Trading Places An overview of World Economies

Chapter 2 International marketing Consuming Globally, Thinking Locally by Andrew Macaulay

Submitted by:

Narayan Kadel/ Ajeet Singh

S - 54 / S 04 FMS PT 2011-14 Batch

August 2000

GLOBAL TRADE Post the WW II Period WHAT IMPACTS GLOBAL TRADE Global Trade is impacted by the Macro events across economies and also by the interaction of politics, economic and investment policies, state of technology and institutions. Global Trade witnessed a very steady and strong growth from 1950 to 1970. Period from 1950 onwards witnessed a lot of shocks and adjustments.

Oil Crisis in 1970

Third World Debt Crisis in 1982 Collapse of Communism in 1989 Asian Crisis in 1997 Sub-Prime in 2008 EURO Zone Crisis 2010

GLOBAL TRADE Post the WW II Period (Historical Perspective)

Inspite of the shocks that the Global trade faced the World real GDP was able to show increments YoY.

The Growth rates also moved in tandem with the shocks and a considerable dip can be noticed in the 2009 pursuant to the Sub Prime.
World Re al GDP
1

GDP in USD

Trillions

500.00 400.00 300.00 200.00 100.00 Ye ar (1961 - 2011)

SubPrime

GLOBAL TRADE Current Scenario and Challenges

IMF projects the world output to slow down to 3.30 % in 2012 compared to 3.79% in 2011 which is further decline from 5.10 % in 2010. Current major Economic factors impacting World Trade EUROZONE Crisis - most impacted countries -Greece, Italy, Spain, Portugal Low demand from US (Largest consumer) Sluggish domestic demand in the Emerging Markets

Institutional Framework Global Players and Referees 1.

WORLD BANK

Founded in 1944 as a cluster of 5 development institutions.

International Bank for Reconstruction and Development (IBRD) International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Center for Settlement of Industrial Disputes (ICSID)

Headquartered in Washington D.C; 9000 employees and 100 offices globally. World Bank acts like a Cooperative with 188 member countries. Objectives The World Bank is a vital source of financial and technical assistance and provides help to governments in developing countries to reduce poverty Provides governments with money and technical expertise they need for projects such as education, health, infrastructure, communications, government reforms and for many other purposes.

Institutional Framework Global Players and Referees 2.International

Monetary Fund (IMF)

Founded in 1945 to oversee the international monetary system and to ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade.
Objectives To promote International Monetary Cooperation. Facilitate the expansion and balanced growth of International Trade. Promote Exchange stability Assist in establishment of a multilateral system of payments. Make it general resources temporarily available to members experiencing balance of payments difficulties. Shorten the duration, and lessen the degree of balance of payments of members.

Institutional Framework Global Players and Referees

3. General Agreement for Trade and Tariffs (GATT) WORLD TRADE ORGANISATION (WTO)

to

Formed as General Agreement on Trade and Tariffs (GATT) in 1947 primarily to avoid future conflicts among nations regarding trade. Basic Principles of GATT Non Discrimination in Trade. Domestic Industry should be protected only through Customs Tariff. Dumping and Subsidies should not interfere with fair competition. Tariffs should be reduced through multilateral negotiations. In 1994 GATT had 118 members accounting for 80 % of the World Trade GATT became WTO in 1995 formed out of the Uruguay round of negotiations of 1984 - 1986 and presently has a membership of 157 countries.

Institutional Framework Global Players and Referees

4. WORLD TRADE ORGANISTION (WTO)

What is WTO ? WTO is an organization for liberalizing trade. WTO is a negotiating forum for governments to negotiate trade agreements. WTO operates a system of trade rules and acts as a platform to resolve trade disputes. WTO also helps to protect consumers and also avoid spread of disease. Functions of the World Trade Organisation (WTO) Administer WTO trade agreements. Provide a forum for trade negotiations. Handle trade disputes Monitor National Trade Policies. Provide technical assistance and training for developing countries. Cooperate with other international organisations. Multilateral Trading System (MTS) at WTO These are WTO negotiated agreements entered into in consensus and later ratified by the Parliaments of the respective countries. These are contracts, guaranteeing member countries important trade rights. The MTS also binds the governments to keep their trade policies within agreed limits to everybodys benefit.

4. Organisation for Economic Cooperation and Development (OECD)

OECD consists of 29 countries who support the principles of a market economy Pluralist economy and respect for human rights. Originally formed with 20 member countries from Western Europe and North America in 1961 as Organization for European Economic Cooperation which was formed to administer the Marshall Plan scheme for the reconstruction of Europe Key Aims Promote policies for achieving sustainable economic growth and employment and a rising standard of living for the population. Maintain financial stability and member countries to contribute to the expansion of World trade on a multilateral and non discriminatory basis.

Undertake to cooperate with each other to ensure economic growth, reduction of obstacles of trade in goods and services and liberalization of capital movements to contribute to the economic development of all the worlds countries. OECD also undertakes collection of economic statistics and dialogues with non OECD members for the facilitation of trade.

