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Welcome to class of
Global Institutions and
Trading Blocks
by
Dr. Satyendra Singh
University of Winnipeg
Canada
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
Make
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Outsourcing
–
PCA
Make
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Short-term supplier relationship
Long-term supplier relationship
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Strategic Vulnerability vs. Potential Competitive Advantage (PCA)
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Problems with Outsourcing
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Controlled
uncontrolled
Buy
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Contract
Yourself
Partnership
Buy
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
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
–
–
–
–
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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 membernations
• 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 12country 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
• European
Commission
body
– EU legislative
whose members are
popularly elected from
member-nations
• Council of the
European Union
– Group that is the EU’s
primary
policy-setting
institution
– 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, GuineaBissau, 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, Mauritius
Rwanda, Seychelles, Sudan, Swaziland
Uganda, 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