Name Raghavendra.

Roll No 510828309

Course MBA- Semester 4

MB0037-International Business Management

Assignment
(Assignment Set1)

Study centre 2787 (NIMS)

MB0037 – International Business Management

 Assignment Set- 1

Question.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 low-income countries, however, would gain most from
agricultural liberalization in industrial countries because of the greater relative
importance of agriculture in their economies.

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Question 1b. 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
• 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

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Question. 2 Discuss the impact of culture on International Business.

Answer

The following can be looked as the various aspects of the cultural dichotomies. In this
new millennium, 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 up to in getting a bigger slice of the Chinese auto-market.
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.

The globalizing wind has broadened the mindsets of executives, extended the
geographical reach of firms, and nudged international business (IB) research into some
new trajectories. One such new trajectory is the concern with national culture. Whereas
traditional IB research has been concerned with economic/ legal issues and
organizational forms and structures, the importance of national culture – broadly
defined as values, beliefs, norms, and behavioral patterns of a national group – has
become increasingly important in the last two decades, largely as a result of the classic
work of Hofstede (1980). National culture has been shown to impact on major business
activities, from capital structure (Chui et al., 2002) to group performance (Gibson,
1999). For reviews, see’ Boyacigiller and Adler’ (1991) and ‘Earley and Gibson’ (2002).

The purpose of this Unit is to provide a state-of-the-art review of several recent

advances in culture and IB research, with an eye toward productive avenues for future
research. It is not our purpose to be comprehensive; our goal is to spotlight a few
highly promising areas for leapfrogging the field in an increasingly boundary-less
business world. We first review the issues surrounding cultural convergence and
divergence, and the processes underlying cultural changes.

We then examine novel constructs for characterizing cultures, and how to enhance the
precision of cultural models by pinpointing when the effects of culture are important.
Finally, we examine the usefulness of experimental methods, which are rarely
employed in the field of culture and IB. A schematic summary of our coverage is given
in Table 2.1, which suggests that the topics reviewed are loosely related, and that their
juxtaposition in the present paper represents our attempt to highlight their importance
rather than their coherence as elements of an integrative framework.

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

globalization
An issue of considerable theoretical significance is concerned with cultural changes and
transformations taking place in different parts of the world. In fact, since the landmark
study of Haire et al. (1966) and the publication of Industrialism and Industrial Man by
Kerr et al. (1960), researchers have continued to search for similarities in culture-
specific beliefs and attitudes in various aspects of work related attitudes and
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 divergent
beliefs and practices in the past era would disappear. In the following section, we
review the evidence on the issue and conclude that such an outlook pertaining to the
convergence of various IB practices is overly optimistic.

2 Evolution of partial globalization

Globalization refers to a ‘growing economic interdependence among countries, as
reflected in the increased cross-border flow of three types of entities: goods and
services, capital, and know-how’ (Govindarajan and Gupta, 2001, 4). Few spoke of
‘world economy’ 25 years ago, and the prevalent term was ‘international trade’
(Drucker, 1995). However today, international trade has culminated in the emergence
of a global economy, consisting of flows of information, technology, money, and
people, and is conducted via government international organizations such as the North
American Free Trade Agreement (NAFTA) and the European Community; global
organizations such as the International Organization for Standardization (ISO);
multinational companies (MNCs); and cross – border alliances in the form of joint
ventures, international mergers, and acquisitions. These inter – relationships have
enhanced participation in the world economy, and have become a key to domestic
economic growth and prosperity (Drucker, 1995, 153).

Yet, globalization is not without its misgivings and discontents (Sassan, 1998). A vivid
image associated with the G8 summits is the fervent protests against globalization in
many parts of the world, as shown in television and reported in the popular media.
Strong opposition to globalization usually originates from developing countries that
have been hurt by the destabilizing effects of globalization, but in recent times we
have also seen heated debates in Western economies triggered by significant loss of
professional jobs as a result of off shoring to low – wage countries. Indeed, workers in
manufacturing and farming in advanced economies are becoming increasingly wary of
globalization, as their income continues to decline significantly.

In parallel to the angry protests against globalization, the flow of goods, services, and
investments across national borders has continued to fall after the rapid gains of the
1990s. Furthermore, the creation of regional trade blocs, such as NAFTA, the European
Union, and the Association of Southeast Asian Nations, have stimulated discussions
about creating other trade zones involving countries in South Asia, Africa, and other
parts of the world. Although it is often assumed that countries belonging to the World
Trade Organization (WTO) have embraced globalization, the fact is that the world is
only partially globalized, at best (Schaeffer, 2003).

