would eventually emerge, and inefficiencies and complexities associated with divergentbeliefs and practices in the past era would disappear. In the following section, we review theevidence on the issue and conclude that such an outlook pertaining to the convergence of variousIB practices is overly optimistic.

2 Evolution of partial globalization Globalization refers to a growing economic interdependence among countries, as reflected inthe increased cross-border flow of three types of entities: goods and services, capital, and know-how (Govindarajan and Gupta, 2001, 4). Few spoke of world economy 25 years ago, and theprevalent term was international trade (Drucker, 1995). However today, international trade hasculminated in the emergence of a global economy, consisting of flows of information,

technology, money, and people, and is conducted via government international organizationssuch as the North American Free Trade Agreement (NAFTA) and the European Community;global organizations such as the International Organization for Standardization (ISO);multinational companies (MNCs); and cross border alliances in the form of joint ventures,international mergers, and acquisitions. These inter relationships have enhanced participationin the world economy, and have become a key to domestic economic growth and prosperity(Drucker, 1995, 153).


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Yet, globalization is not without its misgivings and discontents (Sassan, 1998). A vivid imageassociated with the G8 summits is the fervent protests against globalization in many parts of theworld, as shown in television and reported in the popular media. Strong opposition toglobalization usually originates from developing countries that have been hurt by thedestabilizing effects of globalization, but in recent times we have also seen heated debates inWestern economies triggered by significant loss of professional jobs as a result of off shoring tolow wage countries. Indeed, workers in manufacturing and farming in advanced economies arebecoming increasingly wary of globalization, as their income continues to decline significantly.In parallel to the angry protests against globalization, the flow of goods, services, andinvestments across national borders has continued to fall after the rapid gains of the 1990s.Furthermore, the creation of regional trade blocs, such as NAFTA, the European Union, and theAssociation of Southeast Asian Nations, have stimulated discussions about creating other tradezones involving countries in South Asia, Africa, and other parts of the world. Although it is oftenassumed that countries belonging to the World Trade Organization (WTO) have embracedglobalization, the fact is that the world is only partially globalized, at best (Schaeffer, 2003).Many parts of Central Asia and Eastern Europe, including the former republics of the SovietUnion, parts of Latin America, Africa, and parts of South Asia, have been skeptical of globalization (Greider, 1997). In fact, less than 10% of the worlds population is fully globalized(i.e., being active participants in the consumption of global products and services) (Schaeffer,2003). Therefore, it is imperative that we analyze the issues of cultural convergence anddivergence in this partially globalized world.Universal culture often refers to the assumptions, values, and practices of people in the Westand some elites in non-Western cultures. Huntington (1996) suggested that it originates from theintellectual elites from a selected group of countries who meet annually in the World EconomicForum in Davos, Switzerland. These individuals are highly educated, work with symbols andnumbers, are fluent in English, are extensively involved with international commitments, and

travel frequently outside their country. They share the cultural value of individualism, andbelieve strongly in market economics and political democracy. Although those belonging to theDavos group control virtually all of the worlds important international institutions, many of theworlds governments, and a great majority of the worlds economic and military capabilities, thecultural values of the Davos group are probably embraced by only a small fraction of the sixbillion people of the world.Popular culture, again mostly Western European and American in origin, also contributes to aconvergence of consumption patterns and leisure activities around the world. However, theconvergence may be superficial, and have only a small influence on fundamental issues such asbeliefs, norms, and ideas about how individuals, groups, institutions, and other important socialagencies ought to function. In fact, Huntington (1996, 58) noted that The essence of Western

civilization is the Magna Carta, not the Magna Mac. The fact that non-Westerners may bite intothe latter has no implications for their accepting the former. This argument is obvious if wereverse the typical situation and put Western Europeans and Americans in the shoes of recipientsof cultural influence. For instance, while Chinese Kung Fu dominates fight scenes in Hollywoodmovies such as Matrix Reloaded, and Chinese restaurants abound in the West, it seemsimplausible that Americans and Europeans have espoused more Chinese values because of theirfondness of Chinese Kung Fu and food. A major argument against cultural convergence is that


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traditionalism and modernity may be unrelated (Smith and Bond, 1998). Strong traditionalvalues, such as group solidarity, interpersonal harmony, paternalism, and feminism, can co-existwith modern values of individual achievement and competition. A case in point is the findingsthat Chinese in Singapore and China indeed endorsed both traditional and modern values (Changet al., 2003; Zhang et al., 2003). It is also conceivable that, just as we talk about Westernizationof cultural values around the world, we may also talk about Easternization of values in responseto forces of modernity and consumption values imposed by globalization (Marsella and Choi,1993).Although the argument that the world is becoming one culture seems untenable, there are someareas that do show signs of convergence. We explore in the following the roles of several factorsthat simultaneously cause cultures of the world to either converge or diverge, in an attempt toidentify several productive avenues for future research.

