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International Business ††††† Jitendra K. Gajera (M.A., M.Phil) & Dinesh R. Chavda (M.Com, M.Phil, G-slet) ☆ II ARTICLE BY Jitendra K. Gajera & Dinesh R. Chavda © Kinjal J. Gajera First edition: 2013 Prize: 150 Copy: 500 Type & Setting: Dinesh R. Chavda At. - Kerala, Ta-Dist Junagadh Pin: 362310 ISBN: 978-81-925441-8-2 Publisor: Jitendra K. Gajera, At. - Makhiyala, Ta - Dist Junagadh Pin: 362014 Printed by: Vaibhav Printing Press – Makhiyala III Dedication “Supreme sacred respected father and my mother stages” IV PREFACE The overarching logic of the book is intuitive organized around answers to the what, where, why, and how of international business. WHAT ? Section one introduces what is international business and who has an interest in it. Students will sift through the globalization debate and understanding the impact of ethics on global businesses. Additionally, students will explore the evolution of international trade from past to present, with a focus on how firms and professionals can better understand today’s complex global business arena by understanding the impact of political and legal factors. The section concludes with a chapter on understanding how cultures are defined and the impact on business interactions and practices with tangible tips for negotiating across cultures. WHERE ? Section two develops student knowledge about key facets of the global business environment and the key elements of trade and cooperation between nations and global organizations. Today, with increasing numbers of companies of all sizes operating internationally, no business or country can remain an island. Rather, the interconnections between countries, businesses, and institutions are inextricable. Even how we define the world is changing. No longer classified into simple and neat categories, the rapid changes within countries are redefining how global businesses think about developed, developing, and emerging markets. This section addresses the evolving nature of country classifications and helps develop a student’s ability to comprehend the rationale of how to analyze a specific country’s stage of development rather than just V memorize which countries are emerging. Further, this section provides a unique approach and takes country-related “deep dives” that give greater detail about specific key countries. This section ends with chapters devoted to providing accessible discussions of complex financial concepts within the global monetary system and the global capital markets, including currency and global venture capital. WHY ? Section three develops knowledge about how a student or organization can exploit opportunities in that global environment. Students will learn about the fundamental choices they have in terms of international expansion and why such choices matter. Using different models of internationalization and global market assessment, they will also learn why international business opportunities vary in their promise and complexity. In this section, students also do a deeper dive into the topics of exporting, importing, and global sourcing since these are likely to be the first forms of international business a student will encounter. HOW ? Section four is devoted to strategy and entrepreneurship in a flattening world and how key organizational activities can be managed for global effectiveness. This part of the book shifts gears from the perspective of existing businesses to that of new business possibilities. Our objective is to highlight strategy, entrepreneurship, and strategic and entrepreneurial opportunities in a flat and flattening world. Beyond the basics of international strategy and entrepreneurship, students will be exposed to international human resource management so that they can better understand the global war for talent. They will also develop good fundamental knowledge of international research and development, marketing, distribution, finance, and accounting. VI INTERNATIONAL BUSINESS INDEX SR. CHAPTER NAME PAGE NO NO 1 International Monetary Fund 1 2 World Bank 28 3 World Trade Organization 52 4 International Finance 73 Corporation 5 International Institution 87 6 SAARC 104 7 ASEAN 121 8 NAFTA 161 Bibliography VII CHAPTER 1 International Monetary Fund International Monetary Fund Official logo for the IMF Abbreviation IMF FMI Formation Formally December 27, 1945 (67 years ago) Actually March 1, 1947 (66 years ago) Type International Economic Organization Headquarters Washington, D.C., United States VIII Membership 29 countries (founding); 188 countries (to date) Official languages English, French, and Spanish Managing Christine Lagarde Director Main organ Board of Governors Website www.imf.org The International Monetary Fund ( IMF ) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the reconstruction of the world’s international payment system post-World War II . Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries. The IMF describes itself as “an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The organization's stated objectives are to promote international economic cooperation, international trade , employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs. Its headquarters are in Washington, D.C. , United States . IX 1.1 History of International Monetary Fund (IMF) The International Monetary Fund was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the earlier Great Depression , countries sharply raised barriers to foreign trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade. This breakdown in international monetary cooperation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire in the United States, to discuss framework for post- World War II international economic cooperation. The participating countries were concerned with the rebuilding of Europe and the global economic system after the war. There were two views on the role the IMF should assume as a global economic institution. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped governments and to act as the US government had during the New Deal in X response to World War II. American delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time. Most of White’s plan was incorporated into the final acts adopted at Bretton Woods. The International Monetary Fund formally came into existence on December 27, 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the Fund had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it. The IMF was one of the key organizations of the international economic system; its design allowed the system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism . The IMF’s influence in the global economy steadily increased as it accumulated more members. The increase reflected in particular the attainment of political independence by many African countries and more recently the 1991 dissolution of the Soviet Union because most countries in the Soviet sphere of influence did not join the IMF. The Bretton Woods system prevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold . This is known as the Nixon Shock . As of January 2012, the largest borrowers from the fund in order are Greece , Portugal , Ireland , Romania and Ukraine 1.2 Member countries of IMF XI IMF member states The 188 members of the IMF include 187 members of the UN and the Republic of Kosovo . All members of the IMF are also International Bank for Reconstruction and Development (IBRD) members and vice versa. Former members are Cuba (which left in 1964) and the Republic of China , which was ejected from the UN in 1980 after losing the support of then U.S. President Jimmy Carter and was replaced by the People's Republic of China . However, "Taiwan Province of China" is still listed in the official IMF indices. Apart from Cuba, the other UN states that do not belong to the IMF are North Korea , Andorra , Monaco , Liechtenstein , and Nauru . Also non-members are Cook Islands , Niue , Vatican City , Palestine and the states with limited recognition (other than Kosovo ). The former Czechoslovakia was expelled in 1954 for "failing to provide required data" and was readmitted