Many parts of Central Asia and Eastern Europe, including the former republics of the
Soviet Union, parts of Latin America, Africa, and parts of South Asia, have been
skeptical of globalization (Greider, 1997). In fact, less than 10% of the world’s
population is fully globalized (i.e., being active participants in the consumption of
global products and services) (Schaeffer, 2003). Therefore, it is imperative that we
analyze the issues of cultural convergence and divergence in this partially globalized
world.

‘Universal culture’ often refers to the assumptions, values, and practices of people in
the West and some elites in non-Western cultures. Huntington (1996) suggested that it
originates from the intellectual elites from a selected group of countries who meet
annually in the World Economic Forum in Davos, Switzerland. These individuals are
highly educated, work with symbols and numbers, are fluent in English, are extensively
involved with international commitments, and travel frequently outside their country.
They share the cultural value of individualism, and believe strongly in market
economics and political democracy. Although those belonging to the Davos group
control virtually all of the world’s important international institutions, many of the
world’s governments, and a great majority of the world’s economic and military
capabilities, the cultural values of the Davos group are probably embraced by only a
small fraction of the six billion people of the world.

Popular culture, again mostly Western European and American in origin, also
contributes to a convergence of consumption patterns and leisure activities around the
world. However, the convergence may be superficial, and have only a small influence
on fundamental issues such as beliefs, norms, and ideas about how individuals, groups,
institutions, and other important social agencies ought to function. In fact, Huntington
(1996, 58) noted that ‘The essence of Western civilization is the Magna Carta, not the
Magna Mac. The fact that non-Westerners may bite into the latter has no implications
for their accepting the former’.

This argument is obvious if we reverse the typical situation and put Western Europeans
and Americans in the shoes of recipients of cultural influence. For instance, while
Chinese Kung Fu dominates fight scenes in Hollywood movies such as Matrix Reloaded,
and Chinese restaurants abound in the West, it seems implausible that Americans and
Europeans have espoused more Chinese values because of their fondness of Chinese
Kung Fu and food. A major argument against cultural convergence is that traditionalism
and modernity may be unrelated (Smith and Bond, 1998). Strong traditional values,
such as group solidarity, interpersonal harmony, paternalism, and feminism, can co-
exist with modern values of individual achievement and competition.

A case in point is the findings that Chinese in Singapore and China indeed endorsed
both traditional and modern values (Chang et al., 2003; Zhang et al., 2003). It is also
conceivable that, just as we talk about Westernization of cultural values around the
world, we may also talk about Easternization of values in response to forces of
modernity and consumption values imposed by globalization (Marsella and Choi, 1993).
Although the argument that the world is becoming one culture seems untenable, there
are some areas that do show signs of convergence. We explore in the following the
roles of several factors that simultaneously cause cultures of the world to either
converge or diverge, in an attempt to identify several productive avenues for future
research.

3 Role of multiculturalism and cultural identity

The broad ideological framework of a country, corporation, or situation is the most
important determinant of the cultural identity that people develop in a given locale
(Triandis, 1994). The ‘melting pot’ ideology suggests that each cultural group loses
some of its dominant characteristics in order to become the mainstream: this is
assimilation, or what Triandis (1994) calls subtractive multiculturalism.
In contrast, when people from a cultural group add appropriate skills and
characteristics of other groups, it may be called integration, or additive
multiculturalism. Both of these processes are essential for cultural convergence to
proceed. However, if there is a significant history of conflict between the cultural
groups, it is hard to initiate these processes, as in the case of Israelis and Palestinians.
In general, although there has been some research on the typology of animosity
against other nations (e.g., Jung et al., 2002), we do not know much about how
emotional antagonism against other cultural groups affects trade patterns and
intercultural cooperation in a business context. The issues of cultural identity and
emotional reactions to other cultural groups in an IB context constitute a significant
gap in our research effort in this area.

