Welcome to class ofGlobal Institutions and

Trading Blocks

byDr. Satyendra Singh

University of WinnipegCanada

Int’l product Life Cycle

•Export: Supply/production> Demand, in search of NPD, quick feedback, USA vast market; High income export market ↑ •Foreign Production: Similar mkt, transportation and communicatons costs ↓ , licensing for production, so export growth ↓•Foreign Comp: Foreign prodn costs ↓ as they gain production experience, and labor and raw material costs ↓, export growth ↓↓•Import Competition: Foreign firms’ economies of scale and quality ↑. Now USA imports!

Economic Integration• Free trade area (FTA)

– Area in which tariffs among members have been eliminated, but members keep their external tariffs

• No movement of people and services

• Customs Union – Collaboration that adds common external tariffs to an FTA

• Common Market – Customs union that includes mobility of services, people, and capital within the union

• Complete Economic Integration– Integration on both economic and political levels

International Operations management

• Outsourcing– Make

• Yourself• Partnership

– Controlled– uncontrolled

– Buy• Short-term supplier relationship• Long-term supplier relationship

– Strategic Vulnerability vs. Potential Competitive Advantage (PCA)

– Problems with Outsourcing• International freight, insurance, packaging (10%)• Import duty (0-50%)• Cost of letter of credit (1%)• International travel and communications (2-10%)• Reworking on product specification (0-15%)

• JIT vs. JIC• Standardization vs. Customization• ISO 9000 vs. ISO 14001• Six Sigma

– Quality control process for reducing defects and eliminating variations

Strategic vulnerability

PCA

Buy

Contract

Make

United Nations

– 191 nations peace and global stability– Has functions related to business– General Assembly

• each member country has one vote regardless of size, wealth or power

United Nations– Security Council • Main policy-setting body of the UN, composed of 15 members including

5 permanent members– Permanent: UK, USA, Russia, France and China– Nonpermanent: Africa/Asia (5), Latin America (2), Western Europe (2), Eastern

Europe (1) – to be selected by the general assembly for a 2-yr term.

– Economic and Social Council (ECOSOC)• UN body concerned with economic and social issues such as trade,

development, education, and human rights

World Trade Organization

• – A multinational body of 149 members that deals

with rules of trade between nations

– Outgrowth of General Agreement on Tariffs and Trade (GATT), that functioned to encourage trade liberalization from 1947 to 1995

WTO Principles– Trade without discrimination– Trade freer, with trade barriers negotiated downward– Trade predictable– Trade more competitive– Trade more beneficial for less developed countries,

encouraging development and economic reform– Trade protects copyrights, trademarks, trade

secrets, and other intellectual property matters– Disagreement on agricultural policies

• India, Brazil…

Decision-Making Process• WTO – decision process a bit subtle

– Each country has a vote and decision is by consensus– In reality -- US, EU, Canada and Japan– Some countries are in a better position to impose sanctions

in case of trade dispute– Primary aim of WTO is to liberalize world trade!– Protest against globalization continues

• World Bank and IMF – decision process undemocratic!– Votes are based on shares depends on income so rich

nations have more votes– It is reflected on the board of both institutions– US and UK have their own Executive Director (ED) – 2– Whereas African nations have to share their 2 EDs– Some countries are borrowers and some lenders

Global Agencies

• Organization For Economic Cooperation and Development (OECD)– Group of developed countries dedicated to

promoting economic expansion in its member-nations

• Organization of Petroleum Exporting Countries (OPEC) – Cartel of 11 petroleum exporting countries

• Middle East (6): Iran, Iraq, Kuwait, Qatar, Saudi Arabia and UAE

• Africa(3):Algeria, Libya• Other (2): Indonesia and Venezuela

Other non OPEC oil exporting countries: UK, Russia, Mexico, Norway

Trading Blocks• North America

– North America Free Trade Agreement (NAFTA)– European Free Trade Agreement (EFTA)

• European Union• Asia

– Association of SouthEast Asian Nations (ASEAN)– Asia Pacific Economic Cooperation (APEC)

• Africa– Economic Council of West African States (ECOWAS)– Common Market for Eastern and Southern Africa (COMESA)

• South America– Mercosur (Mercosul)

North American Free Trade Agreement (NAFTA)

• NAFTA – Established January 1, 1994– Agreement creating a free trade area among

Canada, Mexico, and the United States

European Free Trade Agreement (EFTA)

• EFTA – Founded in 1960 by seven European countries:

• Austria, Denmark, Norway, Portugal, Sweden, Switzerland, Finland, Iceland, Liechtenstein, and the United Kingdom

– Today, a 4-nation non-EU FTA in Europe:Norway, Iceland, Liechtenstein, Switzerland

The European Union (EU)

The European Union (EU)…

• European Union – A body of 25 European countries dedicated to economic and political integration

– Romania and Bulgaria joined in 2007, to move membership to 27

European Monetary Union (EMU)• European Monetary Union

– Group that established use of euro in the 12-country euro zone

– The three countries from “old EU” that do not participate are Denmark, Sweden, and the United Kingdom

– Slovenia joined in 2007

– The single currency reduces the cost of doing business across EMU country borders

Institutions of The EU

• European Parliament – EU legislative body

whose members are popularly elected from member-nations

• Council of the European Union – Group that is the EU’s

primary policy-setting institution

• European Commission – Institution that runs the

EU’s day-to-day operations

• European Court of Justice (ECJ) – Court that rules on

issues related to EU policies

ASEAN: Asso. Southeast Asian Nations

• Free Trade• 10 countries

– Brunei, Cambodia, Indonesia, Lao, Malaysia, Mayamar, Philippines, Singapore, Thailand, and Vietnam

• HO: Jakarta• ASEAN scholarship• ASEAN Univ.Network

APEC: Asia Pacific Economic Cooperation

• Eco. Growth & prosperity – Trade/invst Liberalization– Business Facilitation– Economic/tech cooperation

• Important– 40% of world’s pop– 50% of world’s GDP– 40% of world’s trade

• 21 countries– Australia, Brunei, Canada, Indonesia, Japan, Korea, Malaysia, NZ,

Phil, Singapore, Thai, US, Taipei, HK, china, Mexico, PNG, Chile, Peru, USSR, Vietnam

• HO: Singapore

African Trade Agreements

ECOWAS: Economic Council West African States

• Economic integration – Mutual defense, court of justice – Ecowas rail, common currency 2015– Gambia, Ghana, Guinea, Nigeria, Sierra L

• 15 countries– Benin, Burkina Faso, Cape Verde Cote d’lvoire, Gambia, Ghana, Guinea-

Bissau, Liberia, Mali, Nigeria, Senegal, Sierra Leone, Togo

– Niger – suspended 2009– election problem– Guinea – suspended 2008 – coup attempt– Liberia wants to join Ecowas

• HO: Abuja, Nigeria

COMESA: Common Mkt for Eastern Southern Africa

• Regional economic integration – Trade and investment

• 19 countries– Burundi, Comoros, Congo, Djibouti,

Egypt, Eretria, Ethiopia, Kenya,Libya, Madagascar, Malawi, MauritiusRwanda, Seychelles, Sudan, SwazilandUganda, Zambia, Zimbabwe

• HO: Lusaka, Zambia• Branding: Buy African, Build Africa • COMESA statistics

South American Agreements

MERCOSUR

• Free trade and people movement • Full member

– Argentina, Brazil, Paraguay, Urguay Venezuela (Paraguay to ratify)

• Associate member– Bolivia, Chile, Columbia, Ecuador

Peru

• Observer– Mexico

• HO: Sao Paula, Brazil