ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

UNIT I AN OVERVIEW OF INTERNATIONAL BUSINESS

Syllabus: Definition and drivers of International Business - Changing Environment of

International Business - Country attractiveness - Trends in Globalization - Effect and Benefit
of Globalization-International Institution: UNCTAD Basic Principles and Major
Achievements, Role of IMF, Features of IBRD, Role and Advantage of WTO.

The International business means the buying & selling of the goods & services across the
border. These business activities may be government or private enterprises. Here national
border is crossed by the enterprises to expand their own business activities such as the
manufacturing, mining, construction, agriculture, banking, insurance, health, education,
transportation, communication & so on. The business enterprise that goes for the international
business has to take a very wide & long view before making any decision; it has to refer to
the social, political, historical, cultural, geographical, physical, ecological & economic
aspects of another country where it had to business.

Definitions of IB

One of the results of the increasing success of international business ventures is globalization.
The International business is defined as the global trade of goods/services or investment.
International business is an exchange of goods and services that conducts its operations
across national borders, between two or more countries.

According to International Business Journal,

“International business is a commercial enterprise that performs economic activity beyond

the boundaries of its location, has branches in two or more foreign countries and makes use
of economic, cultural, political, legal and other differences between countries.”

International business encompasses a full range of cross-border exchanges of goods, services,

or resources between two or more nations. These exchanges can go beyond the exchange of
money for physical goods to include international transfers of other resources, such as people,
intellectual property (e.g., patents, copyrights, brand trademarks, and data), and contractual
assets or liabilities (e.g., the right to use some foreign asset, provide some future service to
foreign customers, or execute a complex financial instrument).

The entities involved in international business range from large multinational firms with
thousands of employees doing business in many countries around the world to a small one-
person company acting as an importer or exporter.

Drivers of International Business

Drivers of international business are factors that prompt companies or businesses to engage in
international business. Such factors include the following:

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Higher Rate of Profits:

The basic objective of the business is to achieve profits. When the domestic markets don’t
promise a higher rate of profits, business firms search for foreign markets where there is a
scope for a higher rate of the profits. Therefore the objective of profit affects & motivates the
business to expand operations to the foreign countries. For example, Hewlett Packard in the
USA earns more than half of its profits from the foreign markets as compared to that of
domestic markets.
Expanding the Production Capacities beyond the Demand of Domestic Country:
Some of the domestic companies expand their production capacities more than the demand
for the product in the domestic countries. In such cases, these companies are forced to sell
their extra production in foreign developed countries. Toyota of Japan is an example.
Limited Home Market:
When a size of the home market is limited either due to the smaller size of the population or
due to the lower purchasing power of all people or both, the companies internationalize their
operations. For example, most of the Japanese automobiles & electronics firms entered the
USA, Europe & even African markets due to the smaller size of the home market. ITC
entered the European market due to the lower purchasing power of the Indians with regard to
high-quality cigarettes.
Political Stability vs. Political Instability:
The Political stability doesn’t simply mean that the continuation of the same party in power,
but it means that continuation of the same policies of the Government for a quite long period.
Business firms prefer to enter the politically stable countries & are restrained from locating
their own business operations in politically unstable countries. In fact, business firms shift
their operations from politically unstable countries to politically stable countries.
Availability of Technology & Competent Human Resources:
Technology is one of the major drivers of international business. Availability of advanced
modern technology facilitates international business. The Availability of advanced
technology & competent human resources in some countries act like pulling factors for
business firms from other countries. For example, American & European companies, in
recent years, have been depended on Indian companies for the software products & the
services through their business process outsourcing (BPO). This is due to the cost of human
resources in India is almost/approximately 10 to 15 times less compared to the US &
European labor markets.
High Cost of Transportation:
Initially the companies enter foreign countries for their marketing operations. But the home
companies in any country enjoy their higher profit margins as compared to the foreign firms
on account of the cost of transportation of the products. Under such conditions, the foreign
companies are inclined to increase their profit margin by locating their manufacturing
facilities in foreign countries through Foreign Direct Investment (FDI) route to satisfy the
demand of either one of the countries or the group of neighboring countries.
Availability of Raw Materials:
The availability of raw material is a major driver of international business. Domestic
countries are highly attracted to foreign countries endowed with such materials. The source of
highly qualitative raw materials & bulk raw materials is a major factor in attracting

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

companies from various foreign countries. For example, Vedanta Resources is a London
Stock Exchange (LSE) listed UK based company operating principally in India due to the
availability of raw materials such as iron ore, copper, zinc & lead.
Liberalization & Globalization:
Most of the countries around the globe liberalized their economies &opened their countries to
the rest of the globe. These change in the policies attracted multinational companies to the
extent their operations to these countries.
Growth in Market Share:
Some of the large-scale business firms would like to enhance their market share in the
global market by expanding & intensifying their operations in various foreign countries. The
Smaller companies expand internationally for survival while the larger companies expand to
increase their market share. For example Ball Corporation, the 3rd largest beverage can
manufacturer in the USA, bought the European packaging operations of Continental Can
Company.
Limited domestic market
A market is described as limited when its population size is small or the consumers’
purchasing power (real income) is low or the company is matured in its domestic market or a
combination of two or more. The occurrence of any of the above implies the revenue
generated is inadequate to attract full manufacturing economies of scale. This drives
companies to internationalise their operations.
Higher profit margins
The cardinal objective of a profit-oriented company is to obtain higher profit margins. If the
home market is not profit promising enough, companies will be forced to either quit their
home markets or reduce their home operations and enter foreign markets where the promise
is higher.
Increased market share
Increase or growth in market share is one of the drivers of international business. Firms
would like to increase their customer base, hence market share, by expanding and
intensifying their operations in foreign markets.
Communication
Domestic companies can easily contact foreign markets through the application of advanced
information technology such as the internet. Consumers too can reach businesses in foreign
countries through www (world wide web). International businesses are now conducted
through e-commerce or merely over phones. Today, one can get involved in international
business without stepping their feet out of their country.
Formation of trading blocs
Formation of trading blocs, regional or international, has enhanced high degree of
cooperation. The objective of the formation of trading blocs is to promote businesses within
the framework of their powers by allowing the creation of free trade zones in which trade or
investment barriers are removed.
Examples of trading blocs include, World Trade Organization (WTO), European Union (EU),
North American Free Trade Agreement (NAFTA) and South Asian Free Trade Agreement
(SAFTA). The removal of trade barriers drives international business.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Disparities in tax system

Companies are normally forced out of countries where high level of taxes are levied to
countries where taxes imposed are nominal. Some countries adjust their tax systems in the
bid to attract foreign direct investment.
Emerging markets
Emerging markets are untapped or unexplored markets with high potential and scope for
business operationalisation. Companies that want to expand internationally would seek to
operate in such markets.

