IBM Part One To Five (Eshet G) Sections 1 and 2 Half Entry

2 Credit Hours
Eshet Gebre, Ph.D

Email: eshetg58@gmail.com
Content of the Course
In this Course covers:
1.Globalization/ International Business
2.Country Differences in Political Economy
3.Cross-Border Trade and Investment
4.Global Money System
5.Competing in a Global Market place.
Compiled by : Eshet Gebre, Ph.D

Objective of the Course:
To develop knowledge and understanding,

international business management practice
(applied knowledge and understanding).The
course creates the depth skills in profession of
international business management.

Content of the Course
Starter Questions
1. What is international Business?
2. What is globalization?
3. Benefits/Challenges of Globalization ?
4. Is it possible to escape globalization and/or
take appropriate action to cope up with
Globalizing world?

International Business
• There are many definitions to concepts like
International Business. And, hence there is “ No
simple or universally accepted definition exists
for the term international business”.
Prof. T.R. Guru moorthy, EDUCATION, D. O. D. (2016). Directorate of Distance Education.
• IB includes any types of trade of goods, services

or capital between Countries across
international borders.
• IB creates major influence over cultural,
political, economic and social factors.
• International business is defined as
organization that buys and/or sells goods and
services across two or more national
boundaries,
boundaries even if management is located in
a single country.
• Virtually all Countries of the world imports
and exports a significant quantity of goods,
services, technology, capital, employees, and
Intellectual property.
• Requires more skills than domestic business.
• According to e-finance management, IB is a
cross border transaction between
individuals, businesses, or government
entities.
• Multinational Companies are involved in IB.
• A multi-national Company is also known as Multi-

national corporations, Transnational corporations, or
International business enterprise.
• These companies have their business, employees
(Staff), premises in more than one Country.
• Business is a simple commercial activity which is done
for a profit both at domestic and International levels.
levels
• International Business is the expansion of Business
functions from domestic to International (foreign
Markets) with an aim of achieving the needs and
wants of International Customers.
• IB is an exchange of goods and services, resources,
knowledge and skills among individual and Business in
two or more Countries.
• IB is a commercial enterprise that performs economic
activities beyond the bounds of its location, has
branches in two or more nations
Modes of entry into International
Business
• Import…..buying
Import foreign goods and services to a
domestic market
• Export….selling
Export goods and services to a foreign markets
• Joint Venture…forming
Venture a joint share of investment
• Licensing….related
Licensing with trade names, trade marks, etc
Globalization/International Business
Globalization:
• process of interaction (Reciprocal action/influence) and
integration among people, companies, and Nation States
worldwide
• Because we live in an Integrated and Interdependent world.
• According to IMF (2000), four basic aspects of globalization:
 trade and transaction,
 Capital and and investment movements,
 Migration and movement of people, and
 the dissemination of knowledge
Globalization?
• Globalization is defined as:
– increased permeability of traditional boundaries
of almost every kind, including physical borders,
such as, time and space, nation states and
economies, industries and organizations and less
tangible borders, such as, cultural norms.

What caused Globalization to advance?
– transportation and communication technology,

• Globalizing processes affect and are affected
by:
 Businesses and Work organization,
 economics,
 socio-cultural resources, and
 the natural environment,

Globalization and its effects
Q: What kind of skill and knowledge needs an

International Business Manager?

The expansion of the global market has created a

need for managers who are familiar with the
problems of international trade and finance such
as:
– culture,
– political structure,
– foreign exchange,
– geographical terrain,
– time, food and technology

• International Business gives people access to
various technological, products and
knowledge.
Economic Globalization
• Movement of people, Money, Goods,
capital, Information and other important
materials and ideas at the global level
Mediated through various scenarios such
as: Social, cultural, economic
integration of the Societies.
Manifestations of Globalization

Some factors that Move/restrain Globalization
Mover of Globalization Factors restraining Globalization

– Tech/ ICT • Laws of Nations,
– Taxation and world
trade
• Trade Barriers:
– Manufacturing tech. • Tariff barriers,
• Non tariff Barriers

Discussion Questions:
1.What are the advantages and disadvantages of

Globalization?
2.What can Nations/individuals/organizations do

to make the best use of Globalization?

