World Trade Organization and Multinational Enterprises' External Environmental Factors - Coursework Example

International Business Contents Contents Part A: Question 4 2 Introduction 2 Discussion 3 Conclusion 8 References 9 Part B: Question 6 11 Introduction 11 Discussion 11 Conclusion 17 References 18 Part A: Question 4 Introduction WTO or world trade organization has been trying since the end of the world war to come to agreements in between different countries so that trade barriers between the countries can be reduced. The goal of any trade talks is to make the trade of goods and services in between countries easier. The Doha round of talks aims to achieve this objective through the process of reducing import taxes also known as tariffs. The reduction of taxes impacts range of goods from cars to wheat. Doha rounds also aims at reducing the subsidies that the countries give to the farmers and fisherman, lowering of the taxes so that the regulatory barriers across the countries which also effect the cross border trading of the services such as banking, consulting, negotiation of intellectual property rules and regulations on things such as drugs and copyrighted materials. Initially these rounds of talks which were slated to begin in 2001 in Seattle were cancelled over the protests from the developing countries that these would ruin their economy. Consequently the talks were moved to the capital of Qatar or the Doha. The talk has still not come to a conclusion as the parties involved have not reached a consensus agreement. The fact that it has still not been able to reach a consensus agreement has led many to question on the future of WTO and its existence in today’s world. This issue is discussed in the following pages in greater detail. Discussion The WTO or the world trade organization is a global organization that deals with global rules of trade between the nations. Its purposes are to ensure that the trade between the nations functions as smoothly, predictably and freely as is possible (World trade organization, 2015). The Doha round of talks is the tallest in the series of talks to be initiated by the WTO. The aim of the talks is to ensure that major reforms takes place in the arena of international trading system through the process of introduction of lowering of the trade barriers and by revising the rules of trading (European commission, 2014). The negotiation involves 20 different areas and the talks are informally known as the Doha development agenda. The fundamental objective of the talks is to improving trading conditions of the developing countries. The talks began in the 4th ministerial level meeting of the WTO members in Doha, capital of Qatar in the year 2001 (Australian government department of foreign affairs and trade, 2015). Each round of multilateral trade agreements that occurred over the past 70 years since world war has stretched for a longer time than the previous one. The Doha round of Talks for example had started back in the year 2001 (McClanahan, 2012). It was named as Doha Development round. The Doha round of talks is based on the premise of single undertaking that is nothing is agreed in principle until everything is agreed. The negotiators at the Doha aim to agree at new rules in a host of different areas of international trade with the overall promise of lowering of the trade barriers and especially helping the least developed countries. According to Pascal Lamy the negotiators of the talk have already agreed to 80% of the agendas was initially set out. However as well this may seem to suggest that the round of talks is near completion but the problem is that the 20% that remains is the hardest part to achieve. The Doha round of talks has gone through several rounds of ministerial level meeting and has resulted into 4 failed ministry level meetings. After the failure of 4 failed ministerial level meetings it was abundantly clear that the all the goals that were envisioned at Doha would never succeed. However business leaders across the globe have recognized these problems long before and have lost interest in Doha round of talks. They question the fruitfulness of the process of spending time and talent in endless lobbying in achieving an objective that is so difficult to achieve. After the WTO failed to cut a deal in the ministerial talks people have argued whether the organization has still got any relevance in the present day scenario. The measures that are on the offer including features of duty free trading, quota free access to the developed countries market and the improvement in the rules of origin. These measures haven’t come close to address the fundamental injustice that is taking place in the global trading system. The rules that are in place and are agreed in principle by the mistrial level meetings at Doha are actually used by the developed countries to exploit the developing countries. For example the WTO recommends that in order to facilitate liberalization and removal of the trade barriers in order to facilitate free flow of trade and aid in the overall development of the countries. However the developed countries have long exploited these regulations for their own economic growth. For example US do not abide by the 2005 ruling of the WTO. The ruling of the WTO requires that the countries do not subsidize their farm produce in order to benefit the farmers from developing countries. However the US does subsidize the cotton that it produces in the country. However when it comes to Brazil the US cites the same policies of WTO to tell Brazil that it should not subsidize its farm produce. The failure of the Doha level of talks again and again means that the Doha round of talks has failed in its promise to deliver on the ground that it will make the trade work for the purpose of the development of the countries concerned. The talks as is seen failed to address the concerns that were raised more than a decade ago. The talks have failed to respond to the changes in the geo political scenario and economic crisis that has occurred over the years. The worst sufferers