You are on page 1of 33

INTERNATIONAL BUSINESS

Institutions in the World Economy


Protection is harmful to Economic Growth and
Consumer Welfare
Brentton Woods Conference 1944 suggested
formation of IMF, World Bank and ITO
GATT in 1948 instead of ITO, started with 23
countries had 128 members in 1995
Uruguay Round in 1995 GATT  WTO (Similar
to ITO)
WTO - More powerful that GATT
India founder member of IMF, World Bank,
GATT and ITO
INTERNATIONAL BUSINESS
WTO
22,000 page document signed on Jan 1st,
1995 by 128 countries
WTO – Single Institutional frame work
encompassing GATT and results of UR
5 Specific Functions
Facilitate implementation, administration &
operation, and further the objectives of
Multilateral Trade Agreement and
Provide framework for implementation,
administration & operation of Plurilateral
Trade Agreements
INTERNATIONAL BUSINESS
WTO
Provide forum for negotiations among
members concerning their multilateral trade
relations
Administer understanding on Rules and
Procedures governing settlements of disputes
Administer trade review mechanism
Cooperate with IMF and other bodies for
achieving greater coherence in Global
Economic Policy making
INTERNATIONAL BUSINESS
WTO

4 Main Functions

Supervise on regular basis operations related


to declarations related to Goods, Services,
TRIPS
Act as dispute settlement body
To serve as Trade Review Mechanism
Establish Goods Council, Services Council
and TRIPS Council as subsidiary bodies
INTERNATIONAL BUSINESS
WTO

Three Basic Issues Taken up by UR


Reducing specific trade barriers and
improving market access

Strengthening GATT principles

TRIPs (Trade Related Intellectual Property


Rights)
TRIMs (Trade Related Investment Measures)
INTERNATIONAL BUSINESS
IMF
 Brenton Woods Conference, 1945 –
ITO, World Bank, IMF
 Unstable currencies & inadequate
monetary reserves could not develop
& function world markets
 01.03.1947 – IMF Functioning
 29 Signatories to startwith, 184 by
2002 end
INTERNATIONAL BUSINESS
IMF - Major Objectives
 To Promote International Monetary
Cooperation
 To Facilitate Expansion and Balanced
Growth of International Trade
 To Promote Exchange Rate Stability

 To Establish Multilateral System of


payment
 To Make Its Resources Available to
Its Members Who Are Experiencing
Balance of Payment Difficulties
INTERNATIONAL BUSINESS
IMF
Brenton Woods Agreement Established
Fixed Exchange Rates for Each
Member Country
 USD 35 = Gold 1 Oz. par Value was

same whether Gold or USD was used


 Variation of 1% allowed, raised to

2.25% In 1971
 US had 70% of World’s Gold Reserve

in 1947
 Redemption of Dollar in Gold
INTERNATIONAL BUSINESS
IMF
 Member Countries Contribute to IMF -
Quota
 Quota Depends Upon National Income,
Monetary Reserves, Trade Balance and
Other Economic Indicators
 Quota is Pool of Money IMF can Lend to
Member Countries, Basis of How Much
Country Can Borrow as Allocation of SDR
 Quota determines Voting Rights
INTERNATIONAL BUSINESS
IMF
 Total SDR - 213 million

