INTRODUCTION

‘The reduction of the difference between one economy and another’

Business Environment

The global economy is going through a transition phase where the restructuring of industries

and firms takes place in the form of LPG (Liberalization, Privatization, and Globalization) after the

implication of the Structural Adjustment Programmes (SAP) in many countries. With the rapid rate

of the integration of markets in emerging economics with the rest of the world and with the ongoing

attempts of LPG (Liberalization, Privatization, and Globalization), the subject matter of International

Business has been more and more acceptance even in developing countries. The liberalized approach

towards Foreign Direct Investment was initiated in many countries in the first half of the 1990s as

part of the structural adjustment programme. This evident from the policy changes on a) Sectors

open to foreign Direct Investment b) Level of Foreign Equity Participation and c) Approval

Procedures.

Changes in India’s Business Environment

Currently in India, the national economy and marketplace are undergoing rapid changes and

transformation. A large number of reasons could be attributed to these changes. One of the reasons in

these changes in the Indian Market Scenario is Globalization, and the subsequent and resulting

explosive growth of global trade and the international competition. The other reason for these

changes in the Indian Market Scenario is the technological change. This is an important factor

because the technological competitiveness is making, not only the Indian market, but also the global

marketplace cutthroat. In the Indian Marketing Scenario, the market success goes to those companies

that are best matched to the current environmental imperatives. Those companies that can deliver

what the people want and can delight the Indian customers are the market leaders. The Indian

Marketing Scenario is one of the biggest consumer markets and that is precisely the reason why India

has attracted several MNC’s. These large Multi National Companies have realized that to succeed in

the Indian market-place they need to hire Indian representative who are much more aware of the

Indian economic, political, legal and social realities.

Globalization

Globalization refer to it as “growing economic interdependence among countries as reflected

in increasing cross-border flows of three types of commodities: goods and services, capital, and

knowhow” (Govidarajan & Gupta 2000, p.275).

Globalization is usually divided into globalization of markets and globalization of production.

Market globalization implies a standardization of products across the world as national

barriers become less and less relevant.

Production globalization appears more of a reality. Globalization of production refers to the

sourcing of goods and services to take advantage of a difference in the factors of production (land,

labor, capital). Globalization of production continues to suffer from trade barriers, costs of

transportation, economic, social and political risks and others.

Increasing Economic Integration

In the past, an economy was largely self-contained, and imports and exports were something

that happened almost co-incidentally. Now, economies depend closely on each other for inputs eg

raw material and for markets for outputs. A recession in one economy (especially a large economy

like Japan or the US) affects many other economies. Consumer markets are the most important in

any economy. There has been a rapid convergence of consumer tastes and buying habits, so the

purchases of consumers all over the world have an increasing amount in common (although there are

still many important differences); a business can sell much the same product in many different

markets. A global brand like ‘Coca-Cola is very good examples of this.

Multinational companies ("MNCs") have existed for many years, but today there are many

more of them and their importance to all economies has become much greater. Their example, and

their success, has led many businesses to change their strategic objectives and their management

thinking so ‘thinking globally but acting locally’ is now much more common; many businesses used

to almost ignore what went on elsewhere.

The advantages of globalization 

Faster growth: economies that have in the past been open to foreign direct investments have

developed at a much quicker pace than those economies closed to such investment e.g. communist Russia

Cheaper imports: this is down to the simple fact that if we reduce the barriers imposed on imports (e.g. tariffs,

quota, etc) then the imports will fall in price

New technologies: by having an open economy we can bring in new technology as it happens rather

than trying to develop it internally

Spur of foreign competition: foreign competition will encourage domestic producers to increase

efficiency. Carbaugh (1998) states that global competitiveness is a bit like golf, you get better by playing

against people who are better than you.

Increase consumer income: multination will bring up average wage levels because if the

multinationals were not there the domestic companies would pay less.

Increased investment opportunities: with globalization companies can move capital to whatever

country offers the most attractive investment opportunity. This prevents capital being trapped in domestic

economies earning poor returns.

Disadvantages of globalization

The negative drivers of globalization included Culture which is a major hold back of

globalization. An example of how culture can negatively affect globalization can be seen in the

French film industry. The French are very protective of this part of their culture and provide huge

grants to help its development. As well as government barriers market barriers and cultural barriers

still exist. 

Also a negative aspect to a countries development is War e.g. tourism in Israel fell by 40%

due to the latest violence. Corporate strategy can also be a negative driver of

globalization as corporation may try to locate in one particular area. 

Another negative driver of globalisation is “local focus” or “localisation” as it is termed in

Richard Douthwaite’s book “Short Circuit”. Douthwaite (1996) believes that globalisation can and

should be reversed. He also believes that localisation is the way to do this. He defines localisation as

“not meaning everything being produced locally but it means a better a balance between local,

regional, national and international markets and thus brings less control to multinational

corporations”.

Another step to reverse globalisation would be for governments to club together to curb the

power of multinational by negotiating new trade and treaties that would remove the subsidies

powering globalisation and give local production a chance.

Douthwaite also states that the global economy is itself nothing less than a system of

structural exploitation that creates hidden slaves on the other side of the world and also

that the North should allow the South to produce for it and not just for us (North). So it can be seen

that Douthwaite is very opposed to globalisation especially that part of it

exploited by multinational corporations. 

Further arguments put forward against globalisation by Mr. Lawton include that it actually

destroys jobs in wealthy advanced countries. This is due to the lower costs of wages in developing

countries. Multinationals will move to areas of lower wage levels at the drop of a hat e.g. Fruit of the

Loom. Also this ability to relocate has meant that wage levels of unskilled workers in developed

countries has actually fallen relatively speaking. This is down to the fact that one now needs skill and

knowledge in developed economies to survive. 

Also there is the loss of sovereignty that globalisation brings. Many anti-globalisation

believers state that nations are losing their identity and selling their soul. 

Then there are environmental factors of globalisation as described earlier. These are becoming more

and more controversial.

Technology, though usually viewed as a positive aspect of globalisation, also has some

negative points.

Factors Causing Globalization/Drivers

Globalization is a leading concept which has become the main factor in business life during

the last few decades. This phenomenon affects the economy, business life, society and environment

in different ways, and almost all corporations have been affected by these changes. These changes

are mostly related to increasing competition and the rapid changes of technology and information

transfer. To challenge these changes, companies need to keep in mind various aspects of the main

effects of globalization.

Competition

Globalization leads to increased competition. This competition can be related to

product and service cost and price, target market, technological adaptation, quick response,

quick production by companies etc. When a company produces with less cost and sells

cheaper, it is able to increase its market share.