Advantages of Globalization
• It let’s Countries to do what they can do best.
If, for example, You buy cheap steel from
another Country you don’t have to make your
own steel.
• It gives a larger market (more money, more
jobs, increase free trade b/n nations, increase
flow of communications),
• Reduction of likelihood of war between
developed nations,
Disadvantages of Globalization
• Causes unemployment in industrial Countries,
• May lead to more environmental problems,
• Globalization can lead to financial problems,
• Some of the poorest Countries in the world, especially in

Africa, may get even poor.
• Human, animal and plant diseases can spread more
quickly through globalization.
Disadvantages of Globalization
• Increased flow of skilled and non-skilled jobs from
developed to developing nations as corporations seek
out the cheapest labor and also influence of brain drain,
• Increased likelihood of economic disruptions in one
nation affecting all nations.
• Corporate influence of nation-states far exceeds that of
CSOs and average individuals.
Disadvantage…..
• Threat of control of world media by a handful
of corporations will limit cultural expression.
• Greater chance of reactions for globalization
being violent in an attempt to preserve
cultural heritage.
heritage
• Greater risk of disease being transported
unilaterally between nations,
• Spread of a materialistic lifestyle and attitude
that sees consumption as the path to
prosperity,
Disadvantage…..
• International bodies like the world trade
Organization infringe on national and
individual sovereignty,
• Increase the chances of civil war between
developing and open war between developing
Countries as they view for resources.
• Decrease in environmental protection.

Risk
• Currency Risk
• Cross-cultural risk,
• Country
• Commercial

Cross Cultural risk
• Cultural differences, (Cultural
miscommunications)
• Artifacts,
• Social knowledge,
• Normative values, etc

Country Risk
• Also known as Political risk,
• legal and economic environment of nations

Currency Risk
• Also called financial risk
• The difference of conversion rate of foreign
currency.
• Fluctuations of currency
• Market is run based on more than one
currency.

Economic Risk
• Refers to poorly coordinated economic

transactions

Forces behind Globalization:
Seven forces :
1.Increase in expansion of Technology vast
improvements in transportation and
communications Technology that increased
the effectiveness and efficiency of
international Business.
2.Liberalization of cross borders Business,
Business e.g.
WTO membership issues.
3. Development of services such as Banks,
Transportation Companies that facilitate
international Business and regulate their
conduct. Compiled by : Eshet Gebre, Ph.D
Seven forces (contd) :
4. Growing Consumer pressures.
• Innovation and transportation communications
tech., consumers are well informed about and
often able to access foreign products.
• Business orgs. are forced to respond to
consumer’s demand and pressures,
5. Increased global competition
• Pressures of increased foreign competition often
persuade firms to expand internationally in order
to gain access to foreign opportunities and
improve the overall operational flexibility and
competitiveness.
6. Changing political situations
• Transformation of the political and economic
policies of nations:
• West vs. East ( why ICCPRs and IESCRs and, their effects
to international relations)
relations

7. Expansion of Cross – national cooperation
• Governments have increasingly entered into
cross-National treaties and agreements in
order :
 to gain reciprocal advantages for their own firms,
 to attack problems jointly that one county can not
solve alone, and
 to deal with areas of concern that lie outside the
territory of all Countries.
Comparison of Domestic and
Global Business
• Domestic Business is the Business of individual
Nation States.
• International Business on the other hand is a
cross border business between and among
two or more States.

Comparison of Domestic and
Global Business
Domestic and International Business differ in:
– meaning,
– area of Operations,
– single/multiple Currencies,
– Capital investment,
– Scope of restrictions and
– possibility of undertaking research,

1. Meaning:
Domestic Business International Business
• An economic transaction • An economic transaction
that are conducted within of which is engaged in an
geographic Boundaries of economic transaction
a nation with several Countries in
the world

2. Area of Operations
• Within a Nation • Whole World
• More than one Country,
• Multinational/Transnational
areas of operation

Deal is done in:
• Single Currency • Multiple Currencies

Size of Capital investment
• Less, • Huge
• Low transaction cost,
• Less time b/n production
and sales,
• Low transportation cost,
• Encourages small scale
enterprises, etc.

Complexness of restrictions
• Few restrictions • Many restrictions

Possibility of Business research
• Ca easily be conducted. • It is difficult to conduct
research.

