International Organisations In International Business Environment: IMF, WB - Coursework Example

Topic 1 International Organisations In International Business Environment: IMF, WB The International Monetary Fund (IMF) and the World Bank were constituted in 1944 to achieve different but complementary ends. That was the era when the world economy was tattering following the Great Depression of the 1930s and the devastation of World War II. The IMF was tasked to help governments overcome balance-of-payments while the World Bank’s brief was to promote post-war reconstruction. Despite the lofty ideals and bagful of cash, the two institutions somehow failed to achieve their separate objectives. In fact, former head of IMF Horst Koehler had once admitted that fund was not attentive enough to the changes in global financial markets, and their repercussions on exchange rate systems and domestic financial sectors. The World Bank is criticised for its supposed failure to take proper account of human and environmental needs in its projects The IMF’s experience in Africa had even worse results. During the late 1970, the African countries approached the IMF to help them wriggle out of the huge debt and inflation crisis. But, the Structural Adjustment Programmes (SAP)— the panacea suggested by the IMF to their crisis —however did exactly the opposite. The SAP are the fiscal conditions the World Bank and IMF slaps on the developing countries before releasing new loans to them, or allowing lower interest rates on existing loans. These conditions are enforced to ensure that the money lent is spent in line with the overall loan objectives. The idea is to enable the borrower country to make debt repayments, and thus reducing the fiscal imbalance. This, the borrowing country has to do by devaluing their currencies against the dollar; removing price controls mechanisms and the state subsidies, besides lifting import and export restrictions; and opting for restricted budgets. For example, subsidies were cancelled in the name of “streamlining the public expenditure, while a restrictive monetary policy sent the interest rates soaring along with the escalating inflationary trend thanks to the currency devaluation, together with simultaneous removal of price controls measures. This created high-interest, low-investment conditions, which restricted new employment opportunities. The SAP, in fact, introduced deep cuts in programmes like education, health and social care, besides removing the subsidies. Naturally, the poor were the worst hit. Not surprisingly, today Latin American countries like Mexico and Brazil have been found refusing loans. In fact, a number of the countries that preferred to borrow from the IMF were left with even worse per capita wealth because of the immense pressure of loans. For one, Nicaragua despite bagging over $637 million as World Bank aid saw it’s per capita gross domestic product plummeting to $875 in 1995 against $1,752 that it had in 1965. Not without reasons, the per capita income has stagnated in Latin America, while it has gone south in Africa after the two regions were put through the structural adjustment experience. Besides, US academicians Sanjay G. Reddy and Thomas W. Pogge have raised serious questions about the methodology and the yardsticks the World Bank uses while calculating the poverty levels worldwide. They argue that the Bank uses “an arbitrary international poverty line unrelated to any clear conception of what poverty is, employs a misleading and inaccurate measure of purchasing power ‘equivalence’ that creates serious and irreparable difficulties for international and inter-temporal comparisons of income poverty, and extrapolates incorrectly from limited data and thereby creates an appearance of precision that masks the high probable error of its estimates.” (www.socialanalysis.org,) They claim that with such an erroneous methodology at hand, the World Bank may not be able to know how many poor people there are in the world, how poor they are and where they live. Besides, the best examples of doing wonders without the World Bank are Hong Kong and Singapore, which made it possible with tax reforms, opening of markets, and abolishing trade restrictions. But, Both the World Bank and the IMF surely cannot be written off as irrelevant, as they still have the residual role of being lenders of last resort in crises, especially to poor countries. But the two institutions are now a pale shadow of what they used to be. There are, however, some serious discussions taking place on the future of the two institutions. Allen Meltzer of Carnegie Mellon University and Jeffrey Sachs of Harvard University have suggested that the World Bank should restrict its focus to poverty alleviation and vacate its role as a Bank, where capital markets can better take care. It is, however, difficult to apportion either the success or failure of the World Bank and the IMF, policies between the two institutions and the country concerned, as it has to work through the country government and its institutions. Here, good policies may become victims of poor implementation. In