Customers have a large multitude of choices in the market and this affects their

behaviors: they want to acquire goods and services quickly and in a more efficient way than

before. They also expect high quality and low prices. All these expectations need a response

from the company, otherwise sales of company will decrease and they will lose profit and

market share. A company must always be ready for price, product and service and customer

preferences because all of these are global market requirements.

Exchange of Technology

One of the most striking manifestations of globalization is the use of new

technologies by entrepreneurial and internationally oriented firms to exploit new business

opportunities. Internet and e-commerce procedures hold particular potential for SMEs

seeking to broaden their involvement into new international markets.

Technology is also one of the main tools of competition and the quality of goods and

services. On the other hand it necessitates quite a lot of cost for the company. The company

has to use the latest technology for increasing their sales and product quality. Globalization

has increased the speed of technology transfer and technological improvement. Customer

expectations are directing markets. Mostly companies in capital intensive markets are at risk

and that is why they need quick/rapid adapting concerning the customer/market expectations.

These companies have to have efficient technology management and efficient R&D

management.

Knowledge/Information transfer

Information is a most expensive and valuable production factor in the current

environment. Information can be easily transferred and exchanged from one country to

another. If a company has a chance to use knowledge and information then it means that it

can adapt to this global changing. This issue is similar with the technology transfer issue in

global markets. The rapid changing of the market requires also quick transfer of knowledge

and efficient using of that knowledge and information.

Taste of Customers

Basically means that the chance for an enterprise to go global would be bolstered if

the country they will be Exporting their products and services to are looking for the same

quality as they.

Public Policy

Basically, this factor is highly dependent on the issues a certain country is facing. It

may be political, social or economic. These three factors are all interrelated and should be

given much thought if you are thinking of conducting your business in an international scale.

Company Branding

Internally, the company should develop branding strategies that align its logo and

external presence in a new market with its global image. One approach is to emphasize the

brand's association with quality products and services. Company branding needs to spark

interest in the company itself. The perceptions worldwide consumers have of a company and

its brands are a prominent factor of globalization because a company's brand is often the first

thing consumers see when they interact with the company.

Employee Capabilities

To compete in a worldwide market, companies must internally evaluate the work that

their employees are capable of. Primarily, companies need to ascertain the strengths and

weaknesses of their employees, as well as any problems, constraints or performance

uncertainties that global competition might create, according to My Strategic Plan.

Identifying strengths and weaknesses internally permits the company to reorganize itself for

maximum efficiency and will help the company negotiate the world economy and the new

markets it opens.

Consumer Analysis

Consumer reaction to a new product or company is paramount when entering a new

market. Externally, globalization requires a company to analyze consumption trends for

several markets, then adapt to what their new customers buy. Analyzing consumer trends

includes segmenting the market into different types of consumers, identifying a consumer's

motivation for buying and ascertaining the market's unmet needs, according to My Strategic

Plan. Such an analysis enables the company to create unique offerings for unique consumers,

creating a vibrant presence.

Market Analysis

Externally, companies in global markets need to understand the market itself. Market

analysis helps a company determine the size of the market, how it is growing and how to

create a presence in the market geared toward profitability, according to My Strategic Plan.

Each market will have unique barriers to entry, including local political or economic

uncertainties, the availability of resources, and even the local reaction to a global company.

“The recent worldwide economic developments have caused quite some controversy and

confusion, but it has made one thing absolutely clear: employers need graduates with the

appropriate academic skills who can think and act on a global scale.”

Internationalization

The process is leading to identifying and entering international markets.

Usually implemented by:

Firms acting alone

Set up subsidiary (sales & production) by buying an existing company or creating a new one.

Firms acting with others

Establish strategic alliance with one or more partners (local or International)

International Business is a Business transactional & trade across the geographical boundary of a

country is said to be International Business.

Objectives

Sales expansion, Resource acquisition, Risk minimization

Functions  IBM

Marketing, Global Manufacturing and Supply Chain Management, Accounting, Finance,

Human Resources.

Overlaying alternatives : Choice of Countries, Organization and Control Mechanisms.

Why consider going International?

To increase overall customer base – (initiated by domestic market uncertainty)

To offset seasonal fluctuations in local markets

To minimize risk of losing market share to clients who themselves use internet to find goods /

services in overseas markets

To offset increasing costs of doing business at home (high energy prices, import duties.)

To gain prestige with customers at home (having overseas presence gives certain credibility)

Scope of International Business

International Business involves the broadest and most generalized study of the field of

business.

Focus on the particular problems and opportunities

Operates in environments that are highly uncertain

Benefits of International Business

Survival

Growth of Overseas Markets

Sales and Profit

Diversification

Inflation

Employment

Standard of Living

Difficulties of International Business

Political and Legal Differences

Cultural Differences

Economic Differences

Differences in the currency unit

Differences in the Languages

Differences in the marketing infrastructure

Trade restriction

High cost of Distance

Distance in Trade practices

Ways to enter new Markets/Modes of entry into an International Business

There are some basic decisions that the firm must take before foreign expansion like: which markets to enter, when to enter those markets, and on what scale.

Which foreign markets?

The choice based on nation’s long run profit potential.-Look in detail at economic and

political factors which influence foreign markets.-Long run benefits of doing business in a country

depends on following factors:- Size of market (in terms of demographics)- The present wealth of

consumer markets (purchasing power)- Nature of competition By considering such factors firm can

rank countries in terms of their attractiveness and long-run profit.

Timing of entry

It is important to consider the timing of entry. Entry is early when an international business

enters a foreign market before other foreign firms. And late when it enters after other international

businesses. The advantage is when firms enters early in the foreign market commonly known as first-

mover advantages

Advantage

1. It’s the ability to prevent rivals and capture demand by establishing a strong brand name.

2. Ability to build sales volume in that country. so that they can drive them out of market.

3. Ability to create customer relationship

Disadvantage

1. Firm has to devote effort, time and expense to learning the rules of the country.

2. Risk is high for business failure(probability increases if business enters a national market after several other firms they can learn from other early firms mistakes)

Modes:  Trade

Indirect export Direct export

Equity Based/ FDI Joint venture Greenfield M&A (Merger and Acquisition)

Contractual Licensing Franchising Turnkey Management contracting

1.Exporting

It means the sale abroad of an item produced, stored or processed in the supplying firm’s

home country. It is a convenient method to increase the sales. Passive Exporting occurs when a firm

receives canvassed them. Active Exporting conversely results from a strategic decision to establish

proper systems for organizing the export functions and for procuring foreign sales.