 Largest Quota USA 17.5%, Japan

6.6%,Germany 6.11%, France and UK


5.05% each
 Board of Governors is Final Authority

 Day to Day Business with 24 Executive

Directors
INTERNATIONAL BUSINESS
IMF
SDR
 Created in 1969

 SDR 213 = $ 280 billion

 SDR is weighted average of USD (45%),

Euro (29%), JPY (15%), GBP (11%) by


end 2002
 SDR designed to take over Gold

 Several Countries Have SDR Base for

Value for Their Currencies


INTERNATIONAL BUSINESS
IMF
SDR
 Created in 1969

 SDR 213 = $ 280 billion

 SDR is weighted average of USD (45%),

Euro (29%), JPY (15%), GBP (11%) by


end 2002
 SDR designed to take over Gold

 Several Countries Have SDR Base for

Value for Their Currencies


INTERNATIONAL BUSINESS
WORLD BANK
 Lending Money to the governments of
developing countries to finance development
projects in education, health and infrastructure
 Providing assistance to governments for
developmental projects to the poorest
developing countries
 Lending directly to private sector to help
strengthen the private sector in developing
countries with long-term loans equity
investments and other financial assistance
INTERNATIONAL BUSINESS
WORLD BANK
 Providing investors with investment
guarantees against non-commercial risks,
to create an environment in developing
countries to attract foreign investments
 Promoting increased flow of international
investments by providing facilities for
conciliation and arbitration between
governments and foreign investors
 Advise, Research, Publication
 Contributed for trade since WW2
INTERNATIONAL BUSINESS
FDI - International Trade
• Factor Mobility
Why factors move?
Short term capital – most mobile factor due
differences in expected returns, Govt. loans
and aid, Remittances to NGO’s, Expat’s
remittances
Population Mobility – Better salaries
INTERNATIONAL BUSINESS
FDI - International Trade
• Factor Mobility and Trade
Choice between mobility of finished goods and
production factors
Mobility of production factors may be a
substitute for trade, but will stimulate trade
through sale of components, equipment etc
Costs are lowest when trade and production
factor both are mobile
INTERNATIONAL BUSINESS
FDI
• Marketing
• Production
• R&D
• Factors like Raw Material
• Other Factors
INTERNATIONAL BUSINESS
FDI - Benefits for Host Country
• Capital – MNCs Invest for Long Term Projects
and Take Risks for the Profits
• Technology – Positive Effect on Productivity
and Economic Growth
• Market Access – Exports, Maruti Exports to
East Europe
• Increase in Domestic Investments - JVs
INTERNATIONAL BUSINESS
FDI - Benefits for Host Country
• Export Promotion – Plants in SEZ, EOU
• Employment Generation – Direct and Indirect
Employment
• Social Effects – Market Reforms, Competition
Privatisation, Infrastructure, Literacy
• Spin off Benefits – Growth of Ancillary Units,
Better Products in Domestic Markets
INTERNATIONAL BUSINESS
FDI – Entry Strategies
• Rep or Liaison Office – FIPB Controls
• Project Office – Temporary or Site Office, RBI
• Branch Office – Production Not Allowed
Through Indian Arm
• As an Indian Co. – Indian Companies Act
1956, Registrar of Companies
• JV with Indian Partner
• Wholly Owned Subsidiary – FIPB Approval
INTERNATIONAL BUSINESS
FDI
Both companies and countries are concerned
about the control of foreign investments
Countries fear decisions contrary to national
interest and companies want to safeguard their
competitive positions
Ownership of 10 to 25% voting stocks is
considered as FDI
FDI - Expand Sales, Acquire Resources, Minimize
Competitive Risk and Political Advantage
INTERNATIONAL BUSINESS
Company's Motives for FDI
Expand Sales
High Transportation Cost
Excess Capacity
Scale of Economies and Product
Alterations
Trade Restrictions
Country of Origin Effect
Lower Production Costs
INTERNATIONAL BUSINESS
Company's Motives for FDI
Resource Acquisition
Savings through Vertical Integration – Value
Chain
Savings through Raionalised Production
Access to Cheaper or Different Resource or
Knowledge - Indian IT Companies Buying US
Companies
Need to Lower Costs as Product Matures (PLC)
Gain Government Investment Incentives
INTERNATIONAL BUSINESS
Company's Motives for FDI
Risk Minimization
Important for Oligopolistic Industries like
Automobiles
Decisions based on not what I gain, but
what I lose
Diversification of Customer Base
Diversification of Supplier Base
INTERNATIONAL BUSINESS
Company's Motives for FDI

Political Objectives
Aramaco
US investments in Caribbean to Counter
Cuba
Chinese Govt. owned Cos investing in
Foreign Oil Companies
INTERNATIONAL BUSINESS
FDI - International Trade
Post World War 2
Rightist – Free Trade
Leftist – Protectionism
Democracy in most of the countries
International Trade declined after World War 1
International Trade improved after World War 2
Liberalization and Globalization
Technology Advancement
Improved Production
Factor Mobility
INTERNATIONAL
BUSINESS
INTERNATIONAL
BUSINESS
INTERNATIONAL
BUSINESS
INTERNATIONAL BUSINESS
Resource Mobilisation
Access to Foreign Capital Market For Indian
Companies
Permitted Since 1992-93
Companies With Good Track Record For Three
Years Allowed For Euro Issue / GDR / ADR /
FCCB
• Global Depository Receipts
• American Depository Receipts
• Foreign Currency Convertible Bonds
INTERNATIONAL BUSINESS
Resource Mobilisation
DR
• Negotiable Certificate in USD
• Represents non-US company’s Publicaly
Traded Local Currency Equity Shares
• DR Created By Delivering Indian Company
Shares With Depository’s Custodian Bank
• Depository’s Custodian Bank Issues DR in
USD
• DR are Freely Tradable
INTERNATIONAL BUSINESS
Resource Mobilisation
DR
• GDR is Marketed Globally and Not For Specific
Country
• As per Guidelines of 1995 Three Year
Condition is Relaxed For
Infrastructure Projects, Including Power
Oil Exploration
Telecom
Ports and Airports
INTERNATIONAL BUSINESS
Resource Mobilisation
DR
• GDR is Cheap Source of Capital
• Restriction for Investments in Stock Market
and Real Estate
• No Limits for GDR Issues
• Other Investments in India Can be in Form
of Investments by FII
• FCCB Issue Proceeds to Conform to External
Commercial Borrowings and end use

You might also like