this context, one of World Bank’s own study came with a revelation that wherever there was good governance backed up by strong institutional infrastructure, the results have been good. Over the years, the Bank has made two significant departures in its policy of lending: it changed its policy of lending to government and public sector and concentrated on private sector, and it changed its approach from a project-based lending to sector based lending, ostensibly to develop institutional capacity. It is time the Bank does some more introspection and reforms its strategies. Similarly, “the IMF needs to tailor its approach to the needs of individual members, besides having some common themes for low-income countries. The most effective way that the Fund can help low-income countries achieve their goals is by focusing on policies and economic institutions that are critical to economic and financial stability and growth. For example, one thing the IMF can do is helping countries manage their macroeconomic policies in ways that maximise their capacity to absorb aid and debt relief. These are in fact some of the elements of the IMF’s Medium-Term Strategy for low-income countries” (Excerpts from the Changing Role of the IMF in Asia and the Global Economy, Speech by Rodrigo de Rato, Managing Director, International Monetary Fund, At the National Press Club, Canberra, Australia, June 13, 2006). Ever since their constitution, IMF and the World Bank have been working differently yet complimentary. Post-World War II, IMF helped governments overcome balance-of-payments and World Bank promoted post-war reconstruction. However big the hype tat surrounded the two institutions, it is largely seen that both failed adequately. Of the worst performances, IMF’s Africa experience is counted as the foremost. IMF has largely been seen as an institution that lets a country further down after it borrows from the same. A number of the countries borrowed from the IMF were left with even worse per capita wealth. This was because of pressure of loans. Countries that could pull off in a better way without IMF and/ or Word Bank are Hong Kong and Singapore, which enforced tax reforms, opening of markets, and abolishing of trade restrictions to usher into a booming economy. Bibliography Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235 Ali Idrissou-Toure, Debt Cancellation No Panacea for Benin, Inter Press Service, July 7, 2005 James M. Broughton and K. Sarwar Lateef, eds., Fifty Years After Bretton Woods, International Monetary Fund and World Bank Group, 1995, p. 3. Naya and McCleery, "Relevance of Asian Development Experiences to African Problems," p. 3. The World Bank and Economic Growth: 50 Years of Failure," Heritage Foundation Backgrounder No. 1082, May 16, 1996. David Driscoll, What Is the IMF? (Washington, D.C.: The International Monetary Fund, revised May 1995). Topic 2 E-Commerce Background in International Markets & Its Importance to the Businesses Electronic commerce (e-commerce) is the tool that helps the organisations conduct business thorough the electronic media, including the Internet. It includes buying, selling and transacting in virtual space through Web storefronts. The business processes are set in motion through a series of applications technologies that maintain a strategic link between consumers, product, businesses, and communities. The biggest advantage with the E-commerce is that it executes transactions with speed and saves valuable company time. Besides reducing the operational costs, the e-commerce techniques allow the organisation to widen its reach and leverage target audiences spread across the globe. In today’s dynamic business environment, e-commerce is a potent tool for gaining competitive advantage because it provides for a system to connect with the customer feedback to improve your products and services. According to the Micro-economic theory, e-commerce methodology allows suppliers to set prices according to each customer’s willingness to pay. For instance, Staples.com charges different prices for different markets by asking customers to enter their zip codes before they can obtain prices. This provides a definite edge in competitive business environment, as the value of goods is different for different customers. The support community developed through the e- commerce initiative delivers a number of key business benefits, including the ability to decrease support costs, improve customer satisfaction, build customer loyalty and thus increase sales. In fact, companies have reported savings of more than $500,000 annually from their online support community efforts. (“Increasing Customer Satisfaction and Reducing Costs through an Online Technical Support Community," SSPA Horizons 2002 World Conference, Savannah, October 2, 2001.) According to the network externalities theory, E-commerce helps the organisations to gain first mover advantage and thus can create barriers to entry (Kegan 1999; Siebel 1999; Day and Fein 2000). Similarly, the increased market efficiency theory stipulates that the ability to compare large amounts of information (through