of the series of talks have been the least developed countries due to the policies implemented as the liberalization has meant opening up their economy to the pressures of the developed countries. The surprising fact to note is that the policies have affected those countries badly who were intended to be the actual beneficiaries. Consequently as the after effect of the implementation of the policies the vital industries and the agricultural sector of the developing countries have been amongst worst affected. So many a times have called into question the fruitfulness of the round table talks and the deal taking place on the table. However the failure of the Doha round of talks again and again and the failure to come to a general agreement has not caused any harm to the rich and developed countries (Gallagher, 2007). They have on their part been trying and forcing the developing countries to enter into bilateral agreements into deals that re far beyond the plans that have been set for the Doha round. The advocators of globalization free trade regimes focus on the fact these policies are the answer to the world problems of human rights issue, climate change and food security. However the actual effect of these policies can be seen clearly from the conditions of the least developed and the developing countries. In order for the talks of the Doha round to succeed in its motive it is essential that trade should not be viewed as a goal in itself but a s a path to achieve the broader goal of social, developmental and environmental (Narlikar, Daunton and Stern, 2012). It is necessary that countries enter into the talks with a give and take mindset. The richest countries in the world should take upon themselves to honour their commitment in terms of tackling the policies that they have set. They should not pay subsidies to the farmers in their country as it drives down the prices and forces more poverty on the farmers of the world. The multilateral trade agreements need fundamental reforms in place. It is required that these multi level trade negotiations should be based on the fact fair negotiations and the developed countries should not engage in power play (Palmeter and Mavroidis, 2004). It is required that the developing countries should have an equal representation on the consultation table as the developed countries. When it was found and established that the Doha round of talks cannot be fulfilled in its entirety lamy proposed an early harvest package consisting of 4 different measures that were aimed at benefiting the least developed countries. As soon as the proposal was announced the developed countries began to oppose and resists the proposal. The US in particular demanded that the benefits should also be received by the own economy to compliment for any of the concessions that the developed countries gave to the least developed countries. This is because of the fact that advanced nations are themselves mired in debt and were not willing to offer any concessions to the least developed countries. The developed countries are not willing to offer any concessions that will benefit the developing countries especially the group referred to as BRICS (Hufbauer and Schott, 2012). The countries did not want to offer any unbalanced concessions that may benefit the least developed countries due to the fact that the BRICS group of countries may also be benefitted by the move. The failure on the part of the WTO and the negotiators at WTO to reach at a definite conclusion over such a small package that can help the developing countries as part of the development agenda means that relevance of WTO and the multilateral trading system has been called into question (Elliott, 2013). Many activists believe that there should be a democratic debate on the powers and purpose of WTO as an organization. Even Pascal lamy has conceded the fact that the WTO has been unable to adapt and adjust to the priorities of emerging global trade (Bergan, 2011). It has been argued that new thinking and new institutions should be given the responsibility to deal with the issues that the world is currently facing. However in its Bali edition the talks between the members of the WTO reached ascertain agreement on the food security bill. This was achieved when the member countries stated that they won’t interfere with the food security that the country provided to its citizen for four years in return of the commitment by India that it will ensure that its policies would not distort the trade policies or food security of other members (The economist, 2013). As the negotiators have ironed out their differences on the matter of food security it has paved the way for negotiations in other fields too (World Trade organization, 2013). The biggest success of the Bali talks is in terms of the fact that the negotiators have been able to prove that WTO as an organization still has relevance and that the negotiators can achieve something through the process of negotiation (McClanahan, 2013). Although the Bali package is a small achievement in contrast of the issues that were initially aimed to tackle at the Doha round still it means progress and that WTO has still validity (Kanth, 2015). Conclusion The time and again failure of the Doha round of talks for the WTO meant that the relevance of WTO as an organization was being called into question. The developing countries were actually the ones who were criticizing the policies of the WTO most vehemently. This is due to the fact that the developed and the powerful countries were taking the clues of these talks in order to force the small and the least developed countries to open up their economy but were themselves not implementing the same principles. WTO as an organization has long been criticized by the developing countries and other protestors of globalization for the fact that globalization and WTO has not been able to serve the purposes of the least developed countries. The fact that WTO talks could not achieve consensus of the negotiators even on smaller issues led to the questioning of the existence and