Advantages of Exporting

a. Need for limited finance: If the company selects a company in the host country to distribute the

company can enter international market with no or less financial resources but this amount would

be quite less compared to that would be necessary under other modes. 

b. Less Risks: Exporting involves less risk as the company understand the culture , customer and the

market of the host country gradually. Later after understanding the host country the company can

enter on a full scale.

c. Motivation for Exporting: Motivation for Exporting is proactive and reactive. Proactive

motivations are opportunities available in the host country. Reactive motivators are those efforts

taken by the company to export the product to a foreign country due to the decline in demand for

its product in the home country.

Exporting Challenges

While the advantages of Exporting by far outweigh the disadvantages, small and medium size

enterprises especially face some challenges when venturing in the international marketplace.

a. Extra Costs. Because it takes more time to develop extra markets, and the pay back periods are

longer, the up-front costs for developing new promotional materials, allocating personnel to travel

and other administrative costs associated to market the product can strain the meager financial

resources of small size companies.

b. Product Modification. When exporting, companies may need to modify their products to meet

foreign country safety and security codes, and other import restrictions. At a minimum, modification

is often necessary to satisfy the importing country's labeling or packaging requirements.

c. Financial Risk. Collections of payments using the methods that are available (open-account,

prepayment, consignment, documentary collection and letter of credit) are not only more time-

consuming than for domestic sales, but also more complicated. Thus, companies must carefully

weigh the financial risk involved in doing international transactions.

d. Export Licenses and Documentation. Though the trend is toward less export licensing

requirements, the fact that some companies have to obtain an export license to export their goods

make them less competitive. In many instances, the documentation required to export is more

involved than for domestic sales.

e. Market Information. Finding information on foreign markets is unquestionably more difficult and

time-consuming than finding information and analyzing domestic markets. In less developed

countries, for example, reliable information on business practices, market characteristics, cultural

barriers may be unavailable.

f. Entering an export business requires careful planning, some capital, market know-how, access to

quality product, competitive pricing strategy, management commitment and realizing the challenges

and opportunities without them it is almost impossible to succeed in the export business. While there

are no hard-and-fast rules that can help companies make decision to export and to become

successful, understanding the advantages and can help smooth entry into new markets, keep pace

with competition and eventually realize profit. 

2. Licensing

In this mode of entry, the domestic manufacturer leases the right to use its intellectual

property (ie) technology, copy rights, brand name etc to a manufacturer in a foreign country for a fee.

Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign

is called licensee. The cost of entering market through this mode is less costly. The domestic

company can choose any international location and enjoy the advantages without incurring

any obligations and responsibilities of ownership, managerial, investment etc.

Advantages

1. Low investment on the part of licensor.

2. Low financial risk to the licensor 

3. Licensor can investigate the foreign market without much efforts on his part.

4. Licensee gets the benefits with less investment on research anddevelopment5. Licensee escapes himself from the risk of product failure.

Disadvantages

1. It reduces market opportunities for both

2. Both parties have to maintain the product quality and promote the product. Therefore one party can affect the other through their improper acts.

3. Chance for misunderstanding between the parties.

4. Chance for leakages of the trade secrets of the licensor.5. Licensee may develop his reputation6. Licensee may sell the product outside the agreed territory and after the expiry of the contract.

3. Franchising

Under franchising an independent organization called the franchisee operates the business

under the name of another company called the franchisor under this agreement the franchisee pays

a fee to the franchisor. The franchisor provides the following services to the franchisee.

1. Trade marks

2. Operating System

3. Product Obsolence

4. Continuous support system like advertising, employee training, and reservation services quality assurances program etc.

Advantages:

1. Low investment and low risk 

2. Franchisor can get the information regarding the market culture,customs and environment of the host country.

3. Franchisor learns more from the experience of the franchisees.

4. Franchisee get the benefits of R& D with low cost.

5. Franchisee escapes from the risk of product failure.

Disadvantages

1. It may be more complicating than domestic franchising.

2. It is difficult to control the international franchisee.

3. It reduce the market opportunities for both

4. Both the parties have the responsibilities to maintain product qualityand product promotion.

5. There is a problem of leakage of trade secrets.

4. Turnkey Project

A turnkey project is a contract under which a firm agrees to fully design, construct and equip

a manufacturing/ business/services facility and turn the project over to the purchase when it is ready

for operation for remuneration like a fixed price, payment on cost plus basis. This form of pricing

allows the company to shift the risk of inflation enhanced costs to the purchaser. Eg nuclear power

plants , airports, oil refinery , national highways , railway line etc. Hence they are multiyear project.

5. Mergers & Acquisitions

A domestic company selects a foreign company and merger itself with foreign company in

order to enter international business. Alternatively the domestic company may purchase the foreign

company and acquires it ownership and control. It provides immediate access to international

manufacturing facilities and marketing network.

Advantages

1. The company immediately gets the ownership and control over the acquired firm’s factories, employee, technology, brand name and distribution networks.

2. The company can formulate international strategy and generate more revenues.

3. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. This strategy helps the host country.

Disadvantages:

1. Acquiring a firm in a foreign country is a complex task involving bankers, lawyer’s regulation, mergers and acquisition specialists from the two countries.

2. This strategy adds no capacity to the industry.

3. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies.

4. Labor problem of the host country’s companies are also transferred to the acquired company.

6. Joint Venture

Two or more firm join together to create a new business entity that is legally separate and

distinct from its parents. It involves shared ownership. Various environmental factors like social,

technological economic and political encourage the formation of joint ventures. It provides strength

in terms of required capital. Latest technology required human talent etc. and enable the companies

to share the risk in the foreign markets. This act improves the local image in the  host country and

also satisfies the governmental joint venture.

Advantages

1. Joint venture provides large capital funds suitable for major projects.

2. It spread the risk between or among partners.

3. It provide skills like technical skills, technology, human skills, expertise , marketing skills.

4. It makes large projects and turn key projects feasible and possible.5. It synergy due to combined efforts of varied parties.

Disadvantages:

1. Conflict may arise

2. Partner delay the decision making once the dispute arises. Then theoperations become unresponsive and inefficient.

3. Life cycle of a joint venture is hindered by many causes of collapse.

4. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength.

5. The decision making is slowed down in joint ventures due to theinvolvement of a number of parties.

7. Acquisitions & Mergers

A merger is a voluntary and permanent combination of business whereby one or more firms

integrate their operations and identities with those of another and henceforth work under a common

name and in the interests of the newly formed amalgamation.

Motives for acquisitions

1. Removal of competitor 

2. Reduction of the Co failure through spreading risk over a wider range of activities.

3. The desire to acquire business already trading in certainmarkets & possessing certain specialist employees &equipments.