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 as opposed to absolute. Although
clusters of some countries in given geographical locales (e.g., Argentina, Brazil, Chile)
might indicate significant culture shifts towards embracing Anglo values, the changes
do not diminish the absolute differences between such countries and those of the
Anglo countries (i.e., US, Canada, UK). Huntington, in his ‘The Clash of Civilizations’
(1996), presents the view that there is indeed a resurgence of non-Western cultures
around the world, which could result in the redistribution of national power in the
conduct of international affairs. The attempt by the Davos group to bring about uniform
practices in various aspects of IB and work culture, thereby sustaining the forces of
globalization, is certainly worthwhile. However, our analysis suggests that there is no
guarantee that such convergence will come about easily, or without long periods of
resistance.

IB scholars need to understand that although some countries might exhibit strong
tendencies toward cultural convergence, as is found in Western countries, there are
countries that will reject globalization, not only because of its adverse economic
impacts (Greider, 1997) but also because globalization tends to introduce distortions
(in their view) in profound cultural syndromes that characterize their national
character.

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

Scholars of IB should recognize that the issue of convergence and divergence in this
era of partial globalization will remain as a persistent and complex issue whose
direction might only be assessed on a region-by-region basis. It is also wise to adopt an
interdisciplinary perspective in understanding the forces that create both convergence
and divergence of cultures in different parts of the world. For instance, in
Understanding Globalization, Schaeffer (2003) has provided an insightful discussion of
the social consequences of political, economic and other changes, which have
significant implications for IB. The cause-effect relationships of globalization and its
various outcomes, especially the cultural outcomes, are not only characterized by bi-
directional arrows, but are embedded in a complex web of relationships. How these
complex relationships and 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,
cultures influence each other and change, but whether or not these changes will bring
about cultural convergence is yet to be seen. In this section, we delineate a general
model that describes and explains the complex processes underlying cultural changes.
As explained before, IB is both an agent and a recipient of cultural change, and for
international business to flourish it is important to understand its complex, reciprocal
relationships with cultural change.

In line with the view of Hofstede (2001) that culture changes very slowly, culture has
been treated as a relatively stable characteristic, reflecting a shared knowledge
structure that attenuates variability in values, behavioral norms, and patterns of
behaviours (Erez and Earley, 1993). Cultural stability helps to reduce ambiguity, and
leads to more control over expected behavioral outcomes (Weick and Quinn, 1999;
Leana and Barry, 2000). For instance, most existing models of culture and work
behaviour assume cultural stability and emphasize the fit between a given culture and
certain managerial and motivational practices (Erez and Earley, 1993). High fit means
high adaptation of managerial practices to a given culture and, therefore, high
effectiveness. The assumption of cultural stability is valid as long as there are no
environmental changes that precipitate adaptation and cultural change. Yet, the end of
the 20th century and the beginning of the new millennium have been characterized by
turbulent political and economical changes, which instigate cultural changes.

In line with this argument, Lewin and Kim (2004), in their comprehensive chapter on
adaptation and selection in strategy and change, distinguished between theories
driven by the underlying assumption that adaptation is the mechanism to cope with
change, and theories driven by the underlying assumption of selection and the survival
of the fittest, suggesting that ineffective forms of organization disappear, and new
forms emerge. However, although organizational changes as a reaction to
environmental changes have been subjected to considerable conceptual analyses, the
issue of cultural change at the national level has rarely been addressed.

There are relatively few theories of culture that pertain to the dynamic aspect of
culture. One exception is the eco-cultural model by Berry et al. (2002), which views
culture as evolving adaptations to ecological and socio-political influences, and views
individual psychological characteristics in a population as adaptive to their cultural
context, as well as to the broader ecological and socio-political influences. Similarly,
Kitayama (2002) proposes a system view to understanding the dynamic nature of
culture, as opposed to the entity view that sees culture as a static entity. This system
view suggests that each person’s psychological processes are organized through the
active effort to coordinate one’s behaviors with the pertinent cultural systems of
practices and public meanings. Yet, concurrently, many aspects of the psychological
systems develop rather flexibly as they are attuned to the surrounding socio-cultural
environment, and are likely to be configured in different ways across different socio-
cultural groups.