3 Role of multiculturalism and cultural identity The broad ideological framework of a country, corporation, or situation is the most importantdeterminant of the cultural identity that people develop in a given locale (Triandis, 1994). Themelting pot ideology suggests that each cultural group loses some of its dominantcharacteristics in order to become the mainstream: this is assimilation, or what Triandis (1994)calls subtractive multiculturalism.In contrast, when people from a cultural group add appropriate skills and characteristics of othergroups, it may be called integration, or additive multiculturalism. Both of these processes areessential for cultural convergence to proceed. However, if there is a significant history of conflictbetween the cultural groups, it is hard to initiate these processes, as in the case of Israelis andPalestinians. In general, although there has been some research on the typology of animosityagainst other nations (e.g., Jung et al., 2002), we do not know much about how emotionalantagonism against other cultural groups affects trade patterns and intercultural cooperation in a

business context. The issues of cultural identity and emotional reactions to other cultural groupsin an IB context constitute a significant gap in our research effort in this area.

4 Implications of convergence and divergence issues One message is clear: while convergence in some domains of IB activity is easily noticeable,especially in consumer values and lifestyles, significant divergence of cultures persists. In fact,Hofstede (2001) asserts that mental programs of people around the world do not change rapidly,but remain rather consistent over time. His findings indicate that cultural shifts are relative asopposed to absolute. Although clusters of some countries in given geographical locales (e.g.,

Argentina, Brazil, Chile) might indicate significant culture shifts towards embracing Anglovalues, the changes do not diminish the absolute differences between such countries and those of the Anglo countries (i.e., US, Canada, UK). Huntington, in his The Clash of Civilizations(1996), presents the view that there is indeed a resurgence of non-Western cultures around theworld, which could result in the redistribution of national power in the conduct of internationalaffairs. The attempt by the Davos group to bring about uniform practices in various aspects of IBand work culture, thereby sustaining the forces of globalization, is certainly worthwhile.


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However, our analysis suggests that there is no guarantee that such convergence will come abouteasily, or without long periods of resistance.IB scholars need to understand that although some countries might exhibit strong tendenciestoward cultural convergence, as is found in Western countries, there are countries that will rejectglobalization, not only because of its adverse economic impacts (Greider, 1997) but also becauseglobalization tends to introduce distortions (in their view) in profound cultural syndromes thatcharacterize their national character.Furthermore, reactions to globalization may take other forms. Bhagat et al. (2003) have recentlyargued that adaptation is another approach that could characterize the tendencies of somecultures in the face of mounting pressures to globalize. Other approaches are rejection, creativesynthesis, and innovation (Bhagat et al., 2003). These different approaches highlight once againthe complex dynamics that underlie cultural convergence and divergence in a partially globalizedworld. Also, in discussing issues of convergence and divergence, it is necessary to recognize thatthe shift in values is not always from Western society to others, but can result in the change of Western cultural values as well. For example, the emphasis on quality and teamwork in the Westis partly a result of the popularity of Japanese management two decades ago.Scholars of IB should recognize that the issue of convergence and divergence in this era of partial globalization will remain as a persistent and complex issue whose direction might only beassessed on a region-by-region basis. It is also wise to adopt an interdisciplinary perspective inunderstanding the forces that create both convergence and divergence of cultures in differentparts of the world. For instance, in Understanding Globalization, Schaeffer (2003) has providedan insightful discussion of the social consequences of political, economic and other changes,which have significant implications for IB. The cause-effect relationships of globalization and itsvarious outcomes, especially the cultural outcomes, are not only characterized by bi-directionalarrows, but are embedded in a complex web of relationships. How these complex relationshipsand processes play out on the stage of IB remains to be uncovered by IB researchers.

5 Processes of cultural changes In the previous section, we make the point that, through the process of globalization, culturesinfluence each other and change, but whether or not these changes will bring about culturalconvergence is yet to be seen. In this section, we delineate a general model that describes andexplains the complex processes underlying cultural changes. As explained before, IB is both anagent and a recipient of cultural change, and for international business to flourish it is importantto understand its complex, reciprocal relationships with cultural change.In line with the view of Hofstede (2001) that culture changes very slowly, culture has beentreated as a relatively stable characteristic, reflecting a shared knowledge structure that attenuatesvariability in values, behavioral norms, and patterns of behaviours (Erez and Earley, 1993).

Cultural stability helps to reduce ambiguity, and leads to more control over expected behavioraloutcomes (Weick and Quinn, 1999; Leana and Barry, 2000). For instance, most existing modelsof culture and work behaviour assume cultural stability and emphasize the fit between a givenculture and certain managerial and motivational practices (Erez and Earley, 1993). High fitmeans high adaptation of managerial practices to a given culture and, therefore, higheffectiveness. The assumption of cultural stability is valid as long as there are no environmentalchanges that precipitate adaptation and cultural change. Yet, the end of the 20 th century and the