4. Obtaining patents, license & intellectual property.

5. Economies of scale possibly made through more extensiveoperations.

6. Acquisition of land, building & other fixed asset that can be profitably sold off.

7. The ability to control supplies of raw materials.

8. Expert use of resources.

9. Tax consideration.

10. Desire to become involved with new technologies &management method particularly in high risk industries.

8. Wholly Owned Subsidiary

Subsidiary means individual body under parent body. This Subsidiary or individual body as

per their own generates revenue. They give their own rent, salary to employees, etc. But policies and

trademark will be implemented from the Parent body. There are no branches here. Only the certain

percentage of the profit will be given to the parent body. A subsidiary, in business matters, is an

entity that is controlled by a bigger and more powerful entity. The controlled entity is called a

company, corporation , or limited liability company , and the controlling entity is called its parent (or

the parent company ). The reason for this distinction is that alone company cannot be a subsidiary

of any organization; only an entity representing a legal fiction as a separate entity can be a

subsidiary. While individuals have the capacity to act on their own initiative, a business entity can

only act through its directors, officers and employees. The most common way that control of a

subsidiary is achieved is through the ownership of shares in the subsidiary by the parent.

These shares give the parent the necessary votes to determine the composition of the board of the

subsidiary and so exercise control. This gives rise to the common

Different Between Domestic and International Business

International Business Environment

The aggregate of all conditions, events and influences that surround and affect business.

Prospects of a business depend not only on the resources but also on the environment. Hence an

S.No International Business Domestic Business

1.It is extension of Domestic Business and Marketing Principles remain same.

The Domestic Business Follow the marketing Principles

2. Difference is customs, cultural factorsNo such difference. In a large countries languages likeIndia, we have many languages.

3. Conduct and selling procedure changes Selling Procedures remain unaltered

4.Working environment and management practices change to suit local conditions.

No such changes are necessary

5.Will have to face restrictions in trade practices, licenses and government rules.

These have little or no impact on Domestic trade.

6.Long Distances and hence more transaction time.

Short Distances, quick business is possible.

7.Currency, interest rates, taxation, inflation and economy have impact on trade.

Currency, interest rates, taxation, inflation and economy have little or no impact on Domestic Trade.

8.MNC’s have perfected principles, procedures and practices at international level

No such experience or exposure.

9.MNCs take advantage of location economies wherever cheaper resources available.

No such advantage once plant is built it cannot be easily shifted.

10.Large companies enjoy benefits of experience curve

It is possible to get this benefit through collaborators.

11. High Volume cost advantage.Cost Advantage by automation, new methods etc.

12. Global Standardization No such advantage

13.Global business seeks to create new values and global brand image.

No such advantage

14.Can Shift production bases to different countries whenever there are problems in taxes or markets

No such advantage and get competition from some spurious or SSI Unit who get patronage of Government.

analysis of the environment is required for policy

formulation and strategy formulation.

• PEST (Macro Level) – Uncontrollable

• Micro Level (Customer, Stakeholders,

suppliers) - Uncontrollable

• SWOT/TWOS - Controllable

PEST Analysis – Uncontrollable

• PEST analysis stands for “Political, Economic, Social, and Technological analysis”

• It describes a framework of macro-environmental factors used in the environmental scanning component of strategic management.

• The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors.

• It is a part of the external analysis

• When conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the company has to take into consideration.

• It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

Political Factors

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:

1.How stable is the political environment?

2.Will government policy influence laws that regulate or tax your business?

3.What is the government’s position on marketing ethics?

4. What is the government’s policy on the economy?

5. Does the government have a view on culture and religion?

6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Economic Factors

Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:

1. Interest rates.

 2. The level of inflation Employment level per capita.

3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.

Sociocultural Factors

The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:

1.What is the dominant religion?

2.What are attitudes to foreign products and services?

3.Does language impact upon the diffusion of products onto markets?

4.How much time do consumers have for leisure?

5.What are the roles of men and women within society?

6.How long are the population living? Are the older generations wealthy?

7.Do the population have a strong/weak opinion on green issues?

Technological Factors

Technology is vital for competitive advantage, and is a major driver of globalization.

Consider the following points:

1. Does technology allow for products and services to be made more cheaply and to a better

standard of quality?

2.Do the technologies offer consumers and businesses more innovative products and services

such as Internet banking, new generation mobile telephones, etc?

3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets,

auctions, etc?

4.Does technology offer companies a new way to communicate with consumers e.g. banners,

Customer Relationship Management (CRM), etc?

SWOT

• SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,

Opportunities, and Threats involved in a project or in a business venture.

• It involves specifying the objective of the business venture or project and identifying the

internal and external factors that are favorable and unfavorable to achieve that objective.

• The SWOT analysis provides information that is helpful in matching the firm’s resources and

capabilities to the competitive environment in which it operates. As such, it is instrumental in

strategy formulation and selection.

• A firm should not necessarily pursue the more lucrative opportunies.

• Rather, it may have a better chance at developing a competitive advantage by identifying a fit

between the firm’s strengths and upcoming opportunities.

• In some cases, the firm can overcome a weakness in order to prepare itself to pursue a

compelling opportunity.

SWOT Analysis Framework

To develop strategies that take into account the SWOT profile, a matrix of these factors can

be constructed.

  Environmental Scan 

 /                                \

 

Internal Analysis                               External Analysis

 

              / \                                                        / \

 

Strengths Weaknesses                          Opportunities Threats

  

SWOT Matrix

Strengths

A firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include: patents, strong brand names, good reputation among customers, cost advantages from proprietary know-how, exclusive access to high grade natural resources, favorable access to distribution networks.

Weakness

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses: lack of patent protection , a weak brand

name ,poor reputation among customers ,high cost structure , lack of access to the best natural resources ,lack of access to key distribution channels .

In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include: an unfulfilled customer need, arrival of new technologies, loosening of regulations, removal of international trade barriers.

Threats

Changes in the external environmental also may present threats to the firm. Some examples of such threats include: shifts in consumer tastes away from the firm’s products, emergence of substitute products, new regulations, and increased trade barriers.

SWOT / TOWS Matrix

Strengths                 Weaknesses

 

Opportunities      S-O strategies          W-O strategies

 

Threats                S-T strategies              W-T strategies

S-O strategies pursue opportunities that are a good fit to the company’s strengths.

 

W-O strategies overcome weaknesses to pursue opportunities.

 

S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.

 

W-T strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.

Country Attractiveness or Differences

International business is much more complicated than domestic business because countries

differ in many ways. Countries have different political, economic, and legal systems. Cultural

practices can vary dramatically, as can the education and skill level of the population, and countries

are at different stages of economic development. All these differences can and do have major

implications for the practice of international business. They have a profound impact on the benefits,

costs, and risks associated with doing business in different countries; the way in which operations in

different countries should be managed; and the strategy international firms should pursue in different

countries.

Political SystemsThe political system of a country shapes its economic and legal systems. As such, we need to

understand the nature of different political systems before discussing economic and legal systems.