These adaptive views of culture are supported by empirical evidence. For example, Van
de Viler et al. (1999) identified curvilinear relationships between temperature,
masculinity and domestic political violence across 53 countries. Their findings showed
that masculinity and domestic violence are higher in moderately warm countries than
in countries with extreme temperatures. Inglehart and Baker (2000) examined cultural
change as reflected by changes in basic values in three waves of the World Values
Surveys, which included 65 societies and 75% of the world’s population. Their analysis
showed that economic development was associated with shifts away from traditional
norms and values toward values that are increasingly rational, tolerant, trusting, and
participatory. However, the data also showed that the broad cultural heritage of a
society, whether it is Protestant, Roman Catholic, Orthodox, Confucian, or Communist,
leaves an enduring imprint on traditional values despite the forces of modernization.
The process of globalization described before has introduced the most significant
change in IB, with its effects filtering down to the national, organizational, group and
individual levels. Reciprocally, changes at micro-levels of culture, when shared by the
members of the society, culminate into macro level phenomena and change the macro-
levels of culture. 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,
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, through national cultures,
organizational cultures, group cultures, and cultural values that are represented in the
self at the individual level, as portrayed in Figure 2.1. 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, the deeper level of values, which is
testable by social consensus, and the deepest level of basic assumption, which is
invisible and taken for granted. The present model proposes that culture as a multi –
layer construct exists at all levels – from the global to the individual – and that at each
level change first occurs at the most external layer of behavior, and then, when shared
by individuals who belong to the same cultural context, it becomes a shared value that
characterizes the aggregated unit (group, organizations, or nations).

In the model, the most macro-level is that of a global culture being created by global
networks and 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 rules and procedures in order to have a common
‘language’ for communicating across cultural borders (Kostova, 1999; Kostova and
Roth, 2003; Gupta and Govindarajan, 2000).
Figure 2.1: The dynamic of top-down–bottom-up processes across
Levels of culture.
Given the dominance of Western MNCs, the values that dominate the global context
are often based 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 local cultures 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 their local 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 and groups that share the
common national and organizational culture, but that differ from each other in their
unit culture on the basis of the differences in their functions (e.g., R&D vs
manufacturing), their leaders’ values, and the professional and educational level of
their members.

At the bottom of this structure are individuals who through the process of socialization
acquire the cultural values transmitted to them from higher levels of culture.
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. For example, employees of an R&D unit are
selected into the unit because of their creative cognitive style and professional
expertise. Their leader also typically facilitates the display of these personal
characteristics because they are crucial for developing innovative products. Thus, all
members of this unit share similar core values, which differentiate them from other
organizational units. Groups that share similar values create the organizational culture
through a process of aggregation, and local organizations that share similar values
create the national culture that is different from other national cultures.
Both top-down and bottom-up processes reflect the dynamic nature of culture, and
explain how culture at different levels is being shaped and reshaped 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 a bottom-up process of aggregation. The
changes in national cultures observed by Inglehart and Baker (2000) could serve as an
example for top-down effects of economic growth, enhanced by globalization, on a
cultural shift from traditional values to modernization. However, in line with Schein
(1992), the deep basic assumptions still reflect the traditional values shaped by the
broad cultural heritage of a society.

Global organizations and networks are being formed by having local-level organizations
join the global arena. That means that there is a continuous reciprocal process of
shaping and reshaping organizations at both levels. For example, multinational
companies that operate in the global market develop common rules and cultural values
that enable them to create a synergy between the various regions, and different parts
of the multinational company. These global rules and values 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 global company may
introduce changes into the global company because of its need to function effectively
across different cultural boarders. A study by Erez-Rein et al. (2004) demonstrated how
a multinational company that acquired an Israeli company that develops and produces
medical instruments changed the organizational culture of the acquired company. The
study identified a cultural gap between the two companies, with the Israeli company
being higher on the cultural dimension of innovation and lower on the cultural
dimension of attention to detail and conformity to rules and standards as compared
with the acquiring company. The latter insisted on sending the Israeli managers to
intensive courses in Six – Sigma, which is an advanced method of quality improvement,
and a managerial philosophy that encompasses all organizational functions. Upon
returning to their company, these managers introduced quality improvement work
methods and procedures to the local company, and caused behavioral changes,
followed by the internalization of quality – oriented values. Thus, a top-down process of
training and education led to changes in work behavior and work values. Sharing
common behaviors and values by all employees of the local company then shaped the
organizational culture through bottom–up processes. 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 top-down effects, and that the cultural layer that changes first is the most external
layer of behavior. In the long run, bottom – up processes 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. The values of low power distance, low uncertainty avoidance, and
individualism facilitate change. Change threatens stability, and introduces uncertainty,
and resistance to change will therefore be higher in cultures of high rather than low
uncertainty avoidance (Steensma et al., 2000). Change also threatens the power
structure, and therefore will be avoided in high power distance cultures. Finally, change
breaks the existing harmony, which is highly valued 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
change process 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
individualistic cultures, whereas working in teams dominates the collectivistic ones.