Basis Domestic Business International Business
Nationality of Both belong to the same country. Both belong to different countries,
Buyers and Sellers Easy to understand each other & enter into Business dealing relatively difficult Due to
business deal. languages, attitudes, customs, etc.
Nationality of other Stakeholders are from one nation. Stakeholders are from different nations.
Stakeholders
Mobility of Factors Degree of mobility of factors of Degree of mobility of factors of production(land,
of Production production(land, labor, etc.) is more as labor, etc.) is less as compared to domestic
compared to international business. business.
Nature of Customers are homogeneous in their taste, Customers are not heterogeneous due to
Customers preferences, consumption patterns and different socio-cultural backgrounds, tastes,
buying behavior. fashions, languages, beliefs, customs, etc.
Business Systems Business systems and practices are are less homogeneous as there is difference in
and Practices homogeneous within a country. development level, infrastructure, market
facilities, etc.
Political System Domestic business firms are familiar with International business faces difficulties in
and Risks political system of their country. As a result, understanding and coping with different political
they are in a better position to understand and systems of every country.
predict its impact on business.
Business Rules, laws or taxation policies of a single Rules, laws or taxation policies of various
Regulations and country prevail in domestic business. countries prevail in the case of international
Policies business.
Currency used Currency of domestic country is used. Currency of more than one country is used.
Risk It involves comparatively less degree of risk. It involves a high degree of risk.
Order processing There is a less time gap in order and supply of There is a wide time gap between order and
time goods. supply of goods.
Effect on Foreign It has no effect on the foreign reserves of a It has a direct impact on the foreign reserves of a
Reserve country. country.
International Business management
International Business:
• all commercial transactions between parties in
two or more countries/nation States
themselves,
• Such transactions include the transfer of:
 goods,
 services,
 technology, and
 capital to other countries, and involves
exports and imports.
International Business Management :
 The management of business operations for an
organization that conducts business in more than
one country.
 International management requires knowledge
and skills more than normal business expertise,
such as familiarity with the business regulations of
the nations in which the organization operates,
understanding of local customs and laws.

• International Business Managers should have:
 the knowledge and the skills to manage
and handle cross-cultural processes,
stakeholders, the capability to conduct

transactions that may involve multiple
currencies and environments in a right way.

Political and Government’s requirements for IB
To undertake IB, there need to be:

• Unrestrictive trade and investment policies,
• Compatible technical standards,
• Common marketing regulations,

regulations
• Reduction of barriers to trade and foreign
investment by governments,
• Privatization of former communist nations,
Competitive forces
• Two-way trade / cross-border FDI,
• Global competitors,
• Interdependence among countries,
• Policy Link,
• Trade/Investment Link,
• Management Link,

Technological forces
• Advances in computers and communications

technology
• Internet and network computing,
• Other facilitating infrastructures are also vital

International Trade
• the branch of economics concerned with the
exchange of goods and services with foreign
countries.
• purchase, sale, or exchange of goods and
services across national borders
• Exports—goods and services produced in one
country and sold to other countries.

International Trade
• Trade Deficit (Surplus)—a country has a trade
deficit (surplus) if its imports (exports)
exceeds its exports (imports).
• Exports and imports are recorded in the
Balance of Payments (BOP) of a nation

Foreign direct investment (FDI): a firm
invests directly in foreign facilities
• A firm that engages in FDI becomes a multinational
enterprise (MNE)
• Multinational = “more than one country”
• Factors which influence FDI are related to factors
that stimulate trade
• Involves ownership of entity abroad for production
• Marketing/service
• R&D

Foreign direct investment (FDI): a firm
invests directly in foreign facilities
• Access of raw materials or other resource
• Parent has direct managerial control
• Depending on its extent of ownership and
• On other contractual terms of the FDI

Roles and quality of Managers in IBM
• International Business management involves
planning, organizing, leading, and controlling of
employees and other resources to achieve
organizational goals across unique multicultural and
multinational boundaries.
• International business management (IBM)
requires the understanding of:
– crossing cultures,
– multinational corporations’ interactions,
– global perspectives, and
– corporate issues
Roles and quality of Managers in IBM
• Today, multicultural managers are
indispensable not only when they work with
people from other countries but also with
people from the same country, who speak the
same language,
language have the same national
heritage and yet, have different ways of
looking at the world.
Skills and Roles of Managers in IBM
An international manager is:
• someone who must handle things, ideas, and
people belonging to different cultural
environments while ensuring that allocating
and directing of human resources achieves the
goals of the organization, while
• respecting the Laws, beliefs, traditions, and
values of the native or host country.