By political system we mean the system of government in a nation. Political systems can be

assessed according to two dimensions. The first is the degree to which they emphasize collectivism

as opposed to individualism. The second is the degree to which they are democratic or totalitarian.

These dimensions are interrelated; systems that emphasize collectivism tend toward totalitarian,

whereas those that place a high value on individualism tend to be democratic. However, a large gray

area exists in the middle. It is possible to have democratic societies that emphasize a mix of

collectivism and individualism. Similarly, it is possible to have totalitarian societies that are not

collectivist.

Collectivism and Individualism

Collectivism refers to a political system that stresses the primacy of collective goals over

individual goals. When collectivism is emphasized, the needs of society as a whole are generally

viewed as being more important than individual freedoms. In such circumstances, an individual’s

right to do something may be restricted on the grounds that it runs counter to “the good of society” or

to “the common good.” Socialism Modern socialists trace their intellectual roots to Karl Marx

(1818–83), although socialist thought clearly predates Marx (elements of it can be traced to Plato).

Marx argued that the few benefit at the expense of the many in a capitalist society where individual

freedoms are not restricted. While successful capitalists accumulate considerable wealth, Marx

postulated that the wages earned by the majority of workers in a capitalist society would be forced

down to subsistence levels. He argued that capitalists expropriate for their own use the value created

by workers, while paying workers only subsistence wages in return.

Socialism

The political system that believes in state ownership of a country’s means of production,

distribution, and exchange so that all can benefit.

Communists

In the early 20th century, the socialist ideology split into two broad camps. The communists

believed that socialism could be achieved only through violent revolution and totalitarian

dictatorship, whereas the social democrats committed themselves to achieving socialism by

democratic means, turning their backs on violent revolution and dictatorship. Both versions of

socialism waxed and waned during the 20th century. The communist version of socialism reached its

high point in the late 1970s, when the majority of the world’s population lived in communist states.

Individualism

The opposite of collectivism, individualism refers to a philosophy that an individual should

have freedom in his or her economic and political pursuits. In contrast to collectivism, individualism

stresses that the interests of the individual should take precedence over the interests of the state. Like

collectivism, individualism can be traced to an ancient Greek philosopher, in this case Plato’s

disciple Aristotle (384–322 BC).

Democracy and Totalitarianism

Democracy and totalitarianism are at different ends of a political dimension. Democracy

refers to a political system in which government is by the people, exercised either directly or

through elected representatives.

Totalitarianism is a form of government in which one person or political party exercises

absolute control over all spheres of human life and prohibits opposing political parties. The

democratic–totalitarian dimension is not independent of the collectivism–individualism dimension.

Democracy and individualism go hand in hand, as do the communist version of collectivism and

totalitarianism.

Democracy

The pure form of democracy, as originally practiced by several city states in ancient Greece,

is based on a belief that citizens should be directly involved in decision making. In complex,

advanced societies with populations in the tens or hundreds of millions this is impractical. Most

modern democratic states practice representative democracy. In a representative democracy, citizens

periodically elect individuals to represent them. These elected representatives then form a

government, whose function is to make decisions on behalf of the electorate. In a representative

democracy, elected representatives who fail to perform this job adequately will be voted out of office

at the next election.

Totalitarianism

A political system in which one person or political party exercises absolute control over all

spheres of human life and prohibits opposing political parties.

Four major forms of totalitarianism exist in the world today. Until recently, the most

widespread was communist totalitarianism. Communism, however, is in decline worldwide, and

most of the Communist Party dictatorships have collapsed since 1989.

Communist Totalitarianism

A version of collectivism advocating that socialism can only be achieved through a

totalitarian dictatorship. Eg: China, Vietnam, Laos, North Korea, and

Cuba.

Theocratic Totalitarianism

A political system in which political power is monopolized by a party, group, or

individual that governs according to religious principles. Eg: Iran and Saudi Arabia.

Tribal Totalitarianism

A political system in which a party, group, or individual that represents the interests

of a particular tribe monopolizes political power. Eg: African countries such as Zimbabwe,

Tanzania, Uganda, and Kenya.

Right-Wing Totalitarianism

A political system in which political power is monopolized by a party, group, or

individual that generally permits individual economic freedom but restricts individual

political freedom, including free speech, often on the grounds that it would lead to the rise of

communism. Eg: Germany and Italy

Economic Systems

It should be clear from the previous section that political ideology and economic systems are

connected. In countries where individual goals are given primacy over collective goals, we are more

likely to find free market economic systems. In contrast, in countries where collective goals are

given preeminence, the state may have taken control over many enterprises; markets in such

countries are likely to be restricted rather than free. We can identify three broad types of economic

systems—a market economy, a command economy, and a mixed economy.

Market Economy

An economic system in which the interaction of supply and demand determines the

quantity in which goods and services are produced.

Command Economy

An economic system in which the government plans the allocation of resources,

including determination of what goods and services should be produced and in what quantity.

Mixed Economy

Between market economies and command economies can be found mixed economies.

In a mixed economy, certain sectors of the economy are left to private ownership and free

market mechanisms while other sectors have significant state ownership and government

planning. Mixed economies were once common throughout much of the world, although they

are becoming much less so.

Legal System

Rules that regulate behavior and the processes by which the laws of a country are enforced

and through which redress of grievance is obtained.

Common Law

A system of law based on tradition, precedent, and custom, which is flexibly

interpreted by judges as it applies to the unique circumstances of each case.

Civil Law System

A system of law based on a detailed set of written laws and codes.

Theocratic Law System

A system of law based on religious teachings.

Overall Attractiveness

The overall attractiveness of a country as a potential market or investment site for an

international business depends on balancing the benefits, costs, and risks associated with doing

business in that country. Generally, the costs and risks associated with doing business in a foreign

country are typically lower in economically advanced and politically stable democratic nations and

greater in less developed and politically unstable nations. The calculus is complicated, however,

because the potential long-run benefits are dependent not only upon a nation’s current stage of

economic development or political stability but also on likely future economic growth rates.

Economic growth appears to be a function of a free market system and a country’s capacity

for growth (which may be greater in less developed nations). This leads one to conclude that, other

things being equal, the benefit–cost–risk trade-off is likely to be most favorable in politically stable

developed and developing nations that have free market systems and no dramatic upsurge in either

inflation rates or private-sector debt. It is likely to be least favorable in politically unstable

developing nations that operate with a mixed or command economy or in developing nations where

speculative financial bubbles have led to excess borrowing.

Benefits

Size of economy Likely economic growth

Costs

Corruption Lack of infrastructure Legal costs

Risks

Political risks: social unrest/anti-business trends

Economic risks: economic mismanagement

Legal risks: failure to safeguard property rights

Culture

Definitions:  It is difficult to capture a relatively amorphous concept like culture in a

definition, but several have been proposed—e.g., 

“The collection of values, beliefs, behaviors, customs, and attitudes that distinguish a

society.”