agent services) using the Internet will lead to more efficient markets with transparency and lower prices. The e-commerce is also a potent tool to expand the market reach and marketing coverage because it fosters seamless information flow, and helps faster decision-making and smoother customer service solutions. Amazon.com and eBay have been able to turn over their inventory faster than traditional stores in a global marketing scenario and thus successfully compete on a lover gross margin (Desmet, Francis et al. 2000). They hold no inventory and the products are shipped directly from a computer distributor to its customers. This allows them to save inventory-holding costs. With $6.92 billion in sales in 2004, Amazon ranked at the top of Internet Retailer's annual top 400 lists. Similarly, EBAY, the online auction house, has netted stock market value of over $25.6 billion (New York Times). E-commerce thus has a distinct advantage on geography and product variety. The organisations practicing e-commerce have gained competitive advantage by offering a responsive, user-friendly purchasing experience through personalised web sites, purchase suggestions, and personalised special offers, while substituting for the face-to-face human interaction found at a traditional point of sale. This, these organisations achieve by using new tools of e-commerce technologies to expand the markets in which they compete, to poach and retain customers by designing processes and products that suits their needs, and to constantly restructure and improve their delivery mechanism. In fact, the e-commerce technology and tools have been cohesively developed to help the organisation rapidly capture opportunities and deliver competitive advantage. According to the Department of Commerce’s ‘Digital Economy 2000’ report, in 2000 the number of people with Internet access reached an estimated 304 million worldwide, an increase of almost 78 percent over 1999 (Betts 2000). This is a clear indicator that the number of Internet users is swelling every year, and the business organisations are willing to lap up the huge potential that these users together hold. E-commerce naturally becomes the key medium to tap this pool. Internet hardly offer entry barrier for new competitors, and the companies can embrace into e-commerce easily because they do not need sales forces and huge capital investments as they do in offline markets. According to increased market efficiency theory, the ability to compare large amounts of information (through agent services) using the Internet will lead to more efficient markets with transparent and lower prices. The Internet also brings many more companies into competition with one another by expanding geographic markets (Porter 2001). Besides, in the Internet market, a complete search of product is possible at virtually no cost. This gives the e commerce a competitive advantage. Bibliography Betts, M. “It's Official: There really is a 'Digital Economy',” Computerworld, June 2000. De Figueiredo, J.M. “Finding Sustainable Profitability in Electronic Commerce,” Sloan Management Review, Summer 2000, pp. 41-52. Gosh, S. “Making Business Sense of the Internet,” Harvard Business Review, March 1998, pp. 126-135. Cyveillance (2000). Internet Exceeds 2 Billion Pages. 2001. Hagel III, J. and A. G. Amstrong (1997). Net Markets: Expanding markets through Virtual Communities. Boston, Harward Business School Press. Cyveillance (2000). Internet Exceeds 2 Billion Pages. 2001. Hagel III, J. and A. G. Amstrong (1997). Net Markets: Expanding markets through Virtual Communities. Boston, Harward Business School Press Dave Chaffey, E-Business and E-Commerce Management Topic 3: Corporate Social Responsibility Concept in International Business (732 words including bibliography) Corporate Social Responsibility (CSR), according to World Business Council for Sustainable Development, is the continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as well as of the local community and society at large. (CSR: Meeting Changing Expectations, 1999) Corporate Social Responsibility means ethical economic success, with respect for people, communities, and the environment. A successful business has to have good economic performance, and also responsible behaviour. It is the voluntary commitment made by every company to integrate social and environmental concerns in corporate economic practices beyond immediate economic interest, in order to address the needs of all who play a role in a company's life. The benefits of CSR to businesses vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones. Besides, Corporations, especially those eying high profits, can actually escape high level of taxations and achieve a level playing field even in an alien environment thanks to the goodwill they can generate through substantive investments in environment and ethical spheres. These companies can actually succeed in garnering tax benefits if their decisions of ethical investments in areas like health and safety, diversity or the environment are found substantive and impressive by the government authorities. Such initiatives