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International Business : The Challenge of Global Competition, 8/e
Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American
The Dynamics of International Organizations

E Learning Session

  1. Relationship between international organizations and international businesses PowerPoint (33.0K)
    1. The United Nations
    2. The World Bank
    3. Organization for Economic cooperation and Development
    4. Some international organizations have governmental powers and act a supranational entities
  2. The United Nations
    1. General information
      • Born following world War II (1939-45)
      • Long history of attempts to keep peace, some more successful than others
      • Responsible for many international agreements and much of international law since 1945
      • Work carried out by five main bodies Concept Check Concept Check: The United Nations' five main bodies include all of the following except: (a) The International Court of Justice (b) The Economic and Financial Council (c) The Security Council (d) The Secretariat (e)The Economic and Social Council
        1. The General Assembly
        2. The Security Council
        3. The Economic and Social Council
        4. The International Court of Justice
        5. The Secretariat
    2. UN Growth and Change
      • All member-nations are members of the General Assembly
      • Expresses opinion through adoption of resolutions
      • Resolutions have no binding authority
      • Large number of developing nations recently acquiring membership has led to resolutions that represent the view of smaller, more unstable countries
      • The Security Council is comprised of fifteen (15) nations (five permanent and 10 chosen)
      • Any of the five permanent members, Peoples' Republic of China, Russia, France, United kingdom, United States, have veto power over issues before the council
      • The Secretariat is the staff of the UN headed by the Secretary-General
      • The Economic and Social Council is concerned wit economic problems such as trade, transport, industrialization, ad economic development
      • The International Court of Justice, also called the World Court, renders legal decisions in disputes between sovereign states, not between individuals
    3. UN Specialized Agencies
      • Most agencies were created to do research or to publish information in specific subject areas
    4. UN Future
      • The UN record as a peace keeping is dismal
      • Critics charge many of the specialized agencies have become political tools against developed nations
  3. The World Bank and Other Multilateral Development Banks
    1. Multilateral development banks are international lending institutions owned by member-nations
      • Work primarily in developing countries
      • The MDB label usually applies to the five main development banks around the world
        1. The Bank for Reconstruction and Development (called the World bank)
        2. The African Development Bank
        3. The Asian Development bank
        4. The European Bank for Reconstruction and Development
        5. Inter-American Development Bank Group
      • Bank activities include
        1. long-term loans based on market interest rates
        2. Very long-term loans with interest well below market rates
        3. Grant financing for technical assistance, advisory services, or project preparation
    2. The World Bank Group
      • Operates all over the world
      • Consists of the Bank itself, plus the international Finance Corporation, the Multilateral Investment Guarantee Agency (MIGA), the International Center for Settlement of investment Disputes (ICSID)
      • Important to business for several reasons
        1. Many companies are suppliers to borrowers in Group-financed project
        2. Development finance institutions are potential sources of capital for businesses selling or working in developing countries
        3. The Banks' Center for Arbitration may be able to resolve disputes encountered doing business in a foreign country
        4. projects financed by the group tend to be mutually supportive
        5. The information the Group gathers about a nation's project of finances is more likely accurate that that available to private foreign businesses
      • Hard Loans PowerPoint (32.0K)
        1. Hard loans are made a prevailing market rates
        2. Although the Bank tries to ensure the financial integrity of these loans to meet market demands, the necessity is still present for the Bank to restructure loans to some developing nations
      • Business Opportunities and Sources of Information
        1. Loans by the World Bank create many opportunities for businesses
        2. Although the bank makes known when loans are secured, business must approach individual countries to seek business opportunities
        3. The Bank publishes a myriad of reports an publications announcing financing actions
    3. International Finance Corporation (IFC)
      • The World bank's investment group
      • Specializing in speculative, high risk lending
      • Joint ventures favored
        1. IFC's policy is to favor joint ventures with some local capital committed
        2. This doesn't mean that IFC will not consider capital source outside the host country
      • Creation of capital markets
        1. IFC accepts equity (stock) or debt (bonds) for financial investment
        2. Opens markets for securities in developing countries that may not have had a market otherwise
    4. International Development Association (IDA)
      • Soft Loan specialist
      • Soft loans have up to 40-year maturities
      • Ida may extend 10-year grace period before repayment
      • Charges on three-fourths of one percent as a service charge on disbursed funds and one-half of one percent on undispursed funds
      • Borrowers tend to poorest countries
      • IDA capital sourses
        1. Cannot raise capital in standard markets
        2. Depends on subscription donated by developed countries
        3. Periodic "replenishment" of funds asks donations from developed countries
    5. The Multilateral Investment Guarantee Agency (MIGA)
      • Encourages foreign investment
      • Guarantees foreign investors against losses caused by non-commercial risks in developing countries
    6. International Center for Settlement of investment Disputes (ICSID)
      • Facilitates settlement by conciliation or arbitration of investment disputes between foreign investors an host countries