Benefits of International Business

High Living Standards: Comparative cost theory indicates that the countries which have the
advantages of raw materials, human resources, natural resources & climatic conditions in
producing particular goods can produce the products at low-cost & also of high quality.
Customers in various countries can buy more products with the same amount of money. In
turn, it can also enhance the living standards of the people through enhanced purchasing
power & by consuming high-quality products.

Increased Socio-Economic Welfare: International business enhances consumption level, the

economic welfare of the people of the trading countries. For example, the people of China are
now enjoying a variety of products from various countries like Coca-Cola, McDonald’s range
of products, electronic products of Japan & coffee from Brazil. Thus the Chinese
consumption levels & socio-economic welfare has enhanced.

Wider Market: International business widens the market &increases the market size.
Therefore, the companies need not depend on the demand for the product in a single country
or customer’s tastes & the preferences of a single country. Due to the enhanced market Air
France now mostly depends on the demand for air travel of the customers from the countries
other than France. This is factual in case of most of the MNCs like Toyota, Honda, Xerox &
Coca-Cola.

Reduced Effects of Business Cycles: The stages of the business cycles vary from country to
country. Therefore, MNCs shift from the country experiencing a recession to the country
experiencing ‘boom’ conditions. This enables international firms to escape recessionary
conditions.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Reduced Risks: Both commercial & political risks are reduced for the companies engaged in
the international business due to spread in the different countries. Multinationals which were
operating in erstwhile USSR were affected only partly due to their safer operations in other
countries. But the domestic companies of the then USSR collapsed entirely.

Large economies of Scale: Multinational companies due to wider &larger markets produce
larger quantities, which provide the benefits of large-scale economies like reduced cost of
production, availability of expertise, quality etc.

Potential Untapped Markets: International business provides the chance of exploring &
exploiting the potential markets which are untapped so far. These markets provide an
opportunity for selling the product at a higher price than in the domestic markets. For
example, Bata sells shoes in the UK at £ 100 (approx. Rs. 8000) whose price is around Rs.
1200 in India.

Provides the Opportunity to Domestic Business: International Business firms provide

opportunities for domestic companies. These opportunities comprise technology,
management expertise, market intelligence, product developments, etc. For
example, Japanese firms like Honda, Yamaha, and Suzuki & Kawasaki have a combined to
form Joint Ventures with Indian companies to form a Hero Honda, Birla Yamaha, Maruti
Suzuki & Kawasaki Bajaj to share the technology & the product development expertise.

Division of Labour & Specialization: International business leads to division of labor

&specialization. For example, Brazil specializes in coffee, Kenya in tea, Japan in automobiles
& electronics, India in textile garments etc.

Economic Growth of the World at large: Specialization, a division of labor, enhancement

of productivity, posing challenges, development to meet them, innovations & creations to
meet the competition leads to the overall economic growth of the world nations. The
International business particularly helped the Asian countries like Japan, Taiwan, Korea,
Philippines, Singapore, Malaysia & the United Arab Emirates.

Optimum & Proper Utilization of World Resources: the international business provides
for the flow of the raw materials, natural resources & human resources from the countries
where they are in excess supply to those countries where they are in short supply or need
most. For example the flow of human resources from India, consumer goods from the UK,
France, Italy & Germany to developing countries. This, in turn, helps in the optimum &
proper utilization of world resources.

Cultural Transformation: International business benefits are not purely economic or

commercial; they are even social &cultural. These days, we observe that the West is slowly
tending towards the East & vice versa. It does mean that the good cultural factors & values of
the East are acquired by the West & vice versa. Therefore there is a close cultural
transformation & integration.

Increased government revenue

Government realises revenue from international business by imposing duties on both imports
and exports. Government obtains foreign exchange from export of goods and services.
Increased specialisation

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

International business brings about specialisation in the production of particular goods