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beginning of the new millennium have been characterized by turbulent political and economicalchanges, which instigate cultural changes. In line with this argument, Lewin and Kim (2004), intheir comprehensive chapter on adaptation and selection in strategy and change, distinguishedbetween theories driven by the underlying assumption that adaptation is the mechanism to copewith change, and theories driven by the underlying assumption of selection and the survival of the fittest, suggesting that ineffective forms of organization disappear, and new forms emerge.However, although organizational changes as a reaction to environmental changes have beensubjected to considerable conceptual analyses, the issue of cultural change at the national levelhas rarely been addressed.There are relatively few theories of culture that pertain to the dynamic aspect of culture. Oneexception is the eco-cultural model by Berry et al. (2002), which views culture as evolvingadaptations to ecological and socio-political influences, and views individual psychologicalcharacteristics in a population as adaptive to their cultural context, as well as to the broaderecological and socio-political influences. Similarly, Kitayama (2002) proposes a system view tounderstanding the dynamic nature of culture, as opposed to the entity view that sees culture as astatic entity. This system view suggests that each persons psychological processes are organizedthrough the active effort to coordinate ones behaviors with the pertinent cultural systems of practices and public meanings. Yet, concurrently, many aspects of the psychological systemsdevelop rather flexibly as they are attuned to the surrounding socio-cultural environment, and arelikely to be configured in different ways across different socio-cultural groups.These adaptive views of culture are supported by empirical evidence. For example, Van de Vileret al. (1999) identified curvilinear relationships between temperature, masculinity and domesticpolitical violence across 53 countries. Their findings showed that masculinity and domesticviolence are higher in moderately warm countries than in countries with extreme temperatures.Inglehart and Baker (2000) examined cultural change as reflected by changes in basic values inthree waves of the World Values Surveys, which included 65 societies and 75% of the worlds

population. Their analysis showed that economic development was associated with shifts awayfrom traditional norms and values toward values that are increasingly rational, tolerant, trusting,and participatory. However, the data also showed that the broad cultural heritage of a society,whether it is Protestant, Roman Catholic, Orthodox, Confucian, or Communist, leaves anenduring imprint on traditional values despite the forces of modernization.The process of globalization described before has introduced the most significant change in IB,with its effects filtering down to the national, organizational, group and individual levels.Reciprocally, changes at micro-levels of culture, when shared by the members of the society,culminate into macro level phenomena and change the macro-levels of culture. In the absence of research models that can shed light on this complex process of cultural change, Erez and Gati(2004) proposed that the general model of multi-level analysis (Klein and Kozlowski, 2000)

could be adopted for understanding the dynamics of culture and cultural change.6 The dynamics of culture as a multi-level, multi-layer construct The proposed model consists of two building blocks. One is a multi-level approach, viewingculture as a multi-level construct that consists of various levels nested within each other from themost macro-level of a global culture, through national cultures, organizational cultures, groupcultures, and cultural values that are represented in the self at the individual level, as portrayed inFigure 2.1. The second is based on Scheins (1992) model viewing culture as a multi layer


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construct consisting of the most external layer of observed artifacts and behaviors, the deeperlevel of values, which is testable by social consensus, and the deepest level of basic assumption,which is invisible and taken for granted. The present model proposes that culture as a multi layer construct exists at all levels from the global to the individual and that at each levelchange first occurs at the most external layer of behavior, and then, when shared by individualswho belong to the same cultural context, it becomes a shared value that characterizes theaggregated unit (group, organizations, or nations).In the model, the most macro-level is that of a global culture being created by global networksand global institutions that cross national and cultural borders. As exemplified by the effort of the Davos group discussed earlier, global organizational structures need to adopt common rulesand procedures in order to have a common language for communicating across cultural borders(Kostova, 1999; Kostova and Roth, 2003; Gupta and Govindarajan, 2000).

Figure : The dynamic of top-downbottom-up processes acrossLevels of culture. Given the dominance of Western MNCs, the values that dominate the global context are oftenbased on a free market economy, democracy, acceptance and tolerance of diversity, respect of freedom of choice, individual rights, and openness to change (Gupta and Govindarajan, 2000).Below the global level are nested organizations and networks at the national level with their localcultures varying from one nation or network to another. Further down are local organizations,and although all of them share some common values of their national culture, they vary in theirlocal organizational cultures, which are also shaped by the type of industry that they represent,the type of ownership, the values of the founders, etc. Within each organization are sub-units andgroups that share the common national and organizational culture, but that differ from each otherin their unit culture on the basis of the differences in their functions (e.g., R&D vsmanufacturing), their leaders values, and the professional and educational level of their
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members. At the bottom of this structure are individuals who through the process of socializationacquire the cultural values transmitted to them from higher levels of culture. Individuals whobelong to the same group share the same values that differentiate them from other groups andcreate a group level culture through a bottom-up process of aggregation of shared values. Forexample, employees of an R&D unit are selected into the unit because of their creative cognitivestyle and professional expertise. Their leader also typically facilitates the display of thesepersonal characteristics because they are crucial for developing innovative products. Thus, allmembers of this unit share similar core values, which differentiate them from otherorganizational units. Groups that share similar values create the organizational culture through aprocess of aggregation, and local organizations that share similar values create the nationalculture that is different from other national cultures.Both top-down and bottom-up processes reflect the dynamic nature of culture, and explain howculture at different levels is being shaped and reshaped by changes that occur at other levels,either above it through top-down processes or below it through bottom-up processes. Similarly,changes at each level affect lower levels through a top-down process, and upper levels through abottom-up process of aggregation. The changes in national cultures observed by Inglehart andBaker (2000) could serve as an example for top-down effects of economic growth, enhanced byglobalization, on a cultural shift from traditional values to modernization. However, in line withSchein (1992), the deep basic assumptions still reflect the traditional values shaped by the broadcultural heritage of a society.Global organizations and networks are being formed by having local-level organizations join theglobal arena. That means that there is a continuous reciprocal process of shaping and reshapingorganizations at both levels. For example, multinational companies that operate in the globalmarket develop common rules and cultural values that enable them to create a synergy betweenthe various regions, and different parts of the multinational company. These global rules andvalues filter down to the local organizations that constitute the global company, and, over time,