“A learned, shared, compelling, interrelated set of orientations for members of society.”

“Shared meanings.”

 While memorizing definitions is not essential, note the following parts of the definition:

Learned.   Culture is not genetically based—if that were the case cultures across the World

would have been much more similar to each other.  We learn what is considered appropriate

in our culture through trial and error.  If a child engages in competitive behavior, this might

be rewarded in the United States with the expression of parental approval, while in Japan it

might result in subtle shows of disapproval, such as lack of attention.

Shared.  The beliefs, interpretations, and behaviors are shared by all or most of the people

within the culture, so that it becomes a truly society-wide phenomenon.

Compelling:  Culture must have implications (such as social disapproval if contradicted) in

order to be considered important.

Interrelated.  Although there may be conflicts between elements of culture (e.g., respect for

seniority may come into conflict with a growing value of achievement in Singapore), for the

most part, elements of culture constitute a coherent and relatively consistent whole.  For

example, the tendency for Japanese business people to bow when meeting each other and the

tendency of lower level Japanese employees to show great deference to their superiors are

both manifestations of a strong emphasis on respect.

Cultural lessons.  We considered several cultural lessons in class; the important thing here is the big

picture.  For example, within the Muslim tradition, the dog is considered a “dirty” animal, so

portraying it as “man’s best friend” in an advertisement is counter-productive.  Packaging, seen as a

reflection of the quality of the “real” product, is considerably more important in Asia than in the

U.S., where there is a tendency to focus on the contents which “really count.”  Many cultures

observe significantly greater levels of formality than that typical in the U.S., and Japanese negotiator

tend to observe long silent pauses as a speaker’s point is considered.

Hofstede’s Dimensions.  Gert Hofstede, a Dutch researcher, was able to interview a large number of

IBM executives in various countries, and found that cultural differences tended to center around four

key dimensions:

Social orientation (Individualism vs. collectivism):  To what extent do people believe in

individual responsibility and reward rather than having these measures aimed at the larger

group?  Contrary to the stereotype, Japan actually ranks in the middle of this dimension,

while Indonesia and West Africa rank toward the collectivistic side.  The U.S., Britain, and

the Netherlands rate toward individualism.

Power orientation (distance):  To what extent is there a strong separation of individuals based

on rank?  Power distance tends to be particularly high in Arab countries and some Latin

American ones, while it is more modest in Northern Europe and the U.S.

Goal Orientation (Masculinity vs. femininity) involves a somewhat more nebulous concept.  

“Masculine” values involve competition and “conquering” nature by means such as large

construction projects, while “feminine” values involve harmony and environmental

protection.   Japan is one of the more masculine countries, while the Netherlands rank

relatively low.  The U.S. is close to the middle, slightly toward the masculine side.

Uncertainty orientation (avoidance) involves the extent to which a “structured” situation with

clear rules is preferred to a more ambiguous one; in general, countries with lower uncertainty

avoidance tend to be more tolerant of risk.  Japan ranks very high.  Few countries are very

low in any absolute sense, but relatively speaking, Britain and Hong Kong are lower, and the

U.S. is in the lower range of the distribution.

Although Hofstede’s original work did not address this, a fifth dimension of long term vs. short term

orientationhas been proposed.  In the U.S., managers like to see quick results, while Japanese

managers are known for take a long term view, often accepting long periods before profitability is

obtained.

High vs. low context cultures:  In some cultures, “what you see is what you get”—the speaker is

expected to make his or her points clear and limit ambiguity.  This is the case in the U.S.—if you

have something on your mind, you are expected to say it directly, subject to some reasonable

standards of diplomacy.  In Japan, in contrast, facial expressions and what is not said may be an

important clue to understanding a speaker’s meaning.  Thus, it may be very difficult for Japanese

speakers to understand another’s written communication.  The nature of languages may exacerbate

this phenomenon—while the German language is very precise, Chinese lacks many grammatical

features, and the meaning of words may be somewhat less precise.  English ranks somewhere in the

middle of this continuum.

Ethnocentrism and the self-reference criterion.  The self-reference criterion refers to the tendency

of individuals, often unconsciously, to use the standards of one’s own culture to evaluate others.  For

example, Americans may perceive more traditional societies to be “backward” and “unmotivated”

because they fail to adopt new technologies or social customs, seeking instead to preserve traditional

values.  In the 1960s, a supposedly well read American psychology professor referred to India’s

culture of “sick” because, despite severe food shortages, the Hindu religion did not allow the eating

of cows.  The psychologist expressed disgust that the cows were allowed to roam free in villages,

although it turns out that they provided valuable functions by offering milk and fertilizing fields.  

Ethnocentrism is the tendency to view one’s culture to be superior to others.  The important thing

here is to consider how these biases may come in the way in dealing with members of other cultures.

Managing People across Cultures

Culture tremendously impacts people’s work expectations and behavior.  In the U.S., for

example, individual recognition and responsibility is the norm. In more collectivistic cultures such as

Japan, responsibility and reward usually goes to teams, which internally exert peer pressure to get

members to contribute.  Responses to treatments may also vary—for example, where a loss of face is

a serious concern, managers must be careful to criticize indirectly and privately. In terms of attitudes,

U.S. workers are frequently happy to take overtime at 150% of their normal pay, while this would be

less acceptable in countries where people “work to live” rather than “live to work.” Perceptions may

differ across cultures. For example, in the U.S., a person is typically thought to succeed because of

skill, hard work, or initiative, while in some more “fatalistic” cultures, success is attributed to luck or

connections.

GATT and WTO

Indian government has made the right decision in the year 1947 to become the founder

member of the GATT organisation which had 23 countries as members. In the early years of our

independence our country realised the importance of international trade. To begain the trade

activities there must be certain common understanding among the members.

The aim is to go from a protected economic system to an open system of business. To

implement this idea countries realised and came to a common decision to reduce the Tariff levels

among the member nations. The important negotiations were discussed from time to time in the

conferences which resulted in the General Agreement on Tariffs and Trade (GATT) among the

participating countries.

Eight rounds of multilateral discussions were held with participations of member countries

representatives; particularly the commerce ministers took part. In each round of discussion there

were a good number of tariff reductions and tariff binding worth of several billion dollars took place,

as the developing nations recoganised the importance and the need for reducing the tariffs. This type

of tariff reduction led to certain amount of increase in exports and imports of goods among the

member countries.

In the several rounds of negotiations between 1947 to 1960 the nature was to reduce the

tariffs. The negotiations in other rounds of discussions included anti-dumping, quota reductions and

elimination of tariffs, etc.