usually of high quality for both domestic and international consumption. Specialisation
increases as firms’ engagement in international business increases.
Employment opportunities
International business creates job opportunities for individuals in both importing and
exporting countries.
Consumer benefits
International business benefits consumers by providing them with greater product choice (i.e.
a variety of products). Consumers, therefore, have access to different types of imported goods
at affordable prices. They can choose whatever goods they desire.
Challenges in International Business
Challenges faced in international business include the following:
- Language barriers
- High competition among nation
- Legal problems
- Exploitation of developing nations
- Dumping problem
- Scarcity of goods in the exporting nations
- Conversion of currency
- Cultural issues
- Tariff payment
Language barriers
Language barrier is one of the major problems or challenges in international business.
Different countries speak different languages. Establishing a business in a foreign country
whose language you do not understand creates a significant communication problem. Such
barrier impedes international trade.
High competition among nations
International business creates competition among countries. Competition severely worries
competitors as whether they would realise profits or not. Competitors are more worried about
profit making than their employees’ work conditions. This prompts rivals into price cutting in
the bid to actualise profit
Legal problems
Every country in the world has its own laws which dictate the activities of businesses. Such
laws prescribe the type or nature of business to be established, the tax level to be levied, the
minimum wage rate, the product price level etc. Companies engaged in international business
are governed by the laws of the country of operation. Companies going international may
face significant operating difficulties if there exists immense disparity between domestic and
foreign laws. Such companies may find it diametrically difficult to cope with the listed
international laws.
Exploitation of developing nations
In international business, developed countries dominate and exploit developing countries
since the former regulate the latter’s economies. Developed countries (or international
markets) often control the exports of developing countries.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Dumping problem
International business creates problem of dumping in foreign countries. Dumping occurs
when domestic companies produce a product in excess, sell part of the product in their
domestic market at higher prices and sell the extra or surplus product to foreign countries at
lower prices.
Companies do this in order to edge out companies in the importing country. These goods
(exports) compete with the foreign country’s domestically produced goods. This has adverse
effect on the importing country
Scarcity of goods in the exporting nations
Most companies choose to sell their products abroad leaving little or nothing in their home
countries. By so doing, scarcity of goods will be created.
Conversion of currency
International business transactions require companies to convert their home currency into
foreign currency. Cross-border activities are virtually impossible without currency conversion
Cultural issues
Culture could be defined in many ways. But for the purpose of this research, culture will be
taken to mean the norms of a society or country. The term “norms” refers to people’s beliefs,
way of life, values, attitudes etc. It relates to the social organisation of a particular group or
country.
Norms differ from nation to nation, region to region. Most conspicuously, norms are
reflective of people’s beliefs and attitudes about or towards particular goods/products and
dress code. Products such as alcohol and pork are totally prohibited in any predominantly
muslim countries or societies. In muslim dominated countries, people cover their heads.
Tariff payment
International business requires companies to pay tariff imposed by governments. Recall,
tariffs are imposed on both imported and exported goods though largely imposed on imports.
Tariffs are hardly imposed on exports because most countries encourage their exports in the
bid to obtain encouraging balance of payments position through favourable trade balance.
Major Trends in International Business
Before examining foreign markets, you have to be aware of the major trends in
international business so you can take advantage of those that might favor your company.
International markets are evolving rapidly, and you can take advantage of the changing
environment in favour of your business
Growing Emerging Markets
Developing countries will see the highest economic growth as they come closer to the
standards of living of the developed world. If you want your business to grow rapidly,
consider selling into one of these emerging markets. Language, financial stability,
economic system and local cultural factors can influence which markets you should favor.
Population and Demographic Shifts
The population of the industrialized world is aging while many developing countries still
have very youthful populations. Businesses catering to well-off pensioners can profit from
a focus on developed countries, while those targeting young families, mothers and children
can look in Latin America, Africa and the Far East for growth.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Speed of Innovation
The pace of innovation is increasing as many new companies develop new products and
improved versions of traditional items. Western companies no longer can expect to be
automatically at the forefront of technical development, and this trend will intensify as
more businesses in developing countries acquire the expertise to innovate successfully.
More Informed Buyers
More intense and more rapid communications allow customers everywhere to purchase
products made anywhere around the globe and to access information about what to buy. As
pricing and quality information become available across all markets, businesses will lose
pricing power, especially the power to set different prices in different markets.
Increased Business Competition
As more businesses enter international markets, Western companies will see increased
competition. Because companies based in developing markets often have lower labor costs,
the challenge for Western firms is to keep ahead with faster and more effective innovation
as well as a high degree of automation.
Slower Economic Growth
The motor of rapid growth has been the Western economies and the largest of the emerging
markets, such as China and Brazil. Western economies are stagnating, and emerging market
growth has slowed, so economic growth over the next several years will be slower.
International businesses must plan for profitability in the face of more slowly growing
demand.
Emergence of Clean Technology
Environmental factors are already a major influence in the West and will become more so
worldwide. Businesses must take into account the environmental impact of their normal
operations. They can try to market environmentally friendly technologies internationally.
The advantage of this market is that it is expected to grow more rapidly than the overall
economy.
Changing Environments of Int’l Business
International Business is quite an essential term for a country’s economy. All of the world’s
strongest as well as wisest economies like Germany, Japan, Switzerland, etc as per the
Operation for Economic Co-operation and Development (OECD) are concerned in
international trade practices and have the highest standards of living.
They got high volumes of imports and exports while countries like Spain, Greece, Italy, etc
have lower ratios of international trade and are in front of some serious economic problems
and challenges. Therefore, we can say that the International Business environment plays a
vital role in the growth and development of a nation.
Moreover, the domestic business is also a limited case of international business. The
characteristic feature of international business is that international firms activate in
environments that are extremely uncertain where the game rules are often contradictory,
ambiguous, and subject to fastest change in comparison to the domestic environment.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Business Environments
There are numerous types of business environments, however the political, the cultural, and
the economic environments are the prime ones. These factors influence the decision-making
process of an international business firm. It is important to note that the types of
environments we discuss here are interlinked; meaning one’s state affects the others in
varying dimensions.
Political Environment
The political environment refers to the type of the government, the government relationship
with a business, & the political risk in the country. Doing business internationally, therefore,
implies dealing with a different type of government, relationships, & levels of risk.
There are many different types of political systems, for example, multi-party democracies,
one-party states, constitutional monarchies, dictatorships (military & non-military).
Therefore, in analyzing the political-legal environment, an organization may broadly consider
the following aspects:
 The Political system of the business;
 Approaches to the Government towards business i.e. Restrictive or facilitating;
 Facilities & incentives offered by the Government;
 Legal restrictions for instance licensing requirement, reservation to a specific sector
like the public sector, private or small-scale sector;
 The Restrictions on importing technical know-how, capital goods & raw materials;
 The Restrictions on exporting products & services;
 Restrictions on pricing & distribution of goods;
 Procedural formalities required in setting the business
Economic Environment
The economic environment relates to all the factors that contribute to a country’s
attractiveness for foreign businesses. The economic environment can be very different from
one nation to another. Countries are often divided into three main categories: the more
developed or industrialized, the less developed or third world, & the newly industrializing or
emerging economies.
Within each category, there are major variations, but overall the more developed countries
are the rich countries, the less developed the poor ones, & the newly industrializing (those
moving from poorer to richer). These distinctions are generally made on the basis of the gross
domestic product per capita (GDP/capita). Better education, infrastructure, & technology,
healthcare, & so on are also often associated with higher levels of economic development.
Clearly, the level of economic activity combined with education, infrastructure, & so on, as
well as the degree of government control of the economy, affect virtually all facets of doing
business, & a firm needs to recognize this environment if it is to operate successfully
internationally. While analyzing the economic environment, the organization intending to
enter a particular business sector may consider the following aspects:
 An Economic system to enter the business sector.
 Stage of economic growth & the pace of growth.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

 Level of national & per capita income.

 Incidents of taxes, both direct & indirect tax.
 Infrastructure facilities available & the difficulties thereof.
 Availability of raw materials & components & the cost thereof.
 Sources of financial resources & their costs.
 Availability of manpower-managerial, technical & workers available & their salary &
wage structures.
Technological Environment
The technological environment comprises factors related to the materials & machines used in
manufacturing goods & services. Receptivity of organizations to new technology & adoption
of new technology by consumers influence decisions made in an organization.
As firms do not have any control over the external environment, their success depends on
how well they adapt to the external environment. An important aspect of the international
business environment is the level, & acceptance, of technological innovation in different
countries.
The last decades of the twentieth century saw major advances in technology, & this is
continuing in the twenty-first century. Technology often is seen as giving firms a competitive
advantage; hence, firms compete for access to the newest in technology, & international firms
transfer technology to be globally competitive.
It is easier than ever for even small business plan to have a global presence thanks to the
internet, which greatly grows their exposure, their market, & their potential customer base.
For the economic, political, & cultural reasons, some countries are more accepting of
technological innovations, others less accepting. In analyzing the technological environment,
the organization may consider the following aspects:
 Level of technological development in the country as a whole & specific business
sector.
 The pace of technological changes & technological obsolescence.
 Sources of technology.
 Restrictions & facilities for technology transfer & time taken for the absorption of
technology.
Cultural Environment
The cultural environment is one of the critical components of the international business
environment & one of the most difficult to understand. This is because the cultural
environment is essentially unseen; it has been described as a shared, commonly held body of
general beliefs & values that determine what is right for one group, according to Kluckhohn
& Strodtbeck.
National culture is described as the body of general beliefs & the values that are shared by the
nation. Beliefs & the values are generally seen as formed by factors such as the history,
language, religion, geographic location, government, & education; thus firms begin a cultural
analysis by seeking to understand these factors.
While analyzing cultural factors, the organization may consider the following aspects:
 Approaches to society towards business in general & in specific areas;