skills or qualifications of International Managers
A successful international business manager should have
the following skills or qualifications:

qualifications
•The ability to communicate and cooperate across
cultures, including being able to develop an
understanding, trust, and teamwork with people of
various cultural backgrounds.

skills or qualifications (Conted):
•The ability to understand and appreciate different
cultures.
•The ability to use more than one language to
communicate effectively.
effectively This may be important when
travelling to different locations or simply dealing with
someone who understands better in his or her native
tongue. Compiled by : Eshet Gebre, Ph.D

A successful international manager should …..(contd)
• The ability to build and maintain relationships at work
and in the family, by supporting, growing, and learning.

learning
• The ability to learn and grow from the new information
just discovered by carrying out the new ideas into one’s
behavior, and simultaneously, the ability to maintain the
health of the organization and oneself.

A successful international manager should …..(contd)
• The ability to coach, guide, and educate others in the
organization to develop cross-cultural skills both at work
and to incorporate them into their families as well.
• The ability to observe all cultures and accomplish
management changes that will be most effective for the
cultural mix present.

Group assignment-1
1. Form a group of five having a group leader.
2. Prepare a slide and get ready for presentation to your
class,
• Globalization is the interdependence and integration of
the World Societies. Unlike Globalization, the world
faces also de-globalization.
• Read both scenarios thoroughly and write an article of
at least ten pages that shows:
– the conceptual and theoretical difference of the two,
– the causes and effects of Globalization and De-globalization,
– indicate the areas where Globalizing world has shown the sign
of de-globalization in the 19th to 21st century.

Part Two
Country Differences in Political Economy
Content
• Reminder of the previous part.
• Factors that changed the international Business
environment (Integration)
• Political Economy
• Factors of difference of Nations
 Political difference
 Economic difference
 Difference in legal systems
 Cultural differences
International business:
• All business transactions, private and
governmental, and MNC’s that involves two
or more countries are considered as
international business .
Two reasons for studying globalization and
international business:
1.The growth of globalization creates both opportunities
and threats for individuals, companies, and countries.
2. The conduct of international business is distinct from

that of domestic business because companies must
operate in diverse foreign environments and must
engage in specialized types of transactions,
transactions such as
exporting and importing and currency conversion
Advantages of international business:
a). Product Flexibility
• If you have products that don’t sell well in your local
or regional market, you may find greater demand
abroad.
abroad You don’t have to dump unsold inventory at
deep discounts.
• You can search for new markets where your
products can sell for even higher prices than they did
in your local market. In fact, you may find new
products to sell abroad that you don’t offer where
you are based. You can offer a much wider range of
products when you market globally.
b). Less Competition
• Companies may have come to view competition as a local
phenomenon.
• You can find international markets that have less competition
and move quickly to capture market share.
• This can be particularly advantageous when you have access to
high-quality versions of products that are superior to versions
in other countries.
• Though your local competition you may have access to the
same quality as you have, you will have little competition if you
find an international market that has been buying an inferior
product.
product
Example: Ethiopian Coffee abroad.
c). Protection from National Trends and Events
• When you market to several countries, you are not as
vulnerable to events in any one country.
• For example, if you sell soft drinks with high sugar
content,
content you could discover that your home country
frowns upon drinks that offer extra calories.
• You may be able to sell the same product in another
country that has a much different attitude toward
these drinks. In addition, a natural disaster in any
one market can disrupt business, but you can
compensate by focusing your sales efforts in another
part of the world.
d). Learning New Methods
• When you do business in another country, you learn
new ways of doing things.
things
• You can apply this new knowledge to other markets.
– For example, according to the Cite Sales website,
Unilever discovered a market for laundry detergent
that would function in Europe’s high-mineral-
content or "hard" water.
– This product can now be marketed to parts of the
U.S. that have similar water problems.
 There are various factors that changed the
international Business environment. What are these
factors?
Factors that changed the international
Business environment
• There are many factors that increase the

impact of international business,
business and
consequently the role of MNCs,
MNCs in our lives.
• The increased volume of international
business heightens the importance of IBM.
IBM
Factors that changed the international Business
environment
• The world economy is moving ever faster to a
highly interrelated, interdependent state, in
which no nation will be immune from the
forces of the global market.
• In such an environment, it is vitally important
that we know how to manage international
business operations.
• There are at least eleven factors that changed
the international Business environment.
Factors underlying the dynamics of global environment
1. Developing Countries Attitude Toward FDI
Many developing nations (DCs) before 1970s use:

• Expropriation, forced divestment, and Nationalization,
Nationalization
• Seizure of MNC’
MNC assets by hosting Governments, etc as
a policy in cases of disputes among DCs administration
and the MNCs invested in DCs.
DCs
Reasons: lack of capacity in DCs, low level of economic

development,
development and inability to service foreign debts,
debts etc
But after 1970s, expropriation and nationalization ignored

by DCs because of various factors such as.
a). The improved capabilities of DCs,
b). Increased understanding of the importance of FDI and

economic growth.,
c). DCs improved their understanding and strength of not

only managing economic growth and political ideology.,
but also improved their growth through Taxation and
performance.
Factors underlying the dynamics of
global environment
2. Developing Countries Export-Oriented Strategies
• Import and export strategy became the bases of growth in
DCs.
• Countries considered MNCs as a means to arrive their
improved trade balance .
• And hence, many DCs have benchmarked many other
Nations who use MNCs and Investment as a growth factor.
factor
3. Technological Development
• Technological development is being changing
the nature and culture of International
Business and has greatly reduced the
production costs of many products as
industries are using low labor cost and
including domestic raw materials.
materials
• And hence, those nations with low labor cost
and excess raw materials (DCs) will benefit
from the growing International Business.
global environment
4. Research & Development in Investment
Requirements
• R & D. has helped technological
advancement and both inflow and out flow of
Investment.
global environment
5. Decreasing Trade Barriers.
• Increased interdependence among nation States
and created reduction of Challenges to FDI and
International Business such as Trade Barriers and
non-trade barriers, and quota restrictions.
restrictions
6. Spread of Regional Trade Agreements
• The expansion and importance of international and Regional

trade agreements are increasing.
• The Most known trade agreements of the day include:
 NAFTA (North American Free Trade Area) ,
 ASEAN (Association of North East Asian Nations),
 EU (European Union),
 ANDEAN Community (Bolivia, Colombia, Ecuador and Peru)

and Chile, Argentina, Brazil, Paraguay and Uruguay are
associate members while Panama, Mexico, and Spain are
Observers, Recently called Trans-Pacific Partnership (TPP)
global environment….(contd)
7. Increasing Demand for Capital
• Free Capital mobility is one of the features
that increased the interdependence of our
Glob and heightened trade investment
competition.
8. Diminishing Effectiveness of National Borders
• Information era has greatly diminished the effectiveness
of national borders and sovereignty in many ways.
• Nations also deal with MNCs that cross borders which
also has effect of losing the traditional borders.
• With the creation of WTO (World Trade organization),
Nation States lose many domestic enforcement
mechanism and their borders are becoming more
permeable than ever.
9. Increasing Interdependency Among Nations
 Securing Peace
 Economic development,
 Science and technology,
 Joint struggle against International Terrorism

(Terrorism)
 etc
10. The Advent of the Internet
• A couple of decades ago, only large and very
resourceful firms could operate successfully at
the international level. While still many
international businesses involve large-scale
operations, recent improvements in
technology, transportation, and
communications and the advent of the Internet
have made the size of operations less relevant.
Minimum Rules of MNCs who
undertake international Business
• All individuals, States, and non-State actors in IB
have to follow certain rules set by both Domestic
Laws of Nation States and International
agreements.
• These rules include UN-Charter to specific
regulations and treaties or Contracts made
between and among parties in the International
Business.
• Customary Practices and Culture of a society also
should be respected.
Minimum rules for MNCs operating in developing countries
Do no Respect
Produce more employees
intentional
Good than harm Human Rights
harm
Respect Local
MNCs culture
Contribute to Pay faire

Cooperate with
economic share of
local Gov’ts
development Taxes
Source: Fatehi, K., & Choi, J. (2019). International business management
Differences in Political Economy
• What is Political Economy?