      • Proceedings can be help anywhere agreed to by parties involved
      • Number of cases is increasing
    7. Privatize the World Bank?
      • Critics say the World Bank is made obsolete by the trend to privatizing business worldwide
      • Critics also suggest that World Bank should use its loan ability as a toll to achieve social and cultural change in developing countries
      • Critics suggest that the flow of private financing to developing countries has been on the increase for several years
    8. African Development Bank PowerPoint (40.0K)
      • In recent years the AfDB has tried to reduce the amount of loans to governments and to increase loans to private companies
      • Perception of public mismanagement is a basic reason for the shift
      • A consultants report in mid 1990s found bureaucratic mess in AfDB with an inability to evaluate loan portfolio for lack of adequate information
    9. Asian Development Bank
      • The Asian Development Bank's equal to the IDA is the Asian Development Fund
      • The AsDf is also running out of money
      • Most of the financial support comes from US and European sources
      • Newly emerging economies of Asia account for less than 0.3 percent of AsDF's resources
      • Asian culture doesn't favor this kind of outside support
    10. European Bank for Reconstruction and Development
      • Founded to assist for Soviet countries and the one-time Eastern European satellites
      • Bank borrows in international investment markets
    11. Inter-American Development Bank (IDB)
      • IDB finance projects in Latin America and the Caribbean
      • Focuses on infrastructure
      • The IDB has been a major catalyst for mobilizing resources in the region
  4. International Monetary Fund (IMF)
    1. General information
      • Established by Articles of Agreement signed at Bretton Woods Conference in 1944 PowerPoint (35.0K)
      • Designed to foster Concept Check Concept Check: The international Monetary Fund (IMF) is designed to foster convertible currencies, shorter duration and lesser-degree balance-of-payment disequities, and orderly foreign exchange arrangements. (a) True (b) False
        1. orderly foreign exchange arrangements
        2. convertible currencies
        3. shorter duration and lesser-degree balance of payments disequilibria
    2. Changes in the IMF
      • Now constrained by floating currencies of member nations
      • Greater power for the IMF?
        1. Now excercises "firm surveillance" over exchange rate policies of nations
        2. Role emerging similar to World Bank's
        3. The "Group of Seven" industrialized nations participates in oversight of member nation's exchange policies
    3. World debt crisis and the IMF
      • IMF's role is increasingly to assist member nation's who do not have the ability to make repayment obligations
      • Financial and Economic Disaster
        1. Critics perceived this new role would lead to major economic failure because debt of world nations was so high.
        2. If all debt nations got together to declare default at one time, the world financial situation would collapse
      • Enter the IMF
        1. The IMF in Mexico's financial crisis of 1982 took active role in persuading creditor banks to refinance the country
        2. Again, in 1994, IMF stepped in to secure emergency loans for Mexico that prevented economic collapse
        3. IMF repeated this role in the late 1990s for several Asian countries
    4. Conditionality and cooperation with the World Bank
      • Scarcity of trained personnel or lack of political will are two reasons countries are unwilling or unable to control economic problems
      • IMF and World Bank now cooperate in structural adjustment facilities
      • Funding is linked to a member's progress in restoring balance-of-payments
      • The IMF has its critics who believe the IMF needs to approach its role more realistically and with greater rigor toward countries' fiscal responsibilities
  5. Banks for International Settlement
    1. Meeting place of central bankers from around the world
    2. Fosters cooperation among central banks
    3. The same dynamics that changed the IMF role have affected the BIS
      • It severs as a forum for monetary cooperation
      • It serves as a center for research
      • It serves as a banker for central banks
      • It serves as an agent or trustee in several international financial arrangements
    4. Since the emergence of former soviet countries, the BIS serves as a contact point for bankers from East and West to meet
  6. World Trade Organization (WTO) PowerPoint (36.0K)
    1. The early years of global international trade cooperation
      • Goal of WTO is to assist countries in the orderly trade and flow of goods
      • Following World War II, the International Trade Organization was proposed.