Supra National Trading Blocs A number of regional trade agreements are in place across the world and have notified to GATT and WTO. Some of the regional trade agreements are NORTH AMERICAN FREE TRADE AGREEMENT NAFTA EUROPEAN UNION EU ASIA PACIFIC ECONOMIC COOPERATION FORUM APEC ASSOCIATION OF SOUTHEAST ASIAN NATIONS ASEAN LATIN AMERICAN INTEGRATION ASSOCIATION LAIA

1. Association of South East Asian Nations (ASEAN)

ASEAN was formed in 1967 in Bangkok by 5 members Thailand , Malaysia, Singapore, Philippines, Indonesia. The membership now stands at 10.

Key Aims Accelerate Economic growth, social progress and cultural development in the region.
Promote regional peace and stability. Promote collaboration and mutual assistance on matters of common interest. Training and research facilities in the educational technical and administrative sphere. Promote South East Asian studies. Collaborate more effectively for the greater utilizations of the agriculture and industries.

2. EUROPEAN UNION (EU)

Formally established when Maastricht Treaty came into force in 1993. EU currently has 27 member states To become a member a country must satisfy the Copenhagen criteria. In 2002, the EURO replaced the national currencies of 12 member countries. Key Aims Achieve one set of trade rules. Achieve a single tariff and administrative procedures, Creation of a Single market, with the enabling of free movement of capital, people and and open access to public sector contracts for all EU firms.

ROLE OF NATIONAL GOVERNMENTS National Governments can play important roles in both facilitating and restricting trade. Some measures for Restricting the Trade
Tariff barriers - Duties and Taxes

Non Tariff Barriers - Quotas and Imports restraints, Govt nationalist policies, Exchange rate controls, administrative and technical regulation standards for products

Governments promoting the Trade

Govt support trade as it leads to overall economic and political benefits. Govt support by way of information facilitation. Grants for Marketing research Provide Export Credit insurance for exports to difficult markets.

THE HUMAN CONTEXT

Importance Constantly changing pace of development In 1978, 1/3rd of entire workforce are in Centrally Planned economies Only 10% in markets semi-detached from world economy Another 1/3rd only partially linked to Intl Trading System

On account of technological changes, the consequences are far reaching than expected

THE Fallouts

Insecurity Technological change Decline of traditional social structures Affects both the rich and poor countries Increased levels of Poverty

To tackle Low incomes, poor working conditions and insecurity

Need for Sound domestic policy Supportive international environment Recommendations of World Bank1. Follow market based growth plans 2. Create a demand for labour 3. Expand work force skills 4. Raise productivity 5. Open up trade and attract inward investment 6. Construct framework for labour policy 7. complements informal and rural labour markets 8. Supports collective bargaining 9. Protects the vulnerable 10. Does not act in favour of better-off workers 11. Encourage as rapid as possible progress in transition economies without excessive or permanent costs for labour

The Manager

Skill to look differently Willing to adjust to new and different conditions (Korey-1995) To look at problems from multiple perspectives Analytical ability and Creative thinking to be part of decision making process.

Perspectives to be used for enhanced creative thinking Technological- tech and rationality Organizational- corporate organization, company structure and social infrastructure Personal- from the point of view of those affected International-social responsibility of the transnational businesses, ethical basis, values and morality Cultural- religion, language, educational and intercultural dimensions

The Manager

Market- not to be perceived as domestic or international Requirement- integration of all marketing activities viz. -Understanding, Creating, Communicating, delivering - Innovative approaches reqd for managing in a global economy Processes reqd for global thinking manager Conceptual/Strategical -(where to invest/divest, cost cutting, labour costs) Skills based ( case based mgmt education) Requirements for global ManagerIntercultural negotiating skills Ability to read different markets in different cultural contexts Ability to understand comparative politics Ability to understand that cultural frameworks define markets, pricing and competition

The Employer

Expectations- to create wealth Responsibility- thrusted social responsibility while operating Internationally

Internal measures Physical working conditions Womens, multicultural and minority rights Education and trg. Of employees Industrial relations External measures Community service Environmental protection Packaging and its impact on pollution Transmission of new values

The Employer

Expectations- to create wealth Responsibility- thrusted social responsibility while operating Internationally

Internal measures Physical working conditions Womens, multicultural and minority rights Education and trg. Of employees Industrial relations External measures Community service Environmental protection Packaging and its impact on pollution Transmission of new values

WHAT ORGANISATIONS DO

Have people with geocentric attitudes

Have education outside the country of their birth Who have attended student-exchange programme

Proficient in more than one international languages Best investment- An International Board

CONCLUSION

Macro trends of future

Globalisation
Shorter supply Chains Technology Convergence Drivers of Globalisation Technology

Faster methods of transportation and communication

Convergence of Customer needs

Shorter supply Chains

Shorter Product Life Cycles

Diminishing Brand Values

Smarter and more demanding customers Increased pressure on prices and financial results New technology enabled distribution channels Technology convergence Transformation of market places Creation of product and services

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