GATT ROUNDS

S.No Place Nation YearTotal Members/Agreements

made

1Geneva Switzerlan

d1947

23

2 Annecy France 1949 5000 Tariff Concessions3 Torquay England 1950-1951 8700 Tariff Concessions

4Geneva Switzerlan

d1955-1956

Tariff Negotiations

5Geneva-Dillon Switzerlan

d1956-1962

Covering Textiles

6Geneva-Kennedy round

Switzerland

1963-1967Trade Negotiations

7 Tokyo Japan 1977-1979 Members - 998 Punta Del Este Uruguay 1986-1994 117

URUGUAY ROUND (UR) AND DUNKEL DRAFT

Uruguay Round (UR) of multilateral trade negotiations was started and in September 1986

and concluded on 15th September 1993.Nearly 7 years the discussion on various topics were

conducted under the leadership of Arther Dunkel.

Arther Dunkel the then Director General of GATT submitted the proposal on 20th December

1991 which was popularly known as Dunkel Draft or proposal. The proposal which concentrated on

trade liberalisations in many areas like

Trade related intellectual property rights TRIPS

Trade related investment measures TRIMS

General agreement on trade in services GATS

Other services, textiles, clothing and agriculture subsidies.

Trade related intellectual property rights TRIPS:

Dunkel proposal regarding Trade Related Intellectual Property Rights TRIPS in respect of

business and commerce which include the parameters like patents, copyrights, trademarks, industrial

designs, geographical indications, undisclosed informations. This leads to protection for ones

intellectual knowledge, uniqueness in their findings and to commercialise their product for a certain

period of time.

Trade related investment measures TRIMS:

It is concerned with the removal of various controls imposed on the inflow of foreign capital.

With respect to India we are receiving foreign direct investment (FDI) and foreign institutional

investment (FII) with respect to many sectors. Removal of controls on foreign capital , equal rights

to foreign investors , no restrictions on any area of investment , allowing upto100% in the permitted

sectors , to import raw materials and export is not mandatory. We are able to see the entry of MNCs

like Coca-Cola , Pepsi , P & G , Microsoft , Hyundai , Ford Motors , LG Electronics , Unilever , GE ,

GM , etc had entered in the form of FDI.With respect to FII the Indian share market business is

receving a lot of investment and today there is a great change in the growth of Indian stock market.

Which in turn makes the foreign corporate and customers to know about the Indian business

environment.

General agreement on trade in services GATS:

Defines services as the supply of a service from one national boundary to the other. It leads to

increasing level of participation of developing countries in the world trade and to have world

level access to technology ,improved methods of production , distribution etc. Rules and

disciplines to services, protective measures include visa, investment regulations, marketing

regulations, employment of foreigners, and access to technology.

The sectors included are Insurance , travel , tourism , hotel , banking , transportation ,mobility of

HR, business and professional services , communication , distribution , educational ,

environmental , construction , engineering , finance , health . Recreational, sporting. As the

developing countries from an importer of services and creating a huge BOP deficit to a exporter

and managing the BOP conditions are the result of GATT and LPG.

These proposals were discussed in the final round of GATT. This round of negotiations covers a

wide range of subjects like subsidies, safeguards etc. An agreement regarding multilateral trading

system was finally signed in Marrakech, Morocco, on 15th April 1994.

For the realisation of its objectives, GATT adopted the following principles.

1. Non-Discrimination: The principal of Non-Discrimination requires that no member country

shall show partiality among the members , with regard to international trade. To ensure Non-

Discrimination the member country of GATT to apply the principal of Most Favored Nation

(MFN) to all kinds of Exports and Imports, and the duties charged for such countries.

2. Prohibition of Quantitative Restrictions QRs: As far as Quantitative Restrictions are

concerned, the member countries to administer without favour.In order to make the

movement of goods and services between member countries the GATT rules seeks to prohibit

Quantitative Restrictions as far as possible and limit restrictions. Certain exceptions were

given to countries with Balance of Payment (BOP) difficulties, Deficits and to the developing

countries. Further, import restrictions were allowed to apply to agricultural sectors.

3. Consultations and Negotiations: To have a continuity in the agreement , and to resolve the

problems with amicable settlement , so far eight rounds of trade and tariff negotiations were

held under GATT.

The exports of developing countries gained significantly less from the GATT rounds than the

exports of the industrial nations. The trade liberalisation has been confined mostly to goods first and

than to the services etc.But the focus is to have open world trade, technology, HR and other

resources to transform from one economy to another. Such kinds of discussions and decisions were

made till 31st December 1994.Following the UR agreement, GATT was converted from a multilateral

agreement to a formal international organisation called the World Trade Organisation (WTO).

Location: Geneva, Switzerland

Established: 1 January 1995

Created by: Uruguay Round negotiations (1986-94)

Membership: 153 member states

Official languages: English, French, Spanish

Budget: 189 million Swiss francs(approx. 182 million USD) in 2009

Secretariat staff: 625

Head: Mr. Pascal lamy (director-general)

The World Trade Organization (WTO) is an organization that intends to supervise

and liberalize international trade. The organization officially commenced on January 1, 1995 under

the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which

commenced in 1948. The organization deals with regulation of trade between participating countries;

it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution

process aimed at enforcing participants' adherence to WTO agreements which are signed by

representatives of member governments and ratified by their parliaments. Most of the issues that the

WTO focuses on derive from previous trade negotiations, especially from the Uruguay

Round (1986–1994).

Why Do We Need WTO

The main benefits of World Trade Organization are as follows: -

1. The system helps to contribute towards international peace, by helping the trade to flow

smoothly and dealing with disputes over trade issues.

2. The system allows disputes to be handled constructively. With Global boundaries evading,

more and more trade is taking place, and hence, leading to more chances for disputes. To put

forth to the claim, around 300 cases have been filed since inception of WTO, and without

peaceful and harmonious way to resolve them, they could have led to a political crisis.

3. It's a system, which is based on rules and has nothing to do with power of the nation.

4. It gives consumers more choice and a broader range of qualities to choose from.

5. The fact that there exists a forum to handle crisis, gives confidence to nations to do more and

more trade, thereby increasing the income, and stimulating economic growth.

Functions

Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.

It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to

ensure the coherence and transparency of trade policies through surveillance in global economic

policy-making. Another priority of the WTO is the assistance of developing, least-developed and

low-income countries in transition to adjust to WTO rules and disciplines through technical

cooperation and training. The WTO is also a centre of economic research and analysis: regular

assessments of the global trade picture in its annual publications and research reports on specific

topics are produced by the organization. Finally, the WTO cooperates closely with the two other

components of the Bretton Woods system, the IMF and the World Bank.