also help the organisations create a brand value for their products differentiation, besides handing them over the 'X Factors’ which would make them stand tall in highly competitive marketplaces. Business service organisations can benefit too from building a reputation for integrity and best practice. The gradually increasing awareness about CSR practices also helps the companies who practice it create a committed consumers base. Concept of CSR has been evolving for decades. As early as the 1930s, for example, Wendell L. Willkie (February 18, 1892 – October 8, 1944) “ helped educate the businessmen to a new sense of social responsibility. (Cheit, 1964,p.157, citing historian William Leuchtenburg). (FYI-- Willkie was a lawyer in the United States and the Republican nominee for the 1940 presidential election.) However, the modern era of social responsibility may be marked by Howard R. Bowen’s 1953 publication of Social Responsibilities of the Businessmen, considered by many to be the first definitive book on the subject. The processing of CSR is done by the organisation by shifting their focus beyond profits or dividends, and by executing plans with social and environmental goals. A company with an effective CSR record means that beyond profit maximisation, it has a wider commitment towards building a better society in general. In fact, a number of consumers have become increasingly sensitive to the CSR performance of the companies. The CSR goes beyond charity, and requires the organisation to balance the needs of all stakeholders with its need to make a profit and reward shareholders adequately. (en.wikipedia.org/wiki/Corporate_social_responsibility) McDonald & Puxty (1979) maintain that companies are no longer the instruments of shareholders alone but exist within society and so therefore have responsibilities to that society, and that there is therefore a shift towards the greater accountability of companies to all participants. Although, the CSR programmes are often criticised for distracting the public from the core issues, there are a number of companies that have made CSR a hugely successful tool to make the world a better place. For one, Salesforce.com - a global on-demand software services company –gives 1% of its profit (in the form of products), 1% of its employees' time, and 1% of its equity to charities and other non-profit organisations. So far, they have succeeded in rebuilding of the tsunami-ravaged schools in Sri Lanka, fund-raising for arthritis charities and supporting projects that help deprived children start up their own companies. (news.bbc.co.uk/1/hi/business/6102108.stm) Similarly, UK business Gallaher, the world's fifth-largest cigarette-maker has a commitment against purchasing tobacco from any developing world producers that use child labour, besides having an uncompromising stand against sales to minors. The modern concept of Corporate Social Responsibility (CSR) is evolving gradually despite several hindrances. Driving forces behind this evolution is pressure from various stakeholders (Importers, Environmentalists) while slow progress is attributed to lack of Good Governance, absence of strong labour unions, consumer forums and above all lack of understanding by business houses, specifically non-exporting ones, that CSR is not charity but is rather an instrumental Public Relations investment. The modern concept of Corporate Social Responsibility (CSR) is evolving gradually despite several hindrances. Driving forces behind this evolution is pressure from various stakeholders (Importers, Environmentalists) while slow progress is attributed to lack of Good Governance. But a strategic, top-to-bottom commitment to being socially responsible and ethical in the manufacture, distribution, marketing and sales of products, popularly referred to as “Corporate Social Responsibility” is fast becoming an inescapable fact in the global corporate environment. Consistent with that approach is a growing corporate concern for the well-being of society in general and local communities in particular. It is not hard to conclude that an expanding core of educated, welladjusted, productive people in one’s future customer base will have positive impacts on any company’s business prospects. Bibliography Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause by Philip Kotler , Nancy Lee Harvard Business Review on Corporate Responsibility (Harvard Business Review Paperback Series) Topic 4 Regional Trading agreements (words 836 including bibliography) Regional trade agreements (RTAs) are the preferential intra- trade treaties reached between countries. Most industrial and developing countries in the world are members of such regional agreements, and many belong to more than one. In fact, more than one-third of world trade takes place within such agreements. The RTAs, however, are often considered second best policy because the optimum policy of worldwide free trade is not always possible. A group of countries constitute RTA by joining hands to establish various forums of economic cooperation to reduce intra-trade barriers and secure exclusive regulatory