8 Understanding when culture matters: increasing the precision of cultural

models
Beyond exploring new cultural constructs and the dynamic nature of culture, we also
argue for the importance of examining contingency factors that enhance or mitigate
the effect of national culture. 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 firm’s subsidiaries around the globe. Over the term of her
career, the manager has been educated about differences in national culture and is
sensitive to intercultural opportunities and challenges. At the same time, she
understands the strategic need to create a unified global program that serves to
further integrate the firm’s basic processes, creating efficiencies and synergies across
the remote sites. She approaches the implementation with trepidation. 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. Put another
way, in this complex circumstance, does culture matter?

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Question.3. 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, freely, fairly and
predictably.
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, through technical assistance and
training programs
· Cooperating with other international organizations

Structure
The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30
others are negotiating membership.
Decisions are made by the entire membership. This is typically by consensus. A
majority vote is also possible but it has never been used in the WTO, and was
extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements have been
ratified in all members’ parliaments.
The WTO’s top level decision-making body is the Ministerial Conference which meets
at least once every two years.
Below this is the General Council (normally ambassadors and heads of delegation in
Geneva, but sometimes officials sent from members’ capitals) which meets several
times a year in the Geneva headquarters. The General Council also meets as the Trade
Policy Review Body and the Dispute Settlement Body.
At the next level, the Goods Council, Services Council and Intellectual Property
(TRIPS) Council report to the General Council.
Numerous specialized committees, working groups and working parties deal
with the individual agreements and other areas such as the environment,
development, membership applications 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 outside Geneva. Since decisions are taken by the members themselves,
the Secretariat does not have the decision-making role that other international
bureaucracies are given with. The Secretariat’s main duties are to supply technical
support for the various councils and committees and the ministerial conferences, to
provide technical assistance for developing countries, to analyze world trade, and to
explain WTO affairs to the public and media.
The Secretariat also provides some forms of legal assistance in the dispute settlement
process and 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
membership as a whole, either by ministers (who meet at least once every two years)
or by their ambassadors or delegates (who meet regularly in Geneva). Decisions are
normally taken by consensus.
In this respect, the WTO is different from some other international organizations such
as the World Bank and International Monetary Fund. In the WTO, power is not
delegated to a board of directors or the organization’s head.

When WTO rules impose disciplines on countries’ policies, that are the outcome of
negotiations among WTO members, the rules are enforced by the members themselves
under agreed procedures that they negotiated, including the possibility of trade
sanctions. But those sanctions are imposed by member countries, and authorized by
the membership as a whole. This is quite different from other agencies whose
bureaucracies can, for example, influence a country’s policy by threatening to withhold
credit.
Reaching decisions by consensus among some 150 members can be difficult. Its main
advantage is that decisions made this way are more acceptable to all members. And
despite the difficulty, some remarkable agreements have been reached. 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. But
for now, the WTO is a member-driven, consensus-based organization.
Highest authority: the Ministerial Conference
So, the WTO belongs to its members. The countries make their decisions through
various councils and committees, whose membership consists of all WTO members.
Topmost is the ministerial conference which has to meet at least once every two years.
The Ministerial Conference can take decisions on all matters under any of the
multilateral trade agreements.

Second level: General Council in three guises

Day-to-day work in between the ministerial conferences is handled by three bodies:
· The General Council
· The Dispute Settlement Body
· The Trade Policy Review Body
All three are in fact the same – the Agreement Establishing the WTO states they are all
the General Council, although they meet under different terms of reference. Again, all
three consist of all WTO members. They report to the Ministerial Conference.
The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It
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.

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
agreements dealing with their respective areas of trade. Again they consist of all WTO
members. These three also 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 trade and development, the environment, regional trading arrangements, and
administrative issues. The Singapore Ministerial Conference in December 1996 decided
to create new working groups to look at investment and competition policy,
transparency in government procurement, and trade facilitation.
Two more subsidiary bodies dealing with the plural-lateral agreements (which are not
signed by all WTO members) keep the General Council informed of their activities
regularly.