they shape the local organizations. Reciprocally, having local organizations join a globalcompany may introduce changes into the global company because of its need to functioneffectively across different cultural boarders. A study by Erez-Rein et al. (2004) demonstratedhow a multinational company that acquired an Israeli company that develops and producesmedical instruments changed the organizational culture of the acquired company. The studyidentified a cultural gap between the two companies, with the Israeli company being higher onthe cultural dimension of innovation and lower on the cultural dimension of attention to detailand conformity to rules and standards as compared with the acquiring company. The latterinsisted on sending the Israeli managers to intensive courses in Six Sigma, which is anadvanced method of quality improvement, and a managerial philosophy that encompasses allorganizational functions. Upon returning to their company, these managers introduced quality

improvement work methods and procedures to the local company, and caused behavioralchanges, followed by the internalization of quality oriented values. Thus, a top-down processof training and education led to changes in work behavior and work values. Sharing commonbehaviors and values by all employees of the local company then shaped the organizationalculture through bottomup processes. The case of cultural change via international acquisitionsdemonstrated the two building blocks of our dynamic model of culture: the multi-level structureexplains how a lower-level culture is being shaped by top-down effects, and that the cultural


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layer that changes first is the most external layer of behavior. In the long run, bottom upprocesses of shared behaviors and norms shape the local organizational culture.

7 Factors that facilitate cultural change Culture itself influences the level of resistance or acceptance of change. Harzing and Hofstede(1996) proposed that certain cultural values facilitate change, whereas others hinder it. Thevalues of low power distance, low uncertainty avoidance, and individualism facilitate change.Change threatens stability, and introduces uncertainty, and resistance to change will therefore behigher in cultures of high rather than low uncertainty avoidance (Steensma et al., 2000). Changealso threatens the power structure, and therefore will be avoided in high power distance cultures.Finally, change breaks the existing harmony, which is highly valued in collectivistic cultures,and therefore will not be easily accepted by collectivists (Levine and Norenzayan, 1999).A recent study by Erez and Gati (2004) examined the effects of three factors on the changeprocess and its outcomes: the cultural value of individualism collectivism; the reward structure and its congruence with the underlying cultural values; and the degree of ambiguity in the reward structure.The change process examined was a shift from choosing to work alone to a behavioral choice of working as part of a team, and vice versa. Working alone is more prevalent in individualisticcultures, whereas working in teams dominates the collectivistic ones.

8 Understanding when culture matters: increasing the precision of cultural modelsBeyond exploring new cultural constructs and the dynamic nature of culture, we also argue forthe importance of examining contingency factors that enhance or mitigate the effect of nationalculture. Consider the following scenario. A senior human resource manager in a multinational

firm is charged with implementing an integrative training program in several of the firmssubsidiaries around the globe. Over the term of her career, the manager has been educated aboutdifferences in national culture and is sensitive to intercultural opportunities and challenges. Atthe same time, she understands the strategic need to create a unified global program that servesto further integrate the firms basic processes, creating efficiencies and synergies across theremote sites. She approaches the implementation with trepidation. A key challenge is todetermine whether the program should be implemented in the same manner in each subsidiary ormodified according to the local culture at each site. Put another way, in this complexcircumstance, does culture matter?

Q.3. a. Explain the brief structure of WTO?

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


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Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues, through technical assistance and trainingprograms Cooperating with other international organizations

Structure The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 othersare negotiating membership.Decisions are made by the entire membership. This is typically by consensus. A majority vote isalso possible but it has never been used in the WTO, and was extremely rare under the WTOspredecessor, GATT. The WTOs agreements have been ratified in all members parliaments.The WTOs top level decision-making body is the Ministerial Conference which meets at leastonce every two years.Below this is the General Council (normally ambassadors and heads of delegation in Geneva,but sometimes officials sent from members capitals) which meets several times a year in theGeneva headquarters. The General Council also meets as the Trade Policy Review Body and theDispute Settlement Body.At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS)Council report to the General Council.Numerous specialized committees, working groups and working parties deal with theindividual agreements and other areas such as the environment, development, membershipapplications and regional trade agreements.Secretariat

The WTO Secretariat, based in Geneva, has around 600 staff and is headed by a director-general.Its annual budget is roughly 160 million Swiss francs. It does not have branch offices outsideGeneva. Since decisions are taken by the members themselves, the Secretariat does not have thedecision-making role that other international bureaucracies are given with. The Secretariatsmain duties are to supply technical support for the various councils and committees and theministerial conferences, to provide technical assistance for developing countries, to analyzeworld trade, and to explain WTO affairs to the public and media.The Secretariat also provides some forms of legal assistance in the dispute settlement processand advises governments wishing to become members of the WTO.