power of the organization and its relevance in the present scenario. However although the organization has been criticized for not being able to achieve consensus amongst the members the fact remains that it is the only organization where the developing countries have equal share in taking decisions. That the WTO has been able to achieve some consensus in Bali means that the organization is still relevant and this is the most heartening news. References Australian government department of foreign affairs and trade., 2015. World Trade Organization. [Online]. Available at < http://dfat.gov.au/international-relations/international-organisations/wto/Pages/world-trade-organization.aspx > [Accessed 2 May 2015]. Bergan, R., 2011. WTO fails the poorest – again. [Online]. Available at < http://www.theguardian.com/global-development/poverty-matters/2011/jul/29/wto-doha-fails-poorest-countries > [Accessed 2 May 2015]. Elliott, L., 2013. WTO faces existential crisis. [Online]. Available at < http://www.theguardian.com/business/economics-blog/2013/nov/26/wto-existential-crisis-bali-trade-agreement > [Accessed 2 May 2015]. European commission., 2014. Doha development agenda. [Online]. Available at < http://ec.europa.eu/trade/policy/eu-and-wto/doha-development-agenda/ > [Accessed 2 May 2015]. Gallagher, K. P., 2007. Understanding developing country resistance to the Doha round. Review of international political economy. 15(1). pp. 62-85. Hufbauer, G. and Schott, J., 2012. Will the WTO enjoy a bright future? [Online]. Available at < http://www.iccrf.org/sites/default/files/docs/2012/05/PIIE_Will%20the%20WTO%20Enjoy%20a%20Bright%20Future.pdf > [Accessed 2 May 2015]. Kanth, D. R., 2015. Trade ministers agree to wrap up Doha Round of talks by year-end. [Online]. Available at < http://www.livemint.com/Politics/L23ZQnrccsHq2L4LuEOaHM/Trade-ministers-agree-to-wrap-up-Doha-Round-of-talks-by-year.html > [Accessed 2 May 2015]. McClanahan, P., 2012. Doha round trade talks – explainer. [Online]. Available at < http://www.theguardian.com/global-development/2012/sep/03/doha-round-trade-talks-explainer > [Accessed 2 May 2015]. McClanahan, P., 2013. Why the WTO agreement in Bali has finally helped developing countries. [Online]. Available at < http://www.theguardian.com/global-development/poverty-matters/2013/dec/06/wto-agreement-bali-helped-developing-countries-india > [Accessed 2 May 2015]. Narlikar, A. Daunton, M. and Stern, R.M., 2012. The oxford handbook on the world trade organization. Oxford: Oxford University Press. Palmeter, D. and Mavroidis, P. C., 2004. Dispute Settlement in the World Trade Organization: Practice and Procedure. Cambridge: Cambridge University Press. The economist., 2013. Doha delivers. [Online]. Available at < http://www.economist.com/blogs/freeexchange/2013/12/world-trade-organisation > [Accessed 2 May 2015]. World Trade organization, 2013. Public stockholding for food security purposes. [Online]. Available at < https://mc9.wto.org/system/files/documents/w10_1.pdf > [Accessed 2 May 2015]. World trade organization, 2015. The Doha Round. [Online]. Available at < https://www.wto.org/english/tratop_e/dda_e/dda_e.htm > [Accessed 2 May 2015]. Part B: Question 6 Introduction Global or multinational enterprises are shaped by various external environmental factors. These factors comprises of ethical, social responsibility trading practices, legal aspects, political environment, technological aspects, etc. Commercialization and technological change plays a vital role in shaping traditional multinational enterprises. Multinational firms can be stated as innovators since they generate commercial ideas. Technological capabilities of a firm are solely responsible for facilitating their respective economic performance. Global market place is intensely competitive and firms need to incorporate best practices in order to handle efficiently environmental issues. This study will be centred towards assessing environmental issues which should be taken into consideration by multinational businesses. Political factors denote the degree of support exhibited by political authorities. This form of support is essential for organizations while operating across national borders. It is observed that trading practices is a critical element when it comes to doing business in other countries. On the other hand, legal factors of different regions also are an important component since it directly impacts business operations. In recent years, environmental issues are highly evident for global firms. Majority of multinational firms are engaged into reducing activities that have negative impacts on environment. The study shall even include some examples of real world organizations, effectively dealing with environmental issues. Discussion The growth of multinational enterprises has been magnificent since past few years. These firms aim at gaining maximum market share in global markets. Innovative strategies are adopted by global firms so as to survive in international markets. However while operating across borders certain environmental issues need to be taken into consideration for long term growth. Corporate interests of multinational firms can adversely affect environment. Environmental concern has rapidly increased with high rate of investment in context of developing world. Environmental management can be considered as an essential aspect of sustainable development. It can also be outlined as a business opportunity along with business responsibility. Multinational enterprises are focused on both these areas (Lockheed, 2004). OECD guidelines clearly demonstrate important parameters which should be focused on by multinational enterprises. These guidelines highlight environmental issues should be incorporated in business strategies of multinational firms. Organizations operating across borders should be well aligned with legal, administrative and regulatory frameworks of respective countries (Wall, Minocha and Rees, 2009). The main issues which arise are environmental degradation due to business activities, public safety and health, method of