Fourth level: down to the nitty-gritty

Each of the higher level councils has subsidiary bodies. The Goods Council has 11
committees dealing with specific subjects (such as agriculture, market access,
subsidies, anti-dumping measures and so on). Again, these consist of all member
countries. Also reporting to the Goods Council is the Textiles Monitoring Body, which
consists of a chairman and 10 members acting in their personal capacities, and groups
dealing with notifications (governments informing the WTO 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:
the dispute settlement “panels” of experts appointed to adjudicate on unresolved
disputes, and the Appellate Body that deals with appeals.

Heads of Delegations and other boards: the need for informality

Important breakthroughs are rarely made in formal meetings of these bodies, least of
all in the higher level councils. Since decisions are made by consensus, without voting,
informal consultations within the WTO play a vital role in bringing a vastly diverse
membership round to an agreement.
One step away from the formal meetings is informal meetings that still include the full
membership, such as those of the Heads of Delegations (HOD). More difficult issues
have to be thrashed out in smaller groups. A common recent practice is for the
chairperson of a negotiating group 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 kept informed about what is going on (the process must be “transparent”)
even if they are not in a particular consultation or meeting, and that they have an
opportunity to participate or provide input (it must be “inclusive”).
One term has become controversial, but more among some outside observers than
among delegations. The “Green Room” is a phrase taken from the informal name of the
director-general’s conference room. It is used to refer to meetings of 20 – 40
delegations, usually at the level of heads of delegations. These meetings can take
place elsewhere, such as at Ministerial Conferences, 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 committees negotiating 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 to
compromises being struck behind their backs. So, extra efforts are made to ensure that
the process is handled correctly, with regular reports back to the full membership.
The way countries now negotiate has helped somewhat. In order to increase their
bargaining power, countries have formed coalitions. In some subjects such as
agriculture virtually all countries are members of at least one coalition – and in many
cases, several coalitions. This means that all countries can be represented in the
process if the coordinators and other key players are present. The coordinators also
take responsibility for both “transparency” and “inclusiveness” by keeping their
coalitions informed and by taking the positions negotiated within their alliances.

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

Market access negotiations also involve small groups, but for a completely different
reason. The final outcome is a multilateral package of individual countries’
commitments, but those commitments are the result of numerous bilateral, informal
bargaining sessions, which depend on individual countries’ interests. (Examples include
the traditional tariff negotiations, and market access 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 formal decisions in the councils and committees. Nor are the formal meetings
unimportant. They are the forums for exchanging views, putting countries’ positions on
the record, and ultimately for confirming decisions. The art of achieving agreement
among all WTO members is to strike an appropriate balance, so that a breakthrough
achieved among only a few countries can be acceptable to the rest of the membership.

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Question 3 b. Highlight the drawbacks of GATT?

answer

Given its provisional nature and limited field of action, the success of GATT in
promoting and securing the liberalization of much of world trade over 47 years is
incontestable. 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
the momentum of trade liberalization helped ensure 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 trading system, as then
represented by GATT, was recognized as an anchor for development and an instrument
of economic and trade reform.
The limited achievement of the Tokyo Round, outside the tariff reduction results, was a
sign of difficult times to come. GATT’s success in reducing tariffs to such a low level,
combined with a series of economic recessions in the 1970s and early 1980s, drove
governments to devise other forms of protection for sectors facing increased overseas
competition. 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. Both these changes undermined the credibility and
effectiveness of GATT.

Apart from the deterioration in the trade policy environment, 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. For a start, world trade had become
far more complex and important than 40 years before: the globalization of the world
economy was underway, international investment was exploding and trade in services
– not covered by the rules of GATT – was of major interest to more and more countries
and, at the same time, closely tied to further increases in world merchandise trade.

In other respects, the GATT had been found wanting: for instance, with respect to
agriculture where loopholes in the multilateral system were heavily exploited – and
efforts at liberalizing agricultural trade met with little success – and in the textiles and
clothing sector where an exception to the normal disciplines of GATT was negotiated in
the form of the Multi-fiber Arrangement. Even the institutional structure of GATT and its
dispute settlement system were giving cause for concern.
Together, these and other factors convinced GATT members that a new effort to
reinforce and extend the multilateral system should be attempted. That effort resulted
in the Uruguay Round.

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Question.4. a. Give a short note on the regional economic integration?

Answer.

Regional Economic Integration

Regional integration can take many forms, and nowhere is this more evident than in
the vastly different integration processes taking place in the regions of Europe and East
Asia. The subject of this paper is regional integration as it has developed in East Asia
with a focus on the drivers of that integration. While the paper is not intended as a
direct comparison of integration in East Asia and Europe, it will include some
comparisons between the two regions.