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

governments.The WTO is run by its member governments. All major decisions are made by the membershipas a whole, either by ministers (who meet at least once every two years) or by their ambassadorsor delegates (who meet regularly in Geneva). Decisions are normally taken by consensus.In this respect, the WTO is different from some other international organizations such as theWorld Bank and International Monetary Fund. In the WTO, power is not delegated to a board of directors or the organizations head.


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When WTO rules impose disciplines on countries policies, that are the outcome of negotiationsamong WTO members, the rules are enforced by the members themselves under agreedprocedures that they negotiated, including the possibility of trade sanctions. But those sanctionsare imposed by member countries, and authorized by the membership as a whole. This is quitedifferent from other agencies whose bureaucracies can, for example, influence a countrys policyby threatening to withhold credit.Reaching decisions by consensus among some 150 members can be difficult. Its main advantageis that decisions made this way are more acceptable to all members. And despite the difficulty,some remarkable agreements have been reached. Nevertheless, proposals for the creation of asmaller executive body perhaps like a board of directors each representing different groups of countries are heard periodically. But for now, the WTO is a member-driven, consensus-basedorganization.Highest authority: the Ministerial ConferenceSo, the WTO belongs to its members. The countries make their decisions through variouscouncils and committees, whose membership consists of all WTO members. Topmost is theministerial conference which has to meet at least once every two years. The MinisterialConference can take decisions on all matters under any of the multilateral trade agreements.Second level: General Council in three guisesDay-to-day work in between the ministerial conferences is handled by three bodies: The General Council The Dispute Settlement Body The Trade Policy Review BodyAll three are in fact the same the Agreement Establishing the WTO states they are all theGeneral Council, although they meet under different terms of reference. Again, all three consistof all WTO members. They report to the Ministerial Conference.The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It meets as

the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures forsettling disputes between members and to analyze members trade policies.Third level: councils for each broad area of trade, and more back to top Three more councils, each handling a different broad area of trade, report to the 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, the three are responsible for the workings of the WTO agreementsdealing with their respective areas of trade. Again they consist of all WTO members. These threealso have the subsidiary bodies.Six other bodies report to the General Council. The scope of their coverage is smaller, so they

are committees. But they still consist of all WTO members. They cover issues such as tradeand development, the environment, regional trading arrangements, and administrative issues. TheSingapore Ministerial Conference in December 1996 decided to create new working groups tolook at investment and competition policy, transparency in government procurement, and tradefacilitation.Two more subsidiary bodies dealing with the plural-lateral agreements (which are not signed byall WTO members) keep the General Council informed of their activities regularly.
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Fourth level: down to the nitty-grittyEach of the higher level councils has subsidiary bodies. The Goods Council has 11 committeesdealing with specific subjects (such as agriculture, market access, subsidies, anti-dumpingmeasures and so on). Again, these consist of all member countries. Also reporting to the GoodsCouncil is the Textiles Monitoring Body, which consists of a chairman and 10 members acting intheir personal capacities, and groups dealing with notifications (governments informing theWTO about current and new policies or measures) and state trading enterprises.The Services Council s subsidiary bodies deal with financial services, domestic regulations,GATS rules and specific commitments.At the General Council level, the Dispute Settlement Body also has two subsidiaries: thedispute settlement panels of experts appointed to adjudicate on unresolved disputes, and theAppellate Body that deals with appeals.Heads of Delegations and other boards: the need for informalityImportant breakthroughs are rarely made in formal meetings of these bodies, least of all in thehigher level councils. Since decisions are made by consensus, without voting, informalconsultations within the WTO play a vital role in bringing a vastly diverse membership round toan agreement.One step away from the formal meetings is informal meetings that still include the fullmembership, such as those of the Heads of Delegations (HOD). More difficult issues have to bethrashed out in smaller groups. A common recent practice is for the chairperson of a negotiatinggroup to attempt to forge a compromise by holding consultations with delegations individually,in twos or threes, or in groups of 20 30 of the most interested delegations.These smaller meetings have to be handled sensitively. The key is to ensure that everyone is keptinformed about what is going on (the process must be transparent) even if they are not in aparticular consultation or meeting, and that they have an opportunity to participate or provideinput (it must be inclusive).