business conduction, etc. Environmental ethos affect legislative framework to a great extent. On the basis of environmental ethos, organizations are also witnessed to suffer loss of goodwill and anti-nature reputation. International market place is altered due to such factors (Das and Teng, 2009). Opportunities exist in global market place but to acquire them firms have to design proper strategies in term of interaction with external environment. International business environment can be viewed as combination of wide array of factors such as nations, markets, borders, etc. Environmental protection and compensation issues are responsible for shaping international corporate liability approach. Multinational businesses are often criticized for polluting, damaging, etc., by production, distribution or marketing department of firms. Environmental legislation inclined towards ethos, policy, environment and business can be stated as a norm to be followed by all global firms. Nations are often being influenced by external organizations to act, like scientific organizations, international agencies and private environmental groups (Nandi, 2010). European politics have been largely influenced by Greenpeace, etc. On the other hand, United States is not able to minimize influential power of World Wildlife Fund, Sierra Club, etc. These organizations force political authorities of countries to define strict regulations in order to protect environmental conditions and legal framework (Voien, 2000). Multinational firms expanding their business operations across various regions need to assess region specific environmental norms and legal framework. European countries are highly concerned about environmental conditions and firms have to work in specific order so as to address such environmental norms. There are even lawsuits filed against those multinational firms which are not being able to align their business operations with environmental standards. Global firms cannot escape the factor of environmental degradation (Allen, 2006). In current scenario, businesses not only have to be focused on consumer behaviour in global markets but also needs to be cautious about country specific regulatory framework. Environmental degradation usually emerges from legitimate and diverse sources. Ecosystem and technology if not balanced well leads to fundamental tension for business organizations. Good business demands have to recognize the aspect of creating less impact on environment. Corporate recognition is associated with creating less impact on environment through business operations. Severe impacts of pollution can be well addressed by global operations since it is closely knitted with business operations. Multinational enterprises are actively indulged into trading with other countries. Trade barriers play an active role in context of regulating business operations. This form of barrier is observed when domestic firms also need to be promoted along with entry of foreign companies. There are companies which are dependent on cross border operations. However increase in trade barriers results into restricted flow of operations from one country to another. Global firms cannot execute its operations efficiently due to such barriers. These barriers can be a medium to regulate amount of exports and imports, but has negative impact on multinational firms. Global firms have to assess such trade barriers before planning for expansion into international markets. Impact of trade barriers is magnificent on international businesses. Trade barriers have their significant impact on developing countries. These barriers prevent countries or rather companies possessing certain expertise to enter into a particular geographical segment. Trade tariffs eventually leads to higher percentage of labour intensive goods and lower percentage mainly for raw commodities. Trade policies set forth in the rich countries are witnessed to have an impact on developing regions. Trade barriers possess major negative impact in the form of limited product range and thereby influencing customers to choose from such limited range and pay relatively higher prices. International firms are not able to explore market opportunities due to such barriers. Multinational firms have to take into account barriers imposed by governments before indulging into export or import with other countries. Free trade is highly obstructed by such policies on trade barriers. Firms should take into consideration excise duty and tax regulation, so as to ensure that their respective business operations are not held responsible for any form of violation of rules. License has to be acquired by multinational firms firstly so as to facilitate smooth execution of exports and imports, along with eliminating risk of penalty (MacGillivray, Sabapathy and Zadek, 2003). There have been incidents where multinational firms had to stop their operations due to violation of trade policies. Business scenario tends to become more complicated with fluctuating restrictions and policies imposed by particular regions. Developing countries and developed world have specific interests associated with trade barriers. For instance, industrial countries are observed to maintain low tariff rates since they are less sensitive towards manufactured imports. On the contrary, these countries have higher tariff rates in case of agricultural products due to higher level of sensitivity. The average tariff for agricultural products in these countries is nine times more than that of manufactured goods. Developing countries impose tariff rates on industrial products which is four times more than that of developed countries. Agricultural sector in these countries have relatively higher tariff rates. These environmental factors also need to be taken into consideration by international business (Dlabay and Scott, 2010). Global firms can only implement effective strategies if it can analyze well trade conditions prevalent in foreign countries. International business needs to know total cost of products being imported or exported. Trade barriers and