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

 Influence of social, cultural & religious factors on the acceptability of the product;
 The lifestyle of people & the products used for them;
 Level of acceptance of, or resistance to change;
 Values attached to a particular product i.e. the possessive value or the functional value
of the product;
 Demand for the specific products for specific occasions;
 The propensity to consume & to save.
Knowledge of foreign culture is important for international firms. Marketers who ignore
cultural differences risk failure.
 Language − There are nearly 3,000 languages in the world. Language differences are
important in designing advertising campaigns and product labels. If a country has
several languages, it may be problematic.
 Colors − It is important to know how people associate with colors. For example,
purple is unacceptable in Hispanic nations because it is associated with death.
 Customs and Taboos − It is important for marketers to know the customs and taboos
to learn what is acceptable and what is not for the marketing programs.
 Values − Values stem from moral or religious beliefs and are acquired through
experiences. For example, in India, the Hindus don’t consume beef, and fast-food
restaurants such as McDonald's and Burger King need to modify the offerings.
 Aesthetics − There are differences in aesthetics in different cultures. Americans like
suntans, the Japanese do not.
 Time − Punctuality and deadlines are routine business practices in the U.S. However,
Middle East and Latin American people are far less bound by time constraints.
 Religious Beliefs − Religion can affect a product’s labelling, designs, and items
purchased. It also affects the consumers' values.

Competitive Environment
The competitive environment also changes from country to country. This is partly because of
the economic, political, & cultural environments; these environmental factors help determine
the type & degree of competition that exists in a given country. Competition can come from a
variety of sources. It can be a public or a private sector, come from the large or the small
organizations, be domestic or global, & come from traditional or new competitors, For a
domestic firm, the most likely sources of competition might be well understood. The same
isn’t the case when a person moves to compete in the new environment.
Changing Global Business Environment
The global market today is highly dynamic, and an organization must be ready to face
different challenges brought about by the ever-changing environment. The global business
environment is made up of economical, social, and political factors that keeps changing
requiring businesses to be versatile. Such changes pose challenges to different operations of a
busines.
Studies have shown that the common global business environment changes are related to
customers, competitors, regulations, and technology. All these are subcategories of a
business environment and changes in these factors pose challenges to international business.
As customers' preferences change so do their expectations. The current global market is made
up of customers with higher expectations. And as customers' expectations rise, companies

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

need to change their marketing practices to meet these expectations. This means changing the
speed by which marketers respond to customers, how companies communicate to customers
and how to customize customer information. Customers expect companies to have access to
information. In today’s market, being informed about a customer is as important as providing
a customised solution to a customer. Therefore, businesses must have adequate customer
information to build a successful relationship with their customers.
Technological advance is another change in the global business that poses challenges. In
today’s market, customers prefer to shop online and safely on time. The physical stores are
slowly being replaced by online stores meaning using product display and strategic store
location as a marketing practice is slowly becoming ineffective. This means increasing brand
awareness to customers with diverse cultures and characteristics. Therefore, business houses
must adopt different tools depending on the geographical location of their target customers.
The legal and regulatory changes in the global business is another changing business
environment. Therefore, company’s management is often faced with the challenge of how to
present their content without facing any legal charges or offending anyone. Also, operating
globally means adhering to different countries' legal and regulatory requirements. This makes
it hard for marketers to develop one campaign for all their markets. Companies are therefore
forced to develop different advertisement contents and materials depending on a region’s
cultures, legal and regulatory rules.
Technological advancement such as the development and use of social media has posed
challenges to companies’ marketing practices forcing them to come up with new ways of
promoting their products. In short, regulatory functions within organizations - especially
those with global aspirations - should not only be reactive and tactical, but more proactive
and aligned with the organisation's global product strategy.
Country Attractiveness:
Country attractiveness is a measure of a country’s attractiveness to the international investors.
In international business, investment in foreign countries is the most important aspect and
hence firms want to determine how suitable a country is in terms of its external business
environments.
International business firms judge the risks and profitability of doing business in a particular
country before investing and starting a business there. This judgment includes studying the
environmental factors to arrive at a decision.
It is pretty clear that businesses prefer a country that is less costly, more profitable, and has
fewer risks. Cost considerations are related with investment. Profitability is dependent on
resources. Risks are associated with the environment and hence it is of prime concern.
Political, economic, and legal systems of a country raise important ethical issues that have
implications for the practice of international business
The political, economic, and legal environment of a country clearly influences the
attractiveness of that country as a market and/or investment site.
Attractiveness Return
A country attractiveness assessment is based on two dimensions Market and industry
opportunities, country risks (many organizations publish country assessment results based on
various economic/political/social factors)
Country attractiveness analysis

