INTERNATIONAL BUSINESS

ASSIGNMENT # 2
August 2020

Name: Ganesh Rathod

Roll Number: MBA/05/037

Case: Government Intervention - Spotlight on China and Germany

 1.What are the differences between Germany’s approach and China’s approach to facilitate domestic
industries?

China’s approach Germany’s approach

1. Socialist Market Economy: Model is based on 1. Social Market Economy: Model combining a free
predominance of public ownership and state owned market capitalist economic system alongside social
enterprises within the market economy. policies that establish fair competition within market
2. Most of the important strategic sectors such as as well as a welfare state.
electricity, rare earth metals, oil, etc. are controlled by 2. The social market (Germany) contains central
state. elements of a free market economy such as private
3. They encourage businesses to go for joint ventures property, free foreign trade, exchange of goods and
instead of wholly owned subsidiaries so as to create job free formation of prices.
opportunities. 3. In contrast to the situation in a free market
4. They provide domestic players with government economy, the state is not passive and actively
support in terms of subsidies and cheap loans, taxes implements regulative measures in economy.
and quotas, prioritizing domestic manufacturing. Even 4. Government work closely with industry in order
the foreign companies which invests in future technology to help them achieve technological and financial
like clean power technology, etc. gets government goals. Germany is more open to foreign players as
support. opposed to China.
5. Political ideology supports more of government 5. Political ideology supports free trade to the
intervention to stimulate economy than free trade. Several extent that it promotes competition which
restrictions like restrictions on internet use, etc. are direct eventually will help economy. System is created by
impact of political ideology. freedom and responsibility.
2. In terms of the WTO rules, do they violate the rules of fair trade or not?

Most WTO cases against china fall into three categories as per WTO Disputes:
1.Providing illegal subsidies – As China wants to be an exporting country – Through discounts, tax breaks,
cheap bank loans which are illegal under global trade rules.
2.Discriminating against foreign goods – To prioritize domestic manufacturing – Making foreign players
buy certain amount of parts from local suppliers, etc.
3.Controlling Supply chains- It favours exporting finished products, not intermediate goods – Through
taxes and quotas, limiting other countries access to its minerals and other raw materials, giving Chinese
companies advantage.

So, China does violate rules of fair trade creating undue advantage for domestic companies at expense of
foreign entities and making it difficult for foreign players to enter into the market. They also control foreign
firms with the help of legislations.

In contrast, Germany is more into fair play and it gives chance to foreign entities to compete with domestic
players so as to make market competitive. They help businesses with innovative economic model where
there is close cooperation between financial and industrial firms which allows critical access to capital and
government intervenes to help their export led economy to prosper adhering to WTO rules.

3. If one has to extrapolate these approaches to India, what policy approaches would you think is
appropriate? Why?

If one has to extrapolate these approaches to India, It would be better to take a mix of these approaches and
not follow one model blindly. India is an evolving economy where market is still developing, most
companies are still not globally competitive requiring government support to grow, most of its sector is
unorganized, skill development is still an issue, MSMEs comprise huge part of industry and agriculture is
still significant, employing close to half of its population directly and indirectly, etc.

So, it would be wise to have its own approach, which could be mix of both, where it gives support to
domestic industries as well as promote competition in the market. India has its own problems and need its
own mixed approach, adhering to WTO norms.