environmental conditions are two aspects which need to be focused on by multinational enterprises. Multinational enterprises also play an active role in economic relations and economic conditions of Member countries. These firms benefit host as well as home country in various forms like utilization of human resources, capital and technology. Competition can be stated as another environmental issue. It relates to exercising operations in accordance with laws and trade conditions of member countries (Hamilton and Webster, 2012). These firms should be able to assess competition rules and policies while operating in member countries. In decision making process, multinational firms should assess environmental policies of specific countries. They must include in decision framework, consequences of business actions on environmental health, possible impact on natural resources and environmental health risks generated from products, waste disposal, transportation, etc (Schaffer, Agusti and Dhooge, 2014). Multinational firms shall always work in collaboration with competent authorities in order to analyze environmental health related issues. However these issues are mainly centred towards depletion of natural resources or environmental pollution. Manufacturing firms are held responsible for their wide scale of operations that causes pollution. On the other hand, waste disposal is a common issue for all business firms. It can be stated that environmental regulatory framework might not be strong in one region but it may be of high importance in other location. This changing aspect appears to be an issue for multinational firms. The percentage of hazardous waste has increased in recent years and this has resulted into strict regulations on multinational businesses (More and Webley, 2003). Rich nations always try to dump wastage on poor countries, and this has led to growth of external agencies. Chemical industry has faced challenges in context of ozone depletion caused by CFCs. Exports being done to developing countries is scrutinized at times without any prior information from potential buyers. Montreal Protocol was designed in order to manage efficiently environmental degradation. Global firms have to be environmentally responsible so as to eliminate reasons behind environmental degradation (Ulwick, 2005). Environmental strategies were not given much importance by international firms in previous years. However the focus has now shifted where multinational businesses are now focused on environmental standards more rather than product marketing challenges. Waste treatment technologies are being adopted by countries such as United States and European countries, and this in turn is driving attention of companies towards such issues. Global warming still remains an alarming issue across the globe. It is clearly evident that increasing temperature of atmosphere tends to disrupt ecological balance. There are certain norms developed by government which regulates the level of air pollution. To be more precise, it is a mechanism through which pollution level can be controlled so that it has least possible impact on external environment (Neil, 2010). This issue needs to be assessed by global firms during expanding their operations to international markets. Political risks are also associated with such norms since it might lead to lack of support from political end. On the other hand, economic benefits to be acquired by global firms shall also be restricted. Environmental issues are not only confined to hazardous implications of business operations but also encompass consumer behaviour in specific locations. Social aspects in European countries in terms of flexibility will be distinct in comparison to Asian countries. Asian people shall be more price-conscious whereas European culture is inclined towards quality (Ghauri and Usunier, 2003). All these factors need to be assessed well while firms go global. Conclusion This study highlights various environmental issues that should be assessed well by multinational firms. Internationalization has enabled companies to operate across national borders and generate higher profit margins. Companies eventually identified opportunities in global market place and this resulted into growth of multinational firms. These firms are either focused on adapting market trends of specific countries or standardizing business operations in these regions. A proper assessment of multiple factors should be taken into account by multinational firms to sustain market position for longer period of time. Environmental issues comprises of impact of business operations on environmental sustainability. It has been observed that industries such as chemical industry, manufacturing firms, etc., have drastic impact on external environment of business. Business operations account for increased percentage of pollution and this is a major cause behind environmental degradation. Apart from pollution, natural resources are also depleting across the globe and this is causing government to impose restriction on business expansion. Trade barriers are emerging across national borders and preventing foreign companies to enhance their degree of exports or imports. The main aspect of environmental issues is extensive environment disruption. Global firms needs to be cautious about environmental standards before entering into other countries. References Allen, M., 2006. Analysing the organizational environment. UK: Select Knowledge Limited. Das, T. K. and Teng, B., 2009. Strategic decision processes and cognitive biases. Journal of Management Studies, 35(2), pp. 564-597. Dlabay, L. and Scott, J., 2010. International business. London: Cengage Learning. Ghauri, P. N. and Usunier, J. C., 2003. International business negotiations. Oxford: Emerald Group Publishing. Hamilton, L. and Webster, P., 2012. The international business environment. Oxford: Oxford University Press. Lockheed, M., 2004. Ethics and business conduct – how the ethics process works at lockheed martin. Bethesda: MD. 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