Integration in East Asia has progressed very slowly and is still in an early stage despite
that the process has continued for decades. In fact, it could be said that the process
began centuries ago – even as far back as the 15th century. By comparison, European
integration has progressed steadily and has gradually deepened over the last 50 years
to reach an advanced stage today with a common currency and well-developed
regional institutions. Thus, the speed of progression and the level of integration
attained in the two regions are quite dissimilar.
In addition to these differences, the drivers behind the integration process in each
region are different. In Europe, the origins of integration have been institutional in
nature, and the development of institutions has been prominent throughout the
process. Thus, regional institutions have been the driving force behind integration in
Europe. In East Asia, the development of regional institutions has also occurred;
however, progress in this area has been slow and the few existing institutions are fairly
weak and ineffective. Nevertheless, regional integration is taking place in East Asia, but
the driving force is the market rather than policy or institutions. Corporations and the
production networks they have established are driving integration in East Asia.

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Question 4b. Mention the benefits of WTO?

Answer.

Ten Benefits of WTO

1. The system helps to keep the peace
2. The system allows disputes to be handled constructively
3. A system based on rules rather than power makes life easier for all
4. Freer trade cuts the cost of living
5. It gives consumers more choice and a broader range of qualities to choose from
6. Trade raises incomes
7. Trade stimulates economic growth and that can be good news for employment
8. The basic principles make the system economically more efficient, and they cut
costs
9. The system shields governments from narrow interests
10. The system encourages good government

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

Answer

The Five-Element Product Wave

As illustrated in Figure 4.5, the wave model employs design engineering, process
engineering, product marketing, production, and end-of-life activities as elements. The
first wave is associated with the "A" version of a product or service, and survives
through the traditional PLC introduction and growth phases. A second wave begins with
the "B" version, the markedly improved second model. 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.

Note that design engineering has a peak of activity level at each upgrade. Process
engineering activity shadows that of design engineering, as system changes will be
contemplated and made to facilitate the changes made in the product or service.
Product marketing also has activity level spikes that closely match engineering design
activity, lagged somewhat for product introduction. Production has one activity peak
that results from demand management and production planning through master
production scheduling.

Finally, the EOL curve peaks at each redesign. 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. The EOL element requires that a decision
be made about the preceding 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 and support agreement with another entity, or
discontinue production.

For the sake of parsimony, a two-product model ("A" and "B" versions). In reality, there
may be hundreds of significant redesigns. The wave effect comes from the fact that the
process repeats for the successful firm, forming swells in design engineering, process
engineering, and product marketing, and manufacturing curves before the final crest at
EOL activity.

The five-element product wave, or FPW, uses trigger points, rather than time, as the
horizon over which the element curves vary. Changes in magnitude, represented by
the vertical axis, result from differing activity levels within the five elements. Simple
changes in levels of dollar or unit product sales, in and of themselves, do not
necessarily determine the trigger points. Rather, the varying activity levels are a direct
result of product introductions and redesigns that, from the outset, must take into
account company strategy, core capabilities, and the state of the competitive
environment. For example, a product with strong sales may be redesigned in a
preemptive strike against competitors, further distancing that product from the
competition, such as with Caterpillar’s innovative high-drive bulldozers.

That the five-element wave is grounded in reality becomes apparent when considering
the recent research that suggests product introduction cycles are being compressed.
Bayus (1994) claims that knowledge is being applied faster, resulting in increasing
levels of new product introductions. Yet since product removals are not keeping pace
with introductions, there are an increasing number of product variations on the market.
Slater (1993) observes that product life cycles are growing shorter and shorter. 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.