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Market opportunities
Market opportunities assessment measures the potential demand in the country for a firm’s
products or services based on:
 Market size Growth
 Quality of demand.
Industry opportunities
Industry opportunities assessment determines profitability potential of a company’s presence
in a country given the following factors:
 Quality of industry competitive structure (Porter’s five-force Industry Analysis
Framework)
 Resource availability (Porter’s diamond framework)
Framework for country market and industry attractiveness assessment.
MARKET - How important is the demand in this country? + Growth? + Size? + Customer
quality
 Resources
 Skilled personnel
 Raw materials
 Components
 Labor
 Technology
 Innovation
 Quality of infrastructure
 supporting services Location
Risks may be of various types. However, the general consensus is that a country that is more
stable in terms of political, social, legal, and economic conditions is more attractive for
starting a business.
Political risks
Political risks are probable disruptions owing to internal or external events or regulations
resulting from political action of governments or societal crisis and unrest.
Economic risks
Economic risks expose business performance to the extent that the economic business drivers
can vary and therefore put profitability at stake.
Competitive risks
Competitive risks are related to non-economic distortion of the competitive context owing to
cartels and networks as well as corrupt practices. The competitive battlefield is not even and
investors who base their competitive advantage on product quality and economics are at
disadvantage.
Operational risks.
Operational risks are those that directly affect the bottom line, either because government
regulations and bureaucracies add costly taxation or constraints to foreign investors or
because the infrastructure is not reliable.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Globalisation
What is globalisation?
Globalisation refers to the process of establishing and increasing the interconnectedness and
interdependence between or among nations in the world. It enhances a stronger integrated and
interdependent world economy. It brings about world’s economic, social and cultural
integration. Globalisation is increasing at an increasing rate.
Features of globalisation
Features or charcteristics of globalisation.
- Globalisation is a phenomenon that views the world as if it is without borders or boundaries.
- Easy flow of goods (raw, semi-finished and finished) and services across borders.
- High interconnectedness and interdependence.
- Easy financial and information flow among nations.
- Exchange of cultural values.
- High exchange of knowledge between nations.
- Flow of resources (human and non-human) between countries.
- Advanced means of transportation from one nation to another (through land, air and sea).
- Advanced forms of communication including internet.
- Relatively easy movement and/or settlement of people away from their countries of origin.
- Creation of enabling environment for students to study in different countries.
- Easy access to foreign markets.
Trends in Globalization
Globalization has impacted people and communities across the globe and has significantly
influenced sustainable development. Fueled by fast-paced changes in technology and the
increased mobility of goods, services, capital and labour, over the past decades globalization
has greatly changed economies, societies and the natural environment and has made our
world more interconnected than ever before.

These trends have presented a wealth of opportunities. Globalization and increased economic
interdependence have accompanied and facilitated rapid economic growth in many countries
and regions, helping world GDP grow from around 50 trillion USD in 2000 to 75 trillion
USD in 2016. Yet, globalization has also presented significant challenges, including an
uneven distribution of its benefits and costs.
United Nations identified three mega-trends related to globalization:
1. Shifts in Production and Labor Markets,
The first mega-trend refers to the impact that production changes have had on labour markets,
including through outsourcing and mechanization, which have spurred job losses, particularly
in manufacturing sectors. These trends in labour markets are associated with higher rates of
income inequality, which has increased in a majority of countries across the globe
2. Rapid advances in Technology and
The second mega-trend is closely connected to the first, as it relates to the fast-moving
development and advancement of new technologies, including in information and
communications and artificial intelligence that have also affected the world of work. While
these innovations can act as catalysts for sustainable development, countries that do not have
access to them are at risk of being left behind.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

3. Climate Change.
Globalization and its effect on climate change is the third emerging mega-trend. The report
highlights that many trends closely linked to globalization, including economic activity,
lifestyle changes and urbanization, all have an impact on our environment and may contribute
to climate change.
Effects of Globalization
Globalization affects businesses in a variety of ways:
Increasing Competition: Businesses that contend in the global marketplace will naturally
face competition from companies all over the world. Consumers demand ever-higher quality
and cheaper products, and when they have a global array of companies to choose from, only
those that evolve to supply what consumers want and need will prosper. This increased
competition means companies must keep up with cutting-edge developments and stay
assertive in the global marketplace to survive.
Opening larger, more diverse Markets: On the other hand, companies that open themselves
up to the global marketplace will naturally find a much larger market in which to sell their
services. Has a Western electric bike manufacturer found limited success in a country where
cars are still king? It can turn to Asian markets, where population density has led to crushing
vehicle traffic and a huge market for lighter electric transportation. The ability to discover
and cater to niche markets around the world is one of globalization’s appeals.
Increased flow of Trade, Capital, Information and People: The DHL Global
Connectedness Index, in partnership with NYU’s Stern School of Business, has identified
these four elements as the four pillars of global connectedness. All these elements except
capital saw moderate growth worldwide in 2018.
Sharing Technology: For countries to be able to cooperate globally, they must share similar
technology and technological infrastructure. The need for shared technology means that
technological advances quickly make their way around the world.
Sharing Knowledge: Similarly, the need for a centralized base of knowledge for cooperating
countries to work from means globalization results in a rapid transfer of knowledge.
Scientific advances made in Belgium can be in Japan with the touch of a button.
Promoting a Diversified Workforce: Businesses operating globally attract employees from
all over the world. They are likely to draw management staff from the countries where they
maintain a presence and employ laborers in a country where labor is relatively affordable.
Learning to manage a culturally diverse staff can be both a benefit and a challenge to a
multinational business.
The Benefits of Globalization
1. Increased Flow of Capital
The economic benefits of globalization to much of the world are hard to ignore. Increased
trade to larger and more diverse markets results in greater revenues and increased gross
domestic product (GDP). World GDP has grown from about $50 trillion in 2000 to about $75
trillion in 2016, primarily as a result of economic interdependence and the increased global
trade it allows.
India, for example, is a country whose GDP has benefited immensely from globalization in
the technology sector:
 The United States relies on India for half of its computer service imports.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

 India has seen an increase in the value of its computer service exports from $11
billion in 1995 to almost $110 billion in 2015.
Globalization also means that businesses can realize greater profits by tapping into previously
untouched markets and taking advantage of lower local costs. By expanding into new
countries, businesses reach markets that are hungry for their novel goods and eager to pay top
dollar for them. They can achieve higher revenues in unsaturated markets while saving
money via the lower cost structure that results from cheaper labor, rent, and materials.
2. Better Products at Lower Prices
Global competition in the markets leads to both quality and affordability. As consumers
realize they have a variety of options from all corners of the globe, they will choose to
purchase the best and cheapest options, requiring companies to enhance quality and provide
affordable prices if they wish to remain competitive. The outsourcing of work also
contributes to lower prices, as many companies hire foreign laborers to do the work for lower
pay.
3. Collaboration and Shared Resources
Combining efforts and resources allows for more creativity and innovation to solve problems
that affect people all around the globe. Conservation efforts and efforts to combat rising
carbon emissions, for example, will require a concentrated global effort if they are to
succeed. Nongovernmental organizations (NGOs) use a collaborative approach to address
issues that are not confined within borders, such as child labor, human trafficking, and health
care and disease prevention.
4. Cross-Cultural Exchange
Not all the positive effects of globalization take place at the scale of billions and trillions of
dollars. Cross-cultural exchanges of ideas, food, music, media, and language are just as
valuable.
Individuals who travel around the world for business or leisure and try different foods, listen
to different music, read different books, gain exposure to different media outlets, and learn to
express themselves, even poorly, in another language gain a broader perspective on the
world. Their new knowledge helps develop stronger empathy and appreciation for people of
other cultures.
5. Spread of Knowledge and Technology
Arguably one of the top advantages of globalization has been the rapid spread of technology
worldwide. Google, Dell, and Microsoft, for example, all have offices on many continents.
Developing countries often appeal to investors because of the huge potential for growth. The
resulting advancements lead to results like the spread of motorized farm machinery in
Southeast Asia, for instance, where there had previously only been manual labor.
6. Quick Technological Advances
For developing countries, especially, being able to skip the long technological development
processes of industrialized countries brings rapid progress. For example, cell phones came
quickly to the African continent, with cell phone use currently growing every year in sub-
Saharan Africa and approaching 90% in countries such as South Africa.
The rapid adoption of mobile technology has spurred entrepreneurism in countries like
Kenya. Where it is dangerous or difficult to travel, small business owners simply use their
mobile phones to reach clients and contractors.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