framework for mutual services trade. The Doha Declaration drawn up by WTO ministers in late 2001 acknowledged that the Regional Trading Agreements (RTA) would play the crucial role of promoting the liberalisation and expansion of trade, and in fostering development. It also gives them a superior bargaining power. For example, the EU has probably been able to secure more in some international negotiations than could its member states acting independently. In fact a number of thinkers including Baldwin (1997), Ethier (1998) and Lawrence (1999) are convinced that the regionalism was more an advantage than otherwise. They have argued that such trade treaties would only complement multilateralism, and would foster free trade. Baldwin argues that NAFTA triggered off pressures for such agreements as a kind of domino effect. According to him, such liberalisation facilitates pro-trade and strengthens the exporters. The questions mark clearly is on if the RTAs are building blocks or the stumbling blocks towards achieving an ideal world order. According to one view, with intra-trade potentials being the cornerstone of such treaties, the RTAs can even be discriminatory in nature because they appears to violate the MFN principle, a keystone of the multilateral trading system. The MFN rule meant that whether a country is small or big, weak or powerful, poor or rich, its products would face the same barriers that the products of any other country would face while entering a particular export market. The MFN rule also lays down the framework for a rule based multilateral trading regime. Deviation from this rule takes place when two or more countries offer preferential treatment (such as low tariff rates) to each other’s products. This movement away from the MFN rule is recognised in GATT/WTO that provides for the Regional Trading Agreements (RTAs), which is a discriminatory trade practice. However, the exception is fast becoming the rule of international trade. Today, more and more countries are deviating from the MFN principle and entering into RTAs. Besides, they also have the effect of segmenting markets and impeding the free flow of goods, services and investments. The RTA’s also dish out a distinct discriminatory trade regime to non-members, besides creating inconsistencies in the rules and procedures among RTAs themselves, and between RTAs and the multilateral framework. This is because the RTAs are not regulated multilaterally, and therefore may cause distortion of regional markets, regulatory confusion, and severe implementation problems, especially where there are overlapping RTAs. The proliferation of RTAs could force a country to face simultaneous existence of differing trade rules applying to different RTA partners. In such regimes, the trader community stands to lose, as the trade flow is obstructed because of the multiple sets of trade rules. But regional agreements are also found making it difficult for the countries, which are located outside the union to trade with those inside, and thus may prevent further opening up of markets, ultimately restricting growth prospects for all. On the other hand, the broad-based multilateral agreements, with more players and more sectors on board, will offer greater potential for mutual gain than limited bilateral or regional deals. In fact, according to Alan Winters, the RTAs are like street gangs: "you may not like them, but if they are in your neighbourhood, it is safer to be in one". The focus unmistakably is on the negative effects of growing regionalism, which may divert attention from the multilateral trading system where more players and more sectors are operating together for mutual gain than limited bilateral or regional deals. It is not yet possible to conclusively determine whether regionalism encourages or discourages evolution towards globally freer trade, and there is no reason to expect a single, simple answer. (Lawrence, Winters 1996) There can be little doubt that the main economic advantages to participants in regional trade agreements would be even greater if the liberalisation were carried out on a wider, multilateral scale. But, RTAs surely are the second-best solution. Bibliography Winters, L.A. (1996), "Regionalism versus Multilateralism", Policy Research Working Paper No. 1687, The World Bank, Washington D.C. Winters, L.A. (1998), "Regionalism and the Next Round", in J. Schott (ed.), Launching New Global Trade Talks – An Action Agenda, Special Report 12, Institute for International Economics, Washington D.C. (September). Bibliography "Proliferation of regional trade agreements - Implications for multilateral regime" WTO Website Abouyoub, Hasan. 1998. Personal communication at the World Bank conference on “Regionalism and Development.” Geneva (May). 