Members and observers

The WTO has 153 members (almost all of the 123 nations participating in the Uruguay

Round signed on at its foundation, and the rest had to get membership). The 27 states of

the European Union are represented also as the European Communities. WTO members do not have

to be full sovereign nation-members. Instead, they must be a customs territory with full autonomy in

the conduct of their external commercial relations. Thus Hong Kong (as "Hong Kong, China" since

1997) became a GATT contracting party, and the Republic of China (ROC) (commonly known as

Taiwan, whose sovereignty has been disputed by the People's Republic of China or PRC) acceded to

the WTO in 2002 under the name of "Separate Customs Territory of Taiwan, Penghu, Kinmen and

Matsu" (Chinese Taipei).

A number of non-members (30) are observers at WTO proceedings and are currently

negotiating their membership. As observers, Iran, Iraq and Russia are not yet members. Russia is the

biggest economy outside WTO and after the completion of Russia's accession, Iran would be the

biggest economy outside the WTO. With the exception of the Holy See, observers must start

accession negotiations within five years of becoming observers. Some international

intergovernmental organizations are also granted observer status to WTO bodies. 14 states and 2

territories so far have no official interaction with the WTO.

Four Steps to Become a WTO Member

1. The interested country should submit an application to become a member. A committee of any

member country can review this application.

2. The interested country then makes negotiations on bilateral agreements on trade with any country

it prefers. The content of these agreements will apply automatically to all members of WTO.

3. The review committee of WTO creates a draft of the terms and conditions of membership which

takes account of the necessary changes in its current trade policies.

4. Two-thirds of the member nations should vote that the interested country can become a part of

WTO. After the voting, the new member must ratify the membership agreement.

If a country is not yet a member of WTO, they can opt to become the "observers" where they must

apply for membership within five years of being an observer.

The highest decision-making committee of the WTO is known as the Ministerial Conference which

meets biennially. All the members of WTO attend this conference. The last Ministerial Conference

was held in Geneva from November 30 to December 2, 2009.

Withdrawal

Any Member may withdraw from this Agreement. Such withdrawal shall apply both to this

Agreement and the Multilateral Trade Agreements and shall take effect upon the expiration

of six months from the date on which written notice of withdrawal is received by the

Director-General of the WTO.

Withdrawal from a Plurilateral Trade Agreement shall be governed by the provisions of that

Agreement.

Ministerial conferences

The topmost decision-making body of the WTO is the Ministerial Conference, which usually

meets every two years. It brings together all members of the WTO, all of which are countries or

customs unions. The Ministerial Conference can take decisions on all matters under any of the

multilateral trade agreements. The inaugural ministerial conference was held in Singapore in 1996.

Disagreements between largely developed and developing economies emerged during this

conference over four issues initiated by this conference, which led to them being collectively referred

to as the "Singapore issues". The second ministerial conference was held in Geneva in Switzerland.

The third conference in Seattle, Washington ended in failure, with massive demonstrations and

police and National Guard crowd control efforts drawing worldwide attention. The fourth ministerial

conference was held in Doha in the Persian Gulf nation of Qatar. The Doha Development Round was

launched at the conference. The conference also approved the joining of China, which became the

143rd member to join. The fifth ministerial conference was held in Cancún, Mexico, aiming at

forging agreement on the Doha round. An alliance of 22 southern states, the G20 developing

nations (led by India, China, Brazil, ASEAN led by the Philippines), resisted demands from the

North for agreements on the so-called "Singapore issues" and called for an end to agricultural

subsidies within the EU and the US. The talks broke down without progress.

The sixth WTO ministerial conference was held in Hong Kong from 13–18 December 2005.

It was considered vital if the four-year-old Doha Development Agenda negotiations were to move

forward sufficiently to conclude the round in 2006. In this meeting, countries agreed to phase out all

their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by

the end of 2006. Further concessions to developing countries included an agreement to introduce

duty free, tariff free access for goods from the Least Developed Countries, following the Arms

initiative of the European Union — but with up to 3% of tariff lines exempted. Other major issues

were left for further negotiation to be completed by the end of 2010. The WTO General Council, on

26 May 2009, agreed to hold a seventh WTO ministerial conference session in Geneva from 30

November-3 December 2009. A statement by chairman Amb. Mario Matus acknowledged that the

prime purpose was to remedy a breach of protocol requiring two-yearly "regular" meetings, which

had lapsed with the Doha Round failure in 2005, and that the "scaled-down" meeting would not be a

negotiating session, but "emphasis will be on transparency and open discussion rather than on small

group processes and informal negotiating structures". The general theme for discussion was "The

WTO, the Multilateral Trading System and the Current Global Economic Environment"

The ten benefits

The system helps promote peace Disputes are handled constructively Rules make life easier for all Freer trade cuts the costs of living It provides more choice of products and qualities Trade raises incomes Trade stimulates economic growth The basic principles make life more efficient Governments are shielded from lobbying The system encourages good government

10 common misunderstandings about the WTO

The WTO dictates policy The WTO is for free trade at any cost Commercial interests take priority over development … … and over the environment … and

over health and safety The WTO destroys jobs, worsens poverty Small countries are powerless in the WTO The WTO is the tool of powerful lobbies Weaker countries are forced to join the WTO The WTO is undemocratic

DUMPING

A product is regarded as dumping when its export price is less than the normal price in the

exporting country or its cost of production plus a manageable profit. So a country can impose

anti-dumping measures only if dumped imports are shown to cause serious damage to the

domestic industry in the importing country.Safe guard actions can be taken by import

restrictions , to protect a domestic industry and business from all types of ill efforts to control

the import surge.

Types1. Intermittent Dumping:

The company’s production is more than the demand and the excess with the company is

being sold in a foreign market in a less price than the home market which is called as

intermittent dumping.

2. Persistent Dumping: continuously

3. Predatory Dumping: Initially at lower price, drive away the competitors and increase the

price many times high as the original price.

Objectives:

To enter the foreign market

To sell the surplus

Develpo trade relation

Examples: Duty on cooking oil on USA , Malaysia by India by imposing tariff duty , quota ,

Bane (Embargo) , voluntary export restraint to –Austria , Russia , Romania – steel casting

pipes.

UK, France, Hungary – Black and white photo paper.

Conclusion:

The exports of developing countries gained significantly less from the GATT rounds than the

exports of the industrial nations. The trade liberalisation has been confined mostly to goods

first and than to the services etc.But the focus is to have open world trade, technology, HR

and other resources to transform from one economy to another. Such kinds of discussions and

decisions were made till 31st December 1994.Following the UR agreement, GATT was

converted from a multilateral agreement to a formal international organisation called the

World Trade Organisation (WTO).