Rapid technological advances have benefits other than economic ones. Pregnant women
without access to traditional medical care can use their phones to keep in touch with
midwives. The midwives, in turn, use their phones to connect to a system that doctors
monitor at all hours.
7. Increased Household Income
The European Centre for International Political Economy reports that globalization has
helped reduce high inflation rates in western economies, so each dollar of consumer spending
goes further. This development also has the effect of increasing real wages by lowering the
cost of living. Additionally, competition on the global market means the prices of many items
have declined, so purchases that were once unaffordable luxuries, such as laptops, cars, and
washing machines, are now affordable for many people.
8. Increased Open-Mindedness and Tolerance
It’s easy for people to fear others whom they have never met. Foreigners come to seem
completely unfamiliar under such conditions. But if people have networked with others from
elsewhere over the world, spoken with them about common problems, and partaken of their
food and culture, they are better able to perceive their common humanity and treat these
others as equals.
The Challenges of Globalization
It’s clear that globalization provides an abundance of benefits worldwide — but what are the
disadvantages of globalization? Here are just a few.
1. Exploitation
American companies have been known to use cheap foreign sweatshop labor to make cheap
American goods. Wealthy, industrialized countries have shipped their trash to China and
Malaysia. Exploiting cheap markets and lax regulations in developing nations has caused
pollution and suffering in those countries, even as profits soar abroad.
The outsourcing of labor also leaves a dearth of jobs in industrialized countries, where labor
is more expensive. When the United States outsources manufacturing to cheaper competitors
in foreign markets, domestic manufacturing laborers lose their jobs. Higher unemployment
leads to discontent, strain on the social safety net, and lower tax revenue from income.
Laborers whose skills are less relevant in a global marketplace will have a hard time
adjusting to a world dominated by globalization.
2. High Investment Costs
Globalization presents challenges for multinational corporations in terms of capital
investment and leadership. Setting up a business in a new country, especially a developing
country, requires substantial upfront capital. The needed infrastructure may not be in place.
Roads, electrical grids, broadband internet, water, and sanitation may need to be upgraded or
developed from scratch. It can also be difficult to find and retain managers with the requisite
skills to add value to the company and work effectively within the local culture.
3. Confusing Local Systems
Multinational corporations also face the challenge of contending with different laws in
different countries. Sometimes they must contend with different types of legal and banking
systems entirely. Difficulty navigating these systems may lead to impediments in expanding
to new countries and severe repercussions for missteps made.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

4. Weak Regulation
Fewer regulatory bodies exist for international business enterprises. Navigating the
international markets can thus sometimes feel like the Wild West. Interconnected markets
also mean that with a lack of regulation, if something goes wrong, the repercussions will
resound globally. The global financial crisis, for example, hit many nations hard.
5. Immigration Challenges
Increasing populations of immigrants and refugees present a challenge for industrialized
nations. Though countries may wish to help, too large an influx puts a strain on resources and
social structures. Countries find themselves limited in the aid they can provide without
detriment to their own citizens.
6. Localized Job Loss
Globalization can contribute to a decline in job opportunities as companies move their
production facilities overseas. Forbes reports that the move toward globalization has led to
deindustrialization throughout the United States, which was once home to many more
factories and auto plants. When American companies move their production to China and
other countries with plentiful, cheap labor, American workers suffer under factory closures,
layoffs, and skyrocketing unemployment rates where they live. According to the Economic
Policy Institute, the U.S. trade deficit with China — that is, the amount by which our imports,
which tend to cost U.S. jobs, exceed our exports, which tend to provide them — has lost the
United States 3.4 million jobs since 2001.
International Institutions
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD) is a United Nations
body responsible for dealing with development issues, particularly international trade.
UNCTAD is functioning in more than 195 countries and dealing with trade, investment, and
development issues. UNCTAD promotes economic cooperation and integration among its
member states.
The need for reducing disparities between the rich and the poor was keenly felt at the global
level. Particularly developing countries in Asia, Africa and Latin America realized the
importance of global efforts to be undertaken in this direction. In order to fulfill the above,
the United Nations Conference on Trade and Development (UNCTAD) came to be
established on 30th December, 1964, as a permanent organization of UNO with its own
permanent secretariat. UNCTAD has its headquarters in Geneva.
Its work focuses on the following key areas: Least Developed Countries and Special
Programmes; Globalization, interdependence and development; international trade and
commodities; investment and enterprise; and technology and logistics. This work often
results in analysis and recommendations that can inform national and international policy-
making processes and promote economic policies to end global economic inequalities and
generate people-centred sustainable development.
Principles of UNCTAD
The first conference held in 1964 laid down UNCTAD’s action programme and priorities.
The various recommendations are based on the following principles:
1. Every country has the supreme right to freely dispose of its natural resources for the sake
of its economic development. It can freely trade with other countries.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

2. Principles of sovereign equality of states, self determination of people and non-interference

in the internal affairs are the principles which guide trade and economic relations between
countries; and
3. There shall be no discrimination on the basis of differences in socioeconomic systems. The
adoption of various trading methods and policies shall be consistent with this principle.
Functions of UNCTAD
(i) To promote international trade between developed and developing countries with a view
to accelerating economic development.
(ii) To formulate principles and policies on international trade and related problems of
economic development.
(iii) To make proposals for putting its principles and policies into effect,
(iv) To negotiate trade agreements.
(v) To review and facilitate the coordination of activities of the other U.N. institutions in the
field of international trade.
(vi) To function as a centre for a harmonious trade and related documents in the development
policies of governments.
Achievements of UNCTAD
The achievements of UNCTAD may be discussed under the headings:

1. Tariff reclassification: UNCTAD worked for the development of trade by reclassifying

the tariff structure. In consultation with the customs cooperation council, it conducted several
technical studies for the purpose of developing nations. Products of developing countries
were grouped to attract favorable tariff rates. It has also instructed the Embassies to classify
the products correctly so that the developing nations would enjoy concession in the matter of
tariff.
2. Integrated Programme on Commodities: Wide fluctuations in the prices of primary
products being exported by developing countries cause hardship to them. Foreign exchange
earnings from the export of primary products become uncertain. To stabilize the prices of
primary products, UNCTAD suggested creation of buffer stock. A common fund to stabilize
the prices of primary products was created under a programme called integrated programme
on commodities. The initial contribution to the fund is 750 million dollars.
3. Reducing debt burden: UNCTAD reduced the debt burden of developing countries.
Large amount of loans are obtained by underdeveloped countries from bilateral and
multilateral sources. As a result, the debt servicing burden (repayment of loan installments
and interest thereon) increased for the underdeveloped countries. The debt servicing burden
accounted for a considerable proportion of foreign exchange earnings. In some cases, the
whole amount of earnings earned from exports had to be spent on debt servicing. UNCTAD
persuaded the creditors in the developed countries to write-off a part of the debts
accumulated. Some of the developed countries agreed to the proposal and reduced the debt
burden of underdeveloped countries.
4. Commodity development facility: Commodity development facility is popularly is
known as second window of the integrated programme on commodities. UNCTAD
conference held in May 1979 at Manila strengthened this scheme. Several developing
countries contributed to the creation of commodity development facility. The developing

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

countries benefited very much in terms of processing, marketing skills, product adaptation
and infrastructure facilities.

The International Monetary Fund (IMF) was established at a United Nations Monetary and
Financial Conference, also known as Bretton Woods Conference, on 22 July 1944 as an
organ under the UN System. The IMF headquarters is located in Washington D.C., U.S.A.
The IMF is responsible for promoting international monetary cooperation; facilitating the
expansion and balanced growth of international trade; promoting exchange stability; assisting
in the establishment of a multilateral system of payments; and providing resources available
to members experiencing balance of payments difficulties.

The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity
for all of its 190 member countries. It does so by supporting economic policies that promote
financial stability and monetary cooperation, which are essential to increase productivity, job
creation, and economic well-being. The IMF is governed by and accountable to its member
countries.

What does the IMF do?

The IMF has three critical missions: furthering international monetary cooperation,
encouraging the expansion of trade and economic growth, and discouraging policies that
would harm prosperity.

Main Functions
The IMF employs three main functions – surveillance, financial assistance, and technical
assistance – to promote the stability of the international monetary and financial system.
Surveillance: The IMF closely monitors each member country's economic and financial
developments and holds a policy dialogue with a member country on a regular basis (also
known as Article IV Consultation), usually once each year, to assess its economic conditions
with a view to providing policy recommendations. The IMF also reviews global and regional
developments and outlook based on information from individual consultations. The IMF
publishes such assessment on the multilateral surveillance through the World Economic
Outlook and the Global Financial Stability Report on a semi-annual basis.
Financial Assistance: The IMF lends to its member countries facing balance of payments
problems in order to facilitate the adjustment process and restore member countries'
economic growth and stability through various loan instruments or "facilities". An IMF loan
is usually provided under an "arrangement," requiring a borrowing country to undertake the
specific policies and measures to resolve its balance of payments problem as specified in a
"Letter of Intent." Most IMF loans are primarily financed by its member countries through
payments of quotas. Thus, the IMF's lending capacity is mainly determined by the total
amount of quotas. Nevertheless, if necessary, the IMF may borrow from a number of its
financially strongest member countries through the New Arrangements to Borrow (NAB) or
the General Arrangements to Borrow (GAB) to supplement the resources from its quotas.
Technical Assistance: The IMF provides technical assistance to help member countries
strengthen their capacity to design and implement effective policies in four areas, namely, 1)

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

monetary and financial policies, 2) fiscal policy and management, 3) statistics and
4) economic and financial legislation. In addition to technical assistance, the IMF also offers
training courses and seminars to member countries at the IMF Institute in Washington D.C.,
and other regional training institutes (Austria, Brazil, China, India, Singapore, Tunisia and
United Arab Emirates).

The International Monetary Fund, founded in 1944, is a voluntary financial institution with a
membership of 184 countries. It fosters among these countries cooperative monetary policies
that stabilize the exchange of one national currency for another. At the request of a member,
it extends technical assistance in financial, fiscal, and economic matters. If persuaded that a
member country, behind in payments to other countries, will implement reform policies, the
IMF will lend money to tide that member over until the reforms take effect.

Role of IMF

The purposes of the IMF are clearly expressed in Article I of its constitution,

 To promote international monetary cooperation through a permanent institution which

provides the machinery for consultation and collaboration on international monetary
problems.
 To facilitate the expansion and balanced growth of international trade, and to contribute
thereby to the promotion and maintenance of high levels of employment and real income
and to the development of the productive resources of all members as primary objectives of
economic policy.
 To promote exchange stability, to maintain orderly exchange arrangements among
members, and to avoid competitive exchange depreciation.
 To assist in the establishment of a multilateral system of payments in respect of current
transactions between members and in the elimination of foreign exchange restrictions
which hamper the growth of world trade.
 To give confidence to members by making the general resources of the Fund temporarily
available to them under adequate safeguards, thus providing them with opportunity to
correct maladjustments in their balance of payments without resorting to measures
destructive of national or international prosperity.
 In accordance with the above, to shorten the duration and lessen the degree of
disequilibrium in the international balances of payments of members.

International Bank for Reconstruction and Development (IBRD)

The International Bank for Reconstruction and Development (IBRD), commonly referred to
as the World Bank, is an international financial institution whose purposes include assisting
the development of its member nation’s territories, promoting and supplementing private
foreign investment and promoting long-range balance growth in international trade.

The International Bank of Reconstruction and Development (IBRD) is a development bank

administered by the World Bank. The IBRD offers financial products and policy advice to
countries aiming to reduce poverty and promote sustainable development. The International
Bank of Reconstruction and Development is a cooperative owned by 189 member countries.
As the largest development bank in the world, it supports the World Bank Group’s mission
by providing loans, guarantees, risk management products and advisory services to middle-

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

income and creditworthy low-income countries, as well as by coordinating responses to

regional and global challenges.