One term has become controversial, but more among some outside observers than amongdelegations. The Green Room is a phrase taken from the informal name of the director-generals conference room. It is used to refer to meetings of 20 40 delegations, usually at thelevel of heads of delegations. These meetings can take place elsewhere, such as at MinisterialConferences, and can be called by the minister chairing the conference as well as the director-general. Similar smaller group consultations can be organized by the chairs of committeesnegotiating individual subjects, although the term Green Room is not usually used for these.In the past delegations have sometimes felt that Green Room meetings could lead tocompromises being struck behind their backs. So, extra efforts are made to ensure that theprocess is handled correctly, with regular reports back to the full membership.The way countries now negotiate has helped somewhat. In order to increase their bargaining

power, countries have formed coalitions. In some subjects such as agriculture virtually allcountries are members of at least one coalition and in many cases, several coalitions. Thismeans that all countries can be represented in the process if the coordinators and other keyplayers are present. The coordinators also take responsibility for both transparency andinclusiveness by keeping their coalitions informed and by taking the positions negotiatedwithin their alliances.


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In the end, decisions have to be taken by all members and by consensus. The membership as awhole would resist attempts to impose the will of a small group. No one has been able to find analternative way of achieving consensus on difficult issues, because it is virtually impossible formembers to change their positions voluntarily in meetings of the full membership.Market access negotiations also involve small groups, but for a completely different reason. Thefinal outcome is a multilateral package of individual countries commitments, but thosecommitments are the result of numerous bilateral, informal bargaining sessions, which depend onindividual countries interests. (Examples include the traditional tariff negotiations, and marketaccess talks in services.)So, informal consultations in various forms play a vital role in allowing consensus to be reached,but they do not appear in organization charts, precisely because they are informal.They are not separate from the formal meetings, however. They are necessary for making formaldecisions in the councils and committees. Nor are the formal meetings unimportant. They are theforums for exchanging views, putting countries positions on the record, and ultimately forconfirming decisions. The art of achieving agreement among all WTO members is to strike anappropriate balance, so that a breakthrough achieved among only a few countries can beacceptable to the rest of the membership.

b. Highlight the drawbacks of GATT?Sol.Given its provisional nature and limited field of action, the success of GATT in promoting andsecuring the liberalization of much of world trade over 47 years is incontestable. Continualreductions in tariffs alone helped spur very high rates of world trade growth around 8 per cent ayear on average during the 1950s and 1960s. And the momentum of trade liberalization helpedensure that trade growth consistently out-paced production growth throughout the GATT era.The rush of new members during the Uruguay Round demonstrated that the multilateral tradingsystem, as then represented by GATT, was recognized as an anchor for development and aninstrument of economic and trade reform.The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of difficult times to come. GATTs success in reducing tariffs to such a low level, combined with aseries of economic recessions in the 1970s and early 1980s, drove governments to devise otherforms of protection for sectors facing increased overseas competition. High rates of unemployment and constant factory closures led governments in Europe and North America toseek bilateral market-sharing arrangements with competitors and to embark on a subsidies raceto maintain their holds on agricultural trade. Both these changes undermined the credibility andeffectiveness of GATT.Apart from the deterioration in the trade policy environment, it also became apparent by the early1980s that the General Agreement was no longer as relevant to the realities of world trade as ithad been in the 1940s. For a start, world trade had become far more complex and important than40 years before: the globalization of the world economy was underway, international investmentwas exploding and trade in services not covered by the rules of GATT was of major interestto more and more countries and, at the same time, closely tied to further increases in worldmerchandise trade. In other respects, the GATT had been found wanting: for instance, with


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respect to agriculture where loopholes in the multilateral system were heavily exploited andefforts at liberalizing agricultural trade met with little success and in the textiles and clothingsector where an exception to the normal disciplines of GATT was negotiated in the form of theMulti-fiber Arrangement. Even the institutional structure of GATT and its dispute settlementsystem were giving cause for concern.Together, these and other factors convinced GATT members that a new effort to reinforce andextend the multilateral system should be attempted. That effort resulted in the Uruguay Round.

Q.4. a. Give a short note on the regional economic integration?Sol.Regional Economic Integration Regional integration can take many forms, and nowhere is this more evident than in the vastlydifferent integration processes taking place in the regions of Europe and East Asia. The subjectof this paper is regional integration as it has developed in East Asia with a focus on the drivers of that integration. While the paper is not intended as a direct comparison of integration in EastAsia and Europe, it will include some comparisons between the two regions.Integration in East Asia has progressed very slowly and is still in an early stage despite that theprocess has continued for decades. In fact, it could be said that the process began centuries ago even as far back as the 15th century. By comparison, European integration has progressedsteadily and has gradually deepened over the last 50 years to reach an advanced stage today witha common currency and well-developed regional institutions. Thus, the speed of progression andthe level of integration attained in the two regions are quite dissimilar.In addition to these differences, the drivers behind the integration process in each region aredifferent. In Europe, the origins of integration have been institutional in nature, and thedevelopment of institutions has been prominent throughout the process. Thus, regionalinstitutions have been the driving force behind integration in Europe. In East Asia, thedevelopment of regional institutions has also occurred; however, progress in this area has beenslow and the few existing institutions are fairly weak and ineffective. Nevertheless, regionalintegration is taking place in East Asia, but the driving force is the market rather than policy orinstitutions. Corporations and the production networks they have established are drivingintegration in East Asia.

b. Mention the benefits of WTO?