      • The US made a presentation of concepts it believed made for a viable organization
      • Many of the concepts were adopted and the General Agreement on Tariffs and Trade (GATT) was born
      • GATT scored tremendous successes in reducing trade tariffs during more than 50 years of activity
      • With seven rounds of negotiations, the average trade tariff was reduce from 40 percent to 5 percent
    2. The Uruguay Round Concept Check Concept Check: The last round of the GATT began in (a) Uruguay in 1980 (b) Paraguay in 1983 (c) Argentina in 1979 (d) Venezuela in 1989 (e) None of the above
      • The last round for GATT which began in 1986
      • By 1993 the Uruguay Round treaty was initialed
      • It established the WTO to oversea the provisions of the treaty
    3. Creation of the World Trade Organization
      • WTO replaced GATT at the conclusions of the talks in 1995
      • Major successes include a landmark agreement signed by 70 countries that will cover 95 percent of the world's telecommunications business
    4. Clouds on WTO's horizon
      • Regional trade agreements (RTAs) compete with WTO to regulate and influence trade
      • WTO activities have been hindered by critics who dispute the authority given to WTO to oversee trade
      • Since compliance with WTO rulings is voluntary, concern arises over the continued compliance by member nation's
  7. Organization of Petroleum Exporting Countries
    1. Comprised of eleven oil producing nations
    2. Oil companies should have listened
      • In 1960 ministers of Venezuela and Saudi Arabia sent letters to oil companies suggesting that host governments should be consulted before price changes were implemented
      • Oil companies reduced prices and it made the host countries angry
    3. Economic Muscle and political strength
      • In 1973-74 tested its position by instituting and oil embargo
      • The secret to the power play was the consolidated position of the members
      • The result was control over producer prices for oil
    4. OPEC ups and downs Concept Check Concept Check: The higher oil prices initiated by OPEC caused user nations to buy up as much petroleum as they could to safeguard against future price increases. (a) True (b) False)
      • Early success resulted in a rise of oil prices by $3.00 a barrel
      • Higher prices resulted in user nations initiating conservation efforts, reducing demand
  8. Economic union
    1. Four major forms of economic-and finally political-integration
      • Free trade area (FTA)
        1. Tariffs are abolished for member countries, maintained for external countries by each country
      • Customs union
        1. Member countries add common external tariff applied by all members
      • Common market
        1. A customs union with the abolition of restrictions on the mobility of capital and labor among members
      • Complete economic integration
        1. Includes a high degree of political integration as member countries cede some sovereignty
        2. Supercentral bank is created
        3. Probably a single currency evolves
  9. The European union
    1. Background
      • Born in the aftermath of World War II
      • Although most politicians believed in the importance to rebuild individual free markets, they also so the need to create continent-wide trade efforts
      • The Organization for European Economic Cooperation was established in 1947
      • A series of trade groups developed in Europe that led to the European Union
      • The EU continues to expand
        1. All new members must meet membership criteria including respect for democracy, rule of law, human rights, and protection of minorities
      • Purpose of the EU
        1. It is a supranational entity, a regional government
        2. It is different from a treaty in that it has governmental authority
    2. Institutions of the EU
      • Four main institutions
        1. The Commission
        2. The Council of Ministers
        3. The Parliament
        4. The Court
      • European Commission
        1. the executive institution
        2. administers daily operations
        3. the Guardian of the Treaty
        4. Comprises twenty commissioners
      • The Council of Ministers
        1. Primary policy setting institution
        2. Ministers are members of their respective countries
        3. Sets forth regulations and directives
        4. harmonizes legislations thought the community
      • The Parliament
        1. Elected by popular vote
        2. Seated by political party affiliation
        3. Given specific powers such as veto over EU budget
      • The Court
        1. Decides all cases arising under the Treaty of Rome
    3. A United States of Europe?
      • EU has made great strides toward union
      • EU is now a major world force
      • Treaty signed in 1991 sets out provisions that sound like a United States of Europe-the Maastricht treaty
    4. Fortress Europe?
      • The term used by outsiders such as the US or Japan
      • Fear EU used to exclude participation by outsiders
      • EU members cannot agree if they want to establish a closer integration
    5. EU Actions
      • EU directives supersede 15 sets of national rules
      • EU has harmonized 100,000 national standards
      • European Monetary Union
        1. 12 nations using a single currency-the Euro
        2. Became the currency on January 1, 1999
        3. Fixed exchange rate to German mark
    6. Relations with the United States
      • US negotiates with EU representatives as well as individual countries'
      • EU is now a major impact player in world economy
  10. Other Regional Groupings of Nations
    1. European Free Trade Association (EFTA)
      • Created to provide option for non EU members
      • Many former EFA members have now secured or are scheduled for EU membership
    2. Association of Southeast Asian Nations (ASEAN)
      • Created in 1967
      • One of the fastest developing trade regions in the world
      • Most members are major trading partners with the US
    3. African Trade Agreements
      • Trade and investment groups to foster economic growth in Africa
    4. North American Free Trade Agreement (NAFTA) PowerPoint (36.0K)
      • Canada, United States, Mexico
      • NAFTA created no EU-like structure
      • Did create some entities to oversee and to promote development
      • Us failure to extend NAFTA to other Latin American countries has led to creation of competing groups that omit the US
    5. Organization of American States (OAS)
      • 35 countries in the Western hemisphere
      • Dedicated to promoting cooperation among member states
    6. Asia-Pacific Economic Cooperation (APEC)
      • Established in 1989
      • Serves as a regional entity to promote cooperation and trade
      • Currently has 21 members including US
    7. Mercosur-Mercosul in Portuguese
      • Created I 1991 by the treaty of Asunción
      • Most trade among members is tariff free
      • Mercosur is expanding to other Latin countries as well as completing treaties with other regional trade groupings
  11. Organization for Economic Cooperation and Development
    1. The world's developed countries
    2. Comprises 29 of the world's wealthiest nations
    3. Serves to promote ethical and legal business practices




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