The goal of the IBRD is to provide financing and economic policy advice to help the leaders
of middle-income countries navigate the path toward greater prosperity.

Objectives:
1. To provide long-run capital to member countries for economic reconstruction and
development.
2. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium
and balanced development of international trade.
3. To provide guarantee for loans granted to small and large units and other projects of
member countries.
4. To ensure the implementation of development projects so as to bring about a smooth
transference from a war-time to peace economy.
5. To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD provides
loans for productive activities on considerate conditions.
Functions:
World Bank is playing main role of providing loans for development works to member
countries, especially to underdeveloped countries. The World Bank provides long-term loans
for various development projects of 5 to 20 years duration.
The main functions are
1. World Bank provides various technical services to the member countries. For this purpose,
the Bank has established “The Economic Development Institute” and a Staff College in
Washington.
2. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.
3. The quantities of loans, interest rate and terms and conditions are determined by the Bank
itself.
4. Generally, Bank grants loans for a particular project duly submitted to the Bank by the
member country.
5. The debtor nation has to repay either in reserve currencies or in the currency in which the
loan was sanctioned.
6. Bank also provides loan to private investors belonging to member countries on its own
guarantee, but for this loan private investors have to seek prior permission from those
counties where this amount will be collected.

World Trade Organization

The World Trade Organization (WTO) is a multilateral organization headquartered in
Geneva, Switzerland. It came into existence on January 1, 1995, as a successor to the
General Agreement on Tariffs and Trade (GATT). The organization functions as a central
body that facilitates global trade.

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

The World Trade Organization (WTO) is the single global international organization dealing
with the rules related to international trade. WTO’s agreements are negotiated and signed by
a majority of prominent trading nations. The agreements are ratified in the parliaments of the
contracting countries.
Role of WTO in Promoting International Trade
WTO promotes business liberalization and economic globalization. It has implemented a
substantial decline in tariff levels.
WTO plays a major role in promoting peace among the countries. WTO lets international
trade and investment to run smoothly. Countries also get a constructive and fair institution
for dealing with disputes over trade issues due to the presence of the WTO.
The WTO also plays a role in decreasing the cost of living. Protectionism increases the cost
of the goods. WTO lowers the trade barriers via negotiation and through its non-
discrimination policy.
WTO’s Most favored Nation (MFN) principle, which allows market liberalization, helps the
developing nation to trade and prosper. Besides, it also supports the multilateral framework
for rules and agreement.
Developing countries benefit from the intellectual property rules of WTO. Trade-Related
Aspects of Intellectual Property Rights (TRIPS) agreement offers a suitable policy
framework that helps to promote technology transfer and FDI flow to developing nations.
There are some preferential treatments available for the developing countries
too. Generalized System of Preferences (GSP) enables non-reciprocal preferential treatment
by developed countries.
Roles and Functions of WTO
The broad reach of WTO and its functions have been mentioned below.
 Implementation of Rules for Review of Trade Policy
The international rules of trade provide stability and assurance and lead to a general
consensus among member countries. The policies are reviewed to ensure that even
with the ever-changing trading scenarios, the multilateral trading system thrives. It
also helps in the facilitation of a transparent and stable framework for conducting
business.
 Forum for Member Countries Discuss Future Strategies
The WTO, as a forum, allows for trade negotiations in the multilateral trading system.
In the absence of trade negotiations, growth may stunt, and issues related to tariff and
dumping may go unaddressed. Further liberalization of trade is also subject to
consistent trade negotiations.
 Implementing and Administering Bilateral and Multilateral Trade Agreements
The bilateral or multilateral trade agreements have to be necessarily ratified by the
parliaments of respective member countries. Unless such ratification comes through,
the non-discriminatory trading system cannot be put into practice. The executed
agreements will ensure that every member is guaranteed to be treated fairly in other
members’ markets.
 Trade Dispute Settlement

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

The dispute settlement by the WTO is concerned with the resolution of trade disputes.
Independent experts of the tribunal interpret the agreements and give out judgment
mentioning the due commitments of the concerned member states. It is encouraged to
settle the disputes by way of consultation among the members as well.
 Optimal Utilization of the World's Resources
Resources across the world can be further optimally utilized by harnessing the trade
capacities of the developing economies. It requires special provisions in the WTO
agreements for the least-developed economies. Such measures may include providing
greater trading opportunities, longer duration to implement commitments, and also
support to build the sue infrastructure.
Features of WTO
The major features of the World Trade Organization are –
 The scope of WTO is far more expensive than the erstwhile General Agreement on
Trade and Tariff. For instance, GATT solely focused on goods while excluding
textiles and agriculture. On the other hand, WTO covers all goods, services, and
investment policies along with intellectual property.
 WTO Secretariat has formalized and bolstered the mechanisms for the review of
policies as well as the settlement of disputes. This aspect has become crucial due to
the proliferation of member countries and more goods and services being covered by
the WTO. Another important consideration in this regard is the substantial increase in
open access to different international markets.
 There are rules implemented for the protection of small and weak countries against
the discriminatory trade practices of developed countries.
 National Treatment articles and Most Favored Nation (MFN) clause permits equal
access to markets for just treatment of both domestic and foreign suppliers.
 Each member country of the WTO carries a single voting right and all members enjoy
privilege on the global scale.
 The WTO agreements encompass all the member states and act as a common forum
of deliberation for the members.

Benefits of WTO
WTO membership provides:
— Most favoured nation treatment, which means equal access for all companies of all WTO
Members to the markets of all Members of the Organization;
— National treatment that prohibits national producers from gaining advantages over
importers;
— Reduction of trade barriers, primarily tariffs and quantitative restrictions, which provides
for increased trade between Members;
— Predictability and transparency of international trade – WTO Members have bound their
tariffs and cannot, except for good reason, introduce other import restrictions, such as bans or
quotas;

BA4302-INTERNATIONAL BUSINESS
 ROHINI COLLEGE OF ENGINEERING AND TECHNOLOGY

— Increased competitiveness by eliminating unfair practices between trading partners aimed

at stimulating trade, primarily export subsidies and dumping;
— Opportunity to defend trade interests at the WTO Dispute Settlement Body, since all
Members will have international commitments towards Belarus for non-application of trade
restrictions.

WTO members experienced an average of 40% decline in tariff rate. Agriculture industry and
textile trade expansions, security enhancement, anti-dumping and countervailing, dispute-free
investment and trade in services and intellectual properties have been the most significant
achievements of the WTO

BA4302-INTERNATIONAL BUSINESS