Sol.Ten Benefits of WTO

1. The system helps to keep the peace2. The system allows disputes to be handled constructively3. A system based on rules rather than power makes life easier for all4. Freer trade cuts the cost of living5. It gives consumers more choice and a broader range of qualities to choose from6. Trade raises incomes7. Trade stimulates economic growth and that can be good news for employment


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8. The basic principles make the system economically more efficient, and they cut costs9. The system shields governments from narrow interests10. The system encourages good government

Q. 5 a. Explain five-element product wave model?

Sol.The Five-Element Product Wave As illustrated in the wave model employs design engineering, process engineering, productmarketing, production, and end-of-life activities as elements. The first wave is associated withthe "A" version of a product or service, and survives through the traditional PLC introductionand growth phases. A second wave begins with the "B" version, the markedly improved secondmodel. It starts just before the traditional life cycle maturity stage and lives until sales decline toa point at which an EOL decision must be made.Note that design engineering has a peak of activity level at each upgrade. Process engineeringactivity shadows that of design engineering, as system changes will be contemplated and made tofacilitate the changes made in the product or service. Product marketing also has activity levelspikes that closely match engineering design activity, lagged somewhat for product introduction.Production has one activity peak that results from demand management and production planningthrough master production scheduling.Finally, the EOL curve peaks at each redesign. The last wave begins shortly before originalproduction ceases and ends when the product is no longer manufactured or supported by theEOL Company or division. The EOL element requires that a decision be made about thepreceding version at each major redesign: continue production, make a short-term run of spares,keep blueprints active so that parts can be made as ordered, enter into a manufacturing andsupport agreement with another entity, or discontinue production.For the sake of parsimony, Figure shows only a two-product model ("A" and "B" versions). Inreality, there may be hundreds of significant redesigns. The wave effect comes from the fact thatthe process repeats for the successful firm, forming swells in design engineering, processengineering, and product marketing, and manufacturing curves before the final crest at EOLactivity.The five-element product wave, or FPW, uses trigger points, rather than time, as the horizon overwhich the element curves vary. Changes in magnitude, represented by the vertical axis, resultfrom differing activity levels within the five elements. Simple changes in levels of dollar or unitproduct sales, in and of themselves, do not necessarily determine the trigger points. Rather, thevarying activity levels are a direct result of product introductions and redesigns that, from theoutset, must take into account company strategy, core capabilities, and the state of thecompetitive environment. For example, a product with strong sales may be redesigned in apreemptive strike against competitors, further distancing that product from the competition, suchas with Caterpillars innovative high-drive bulldozers.


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That the five-element wave is grounded in reality becomes apparent when considering the recentresearch that suggests product introduction cycles are being compressed. Bayus (1994) claimsthat knowledge is being applied faster, resulting in increasing levels of new productintroductions. Yet since product removals are not keeping pace with introductions, there are anincreasing number of product variations on the market. Slater (1993) observes that product lifecycles are growing shorter and shorter. Vesey (1992) reports that the strategy for the 1990s isspeed to market and discusses the pressures the market is exerting to shorten productintroduction lead times.Regardless of whether life cycles are actually being compressed or knowledge is simply beingapplied faster, it is apparent that firms are increasing the speed with which they bring theirproducts to market. The effect of this is a compression of the design engineering, processengineering, production, and product marketing elements of the wave model. (The EOL curvemay remain unchanged because accelerated introductions do not necessarily affect EOL efforts.)The five-element wave clearly shows the inefficiency of traditional "over-the-wall" systems asspeed to market increases. As the elements compress, more and more information is thrown overthe wall. Recipients find themselves with less and less time to take action. Taken to the extreme,in-baskets, phone lines, conference rooms, desks, and floors are soon gridlocked and littered withunanswered correspondence and things to do. Forget quality; production itself grinds to a halt.The solution is to maximize the advantage of the relationships within the five-element wave andwork in concurrent teams, as illustrated in Figure. That way, responsibility is shared throughoutthe system. Members from each discipline optimize the system. The method tears down barriersbetween departments and speeds the introduction process, thus decreasing costs. The focal pointbecomes the customer, rather than the task. The system is totally interactive and bound together.Each element is connected to all of the others and is focused on the customer. (Note that theauthors have taken a great deal of artistic license here! No meaning should be attached to theactual measure of overlap area in Figure

What is the recent experience with teams? There is evidence that using concurrent design teamsspeeds the product to market and provides substantial savings. Boeing expects that concurrentdesign will save some $4 billion in the development of its 777 airliner. Westinghouse recentlysuggested that concurrent engineering would eliminate 200 duplicate processes in a project thatconsisted of 600 using traditional over-the-wall approaches. Fords Team Taurus was able to cuta full year out of model turnaround. In addition, design changes required after initial productionbegan were reduced by some 76 percent.The strength of the five-element product wave is the fact that it illuminates critical decisionpoints in the life of a product or service. The interrelationships of the elements clearly illustratethe benefit of working product introductions, design changes, and end-of-life decisions in teams.This is particularly true in todays rapidly compressing environment of speeding products to

market. Furthermore, the model is flexible and may be expanded or contracted to include thosefunctional areas relevant to the production team. Thus, whether a given firms product is aservice or a manufactured good, the five-element wave is a powerful tool that can be deployed toaccelerate effective decision making in markets demanding ever-increasing levels of speed andagility.