Regardless of whether life cycles are actually being compressed or knowledge is simply
being applied faster, it is apparent that firms are increasing the speed with which they
bring their products to market. The effect of this is a compression of the design
engineering, process engineering, production, and product marketing elements of the
wave model. (The EOL curve may remain unchanged because accelerated
introductions do not necessarily affect EOL efforts.) The five-element wave clearly
shows the inefficiency of traditional "over-the-wall" systems as speed to market
increases. As the elements compress, more and more information is thrown over the
wall. Recipients find themselves with less and less time to take action. Taken to the
extreme, in-baskets, phone lines, conference rooms, desks, and floors are soon
gridlocked and littered with unanswered correspondence and things to do. Forget
quality; production itself grinds to a halt.
The solution is to maximize the advantage of the relationships within the five-element
wave and work in concurrent teams, as illustrated in Figure 6. That way, responsibility
is shared throughout the system. Members from each discipline optimize the system.
The method tears down barriers between departments and speeds the introduction
process, thus decreasing costs. The focal point becomes the customer, rather than the
task. The system is totally interactive and bound together. Each element is connected
to all of the others and is 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. Boeing
expects that concurrent design will save some $4 billion in the development of its 777
airliner. Westinghouse recently suggested that concurrent engineering would eliminate
200 duplicate processes in a project that consisted of 600 using traditional over-the-
wall approaches. Ford’s Team Taurus was able to cut a full year out of model
turnaround. In addition, design changes required after initial production began were
reduced by some 76 percent.

The strength of the five-element product wave is the fact that it illuminates critical
decision points in the life of a product or service. The interrelationships of the elements
clearly illustrate the benefit of working product introductions, design changes, and end-
of-life decisions in teams. This is particularly true in today’s rapidly compressing
environment of speeding products to market. Furthermore, the model is flexible and
may be expanded or contracted to include those functional areas relevant to the
production team. Thus, whether a given firm’s product is a service or a manufactured
good, 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.

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Question 5 b. What do you mean by globalization?

Answer

Economic "globalization" is a historical process, the result of human innovation and

technological progress. It refers to the increasing integration of economies around the
world, particularly through trade and financial flows. The term sometimes also refers to
the movement of people (labor) and knowledge (technology) across international
borders. There are also broader cultural, political and environmental dimensions of
globalization that are not covered here.
At its most basic, there is nothing mysterious about globalization. The term has come
into common usage since the 1980s, reflecting technological advances that have made
it easier and quicker to complete international transactions – both trade and financial
flows. 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,
urban industries, or financial centers.

Markets promote efficiency through competition and the division of labor – the
specialization that allows people and economies to focus on what they do best. Global
markets offer greater opportunity for people to tap into more and larger markets
around the world. It means that they can 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 poorest
countries may need the support of the international community as they do so.

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Question. 6. 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, RAPD M–

UP
Within six months of announcing it would invest $4.5 million to establish its new
software development center in Northern Ireland, IMR was up and running with more
than one-third its target 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 expectations and opens up new ambitions for our interests in Northern
Ireland."
According to Arthur "Bro" McFerran, president of IMR (NI) Ltd., the company is hiring 12
to 18 programmers a month in Northern Ireland and is well on its way to meeting its
staffing goal of 300 by 1999. McFerran credited Northern Ireland’s Training &
Employment Agency (T&EA) with helping place the company’s staffing on the fast
track.
"The T&EA not only has helped us to identify and recruit qualified software graduates
from Northern Ireland’s universities, it is also assisting us with a unique initiative to
bring additional sources of high quality talent to the company," McFerran said.
Innovation In Training
Impressed by the number and quality of information technology graduates from the
region’s universities, IMR recognized an untapped resource in the well-educated,
versatile graduates of other fields in Northern Ireland. Working with the T&EA, IMR
developed "IMR Academy," an intensive 20-week training program at the Belfast
Institute of Further and Higher Education, to expand the skills of qualified applicants
who are not computer software graduates, but who are equally well-educated in other
Disciplines 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 who successfully complete the course are awarded a National Computing
Certificate and full-time employment with IMR. Approximately 40 trainees have already
participated in the program.

"IMR is extremely pleased with the T&EAs ability to design and deliver a training
program customized to our needs, and one that is delivering us an impressive pool of
incremental programming talent," McFerran said.

Smart and Available

"The recent software investments by IMR and other companies provide a new
opportunity for Northern Ireland’s computer graduates," McFerrin said. Recruitment
research by IMR indicates that traditionally, 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.

Now IT graduates have the chance to find good jobs in Northern Ireland, 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. Recruitment research by IMR indicates that traditionally, 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.

Competitive Advantage
Northern Ireland recently has attracted information technology – based investments
from other multinational companies such as BT, Fujitsu, Liberty Mutual Group, Seagate
Technology, STB Systems and UniComp. These companies cite Northern 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," said Richard W. Cooke, STB’s director of engineering operations.
With salaries and fringe costs for well trained software engineers in Northern Ireland
approximately 50 percent lower than costs for US engineers, and low employee
turnover and favorable rates for office space, 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.

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