1994. “The EC and Protection: The Political Economy.” European Economic Review 38: 596–603. Topic 5 Effective Supply Chain (773 words including bibliography) A Supply chain is defined as a set of three or more companies directly linked by one or more of the upstream and downstream flow of products, services, finances, and information from a source to a customer. It is an operational strategy that enables the firms to outperform the competitors by quickly synchronising cycles of demand, supply, and product, besides ensuring unprecedented lead times, swift decisions, while manufacturing products with high velocity and handling the pent-up demands. The practice has assumed crucial significance in view of today’s rapidly and dynamically changing global business scenario where a number of factors like decreasing tariffs and reduction of trade barriers along with improved transportation and communication systems have opened floodgates of opportunities for global companies. Simultaneously, it has also resulted in proliferation of choices for consumers and a need for the firms to offer greater quality at a lower cost to remain competitive. By applying on demand principles, IBM has gained competitive advantage thanks to its supply chain. The purpose of supply chain management is to improve customer value and satisfaction. As a management philosophy, it has the following characteristics— A system approach to viewing the channel as a whole, and to managing the total flow of goods inventory from the supplier to the ultimate customer, A strategic orientation towards cooperative efforts to synchronise and converge intra-firm and inter-firm operational and strategic capabilities into a unified whole, and A customer focus to create unique and individualised sources of customer value, leading to customer satisfaction. The consequences of the Supply Chain Management are improved customer value and satisfaction and profitability to achieve differential advantage. The IBM success story could be an explicit example of how it could enhance its competitive position by effectively collaborating with supply chain partners. In fact, the IBM scripted this success story in 2002 by redesigning supply chain systems that helped it ensure best customer services together with having competitive edge in international markets. By transforming its own supply chain, IBM has succeeded not only in cutting costs (though it saved $5.6 billion in 2002 alone) but ultimately to increase customer satisfaction in the hope of raising revenue and market share. Besides, thanks to effective supply chain management, IBM has succeeded in cutting inventory storage time and procurement cycle time by about half, and thus ensured delivering products to customers faster. The benefits that IBM bagged include higher revenues along with lower costs, greater market share, a more defensible market position, lower inventories and less waste, help in getting better products to market faster, and above all, greater customer loyalty. Earlier in February 1998 as well, Software giant IBM had redesigned their supply chain system by integrating the XML-based procurement system with the Enterprise Resource Planning (ERP) systems. This had helped the IBM to build a client's enterprise resource planning system that led to automate processes for end-to-end procurements In the global perspective, collaboration is absolutely mandatory to reach a new level of operational excellence, and for producing hybrid and cost-effective products and services and deliver them to multiple channels. The consumer is the king in the modern global business scenario. And, providing best customer services in international markets naturally becomes a sure ticket for creating value for the company, satisfying customer, and achieving distinct competitive advantage. The focus of the modern Supply Chain Management (SCM) has been on optimising the delivery mechanism to achieve customer’s satisfaction by getting the right goods and services to where they are needed at the right time, in the proper quantity and at acceptable cost. For optimal performance and improved competitiveness, this requires constant feedback from, and coordination with every link in the supply chain. And, if executed properly with partners, these strategies will open up competitive advantage on a global business landscape. The structuring / redesigning of the SCM is also required to improve the processes of understanding the demand patterns, service level requirements, and to ensure delivery deadlines. Since the factors are highly variable in nature, and this supply chain delivery mechanism is to be made flexible to ensure quality customer services. Similarly, Companies like Wal-Mart, Dell, and Procter & Gamble have a razor-sharp supply chain characterized by end-to-end connectivity and collaborative design, manufacturing, planning, forecasting and replenishment. . Bibliography http://domino.research.ibm.com/odis/odis.nsf/pages/solution.01.html Supply chain management, John T. Mentzer Albend, Jules & Gill, Penny (1999) supply chain success stories, Supply Chain Management Reviews Byrne, Patric and Markham, William (1991) Improving quality and productivity in logistic process: achieving customer’s satisfaction breakthrough Supply chain management, John T. Mentzer Albend, Jules & Gill, Penny (1999) supply chain success stories, Supply Chain Management Reviews (http://domino.research.ibm.com/odis/odis.nsf/pages/solution.01.html) Read More