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b. What do you mean by globalization?

Sol.

Economic "globalization" is a historical process, the result of human innovation andtechnological progress. It refers to the increasing integration of economies around the world,particularly through trade and financial flows. The term sometimes also refers to the movementof people (labor) and knowledge (technology) across international borders. There are alsobroader cultural, political and environmental dimensions of globalization that are not coveredhere.At its most basic, there is nothing mysterious about globalization. The term has come intocommon usage since the 1980s, reflecting technological advances that have made it easier andquicker to complete international transactions both trade and financial flows. It refers to anextension beyond national borders of the same market forces that have operated for centuries atall levels of human economic activity village markets, urban industries, or financial centers.

Markets promote efficiency through competition and the division of labor the specializationthat allows people and economies to focus on what they do best. Global markets offer greateropportunity for people to tap into more and larger markets around the world. It means that theycan have access to more capital flows, technology, cheaper imports, and larger export markets.But markets do not necessarily ensure that the benefits of increased efficiency are shared by all.Countries must be prepared to embrace the policies needed, and in the case of the poorestcountries may need the support of the international community as they do so.

Q. 6. Give some examples of companies doing international businessand discuss how they have they have managed their business in theinternational markets?

Sol.A PERSPECTIVE OF THE NORTHEN ISLAND SOFTWARE COMPANIES, RAPD MUPWithin six months of announcing it would invest $4.5 million to establish its new softwaredevelopment center in Northern Ireland, IMR was up and running with more than one-third itstarget staff."The fast start-up of the Belfast facility reaffirms our confidence to locate in Northern Ireland,"said Sanan. "The success to date in building a quality work force has surpassed our expectationsand opens up new ambitions for our interests in Northern Ireland."According to Arthur "Bro" McFerran, president of IMR (NI) Ltd., the company is hiring 12 to 18programmers a month in Northern Ireland and is well on its way to meeting its staffing goal of 300 by 1999. McFerran credited Northern Irelands Training & Employment Agency (T&EA)with helping place the companys staffing on the fast track.


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"The T&EA not only has helped us to identify and recruit qualified software graduates fromNorthern Irelands universities, it is also assisting us with a unique initiative to bring additionalsources of high quality talent to the company," McFerran said.Innovation In TrainingImpressed by the number and quality of information technology graduates from the regionsuniversities, IMR recognized an untapped resource in the well-educated, versatile graduates of other fields in Northern Ireland. Working with the T&EA, IMR developed "IMR Academy," anintensive20-week training program at the Belfast Institute of Further and Higher Education, to expand theskills of qualified applicants who are not computer software graduates, but who are equally well-educated in otherDisciplines and who have demonstrated aptitude for learning computer software programming.Tom Scott of the T&EA said IMR applicants are assessed throughout the program and those whosuccessfully complete the course are awarded a National Computing Certificate and full-timeemployment with IMR. Approximately 40 trainees have already participated in the program."IMR is extremely pleased with the T&EAs ability to design and deliver a training programcustomized to our needs, and one that is delivering us an impressive pool of incrementalprogramming talent," McFerran said.Smart and Available"The recent software investments by IMR and other companies provide a new opportunity forNorthern Irelands computer graduates," McFerrin said. Recruitment research by IMR indicatesthat traditionally, nearly half of the regions computer graduates have been forced to seek jobsoutside Northern Ireland due to the lack of available information technology positions.Now IT graduates have the chance to find good jobs in Northern Ireland, and graduates fromother fields can take advantage of the IMR Academy training program to get a head start on acareer in the growing software sector.

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

Competitive AdvantageNorthern Ireland recently has attracted information technology based investments from othermultinational companies such as BT, Fujitsu, Liberty Mutual Group, Seagate Technology, STBSystems and UniComp. These companies cite Northern Irelands work force and favorable costbase in their decisions to locate in the region."The availability of high-quality graduates combined with the regions competitive operating

costs and attractive incentives made Northern Ireland the best possible location for STB," saidRichard W. Cooke, STBs director of engineering operations.With salaries and fringe costs for well trained software engineers in Northern Irelandapproximately 50 percent lower than costs for US engineers, and low employee turnover andfavorable rates for office space, the overall annual per capita operational costs to develop highquality software can be significantly less compared with these same costs in the United States.


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Typical starting salaries for IT graduates in Northern Ireland are $22,000 to $25,000 annually. Atless than three percent annually, Northern Irelands employee turnover rate is a fraction of therates typically experienced in other parts of Europe and the United States. Annual costs persquare foot for office space, exclusive of property taxes and service charges, range from as lowas $5 per square foot in some development areas, to approximately $14 in Belfast. These costscan be as much as 50 percent lower than office space costs in other European cities.

mb0037 -aka assignment-set 1

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