• What created and are creating the Political
economy of Nation States?
• What are the bases of differences of Nation
States?
Differences in Political Economy
• The world is different in their political economy
and legal regimes.
• Hence, there could be differences between
Nation States in political ideology, economic
growth and legal systems.
• Political ideology, Economy and legal systems
interact and affect each other in almost all
States do have their own similarities and
differences.
Dictionary Meaning of Political Economy:
‘‘Political economy is concerned with the interaction

of political and economic processes within a society:
society
 the distribution of power and wealth between
different groups and individuals,
individuals and
 the processes that create, sustain and transform
these relationships over time.
time ’’
Collinson (ed) (2003) p. 3.

Scholars view on the meaning of PE:
• For Adam Smith, PE is the science of managing a
nation’s resources so as to generate wealth.
wealth
• For Marx, it was how the ownership of the means of
production influenced historical processes.
• For much of the twentieth century, the phrase
political economy had contradictory meanings.
PE is a social science that studies production, trade, and

their relationship with the law and the government.
Political Economy
• The Scottish Guru Adam Smith (1723-1790) and French
economist Antoine de Montchrestien (1575-1621) are
the fathers of the theory of political economy.
• The term political economy refers to a branch of social
sciences that focuses on relationships between
individuals, governments, and public policy.
policy It is also
used to describe the policies set by governments that
affect their nations' economies.
Political Economy
• The main concern of political economy is to
determine the relationship between governments and
individuals, and how public policy affects society.
Political Economy
Some of the characteristics or themes of a political economy
include:
1. The distribution of wealth,
2. How goods and services are produced,
3. Who owns property and other resources,
4. Who profits from production, supply and demand, and
5. How public policy and government interaction impact

society,etc
Discussion Question
Take 10 to 15 Minutes of You time
Assume that You planned to be an

International Business Manager.
Q. Identify and discuss the major basis of the

difference of Nation States.
Difference of Nation States in political
Economy
So, political economy:
- Made-up of two words: Politics and Economy,
Politics and Economy:
- Are theories that differentiate one nation from another,
- Political systems are denoted by the political actions and
practices in societies of a nation.
Nation States are different in mainly four areas:
1. Political ideologies,
2. Economic system,
3. Legal system and
4. Cultural Practices .
1. Political ideologies
• Political Economy refers to how the political,
economic and legal systems of a Country are
interdependent.
• They interact and influence one another and,
the economic wellbeing of a Nation.
• They are not controllable.
How?
Political ideologies
• As it is seen from its name, political economy
is concerned with how political forces that
influence the economy and economic
outcomes interact.
• Political ideologies shape the economy and
legal system of a nation.
Political ideologies:
• Refers to the system of government of a
Nation,
• Assessed according to:
a). The degree to which the Country emphasizes
collectivism as opposed to individualism,
b). The degree to which a Country is democratic
or totalitarian.
There are various Political ideologies in the world.
These mainly include:
a)Collectivism,
b)Individualism,
c) democracy,
d)Totalitarianism/Authoritarianism,
a). Collectivism…is where the interest of collective
society is given priority than individuals in
States (e.g. Russia, China,
China etc), State are said
to intervene into the market.
- Collectivism Can be traced back to Greek
Philosopher Plato (427-347 BC).
- But, today collectivism is equated with
Socialism. (Karl Marks, 1818 to 1883).
• Advocate State ownership of the basic means of
production, distribution, and exchange.
• Manage to benefit society as a whole, rather
than individuals.
b). Individualism…here emphasis is given to individual
rights and freedoms.
 This is traced to great philosopher, Aristotle (384 to
322 B.C) who argued that individual diversity and
private ownership are desirable.
 Individual economic and political freedoms are the
ground rules on which a society should be based,
 Implies democratic political systems and free
market economies.
c). Democracy:
Refers to a political system in which government is by
the people,
people exercised either directly or through
elected representatives.
- Usually associated with individualism,
- Pure democracy is based on the belief that citizens
should be directly involved in a decision making.
- Most modern democratic states practice
(representative democracy)
democracy where citizens
periodically elected individuals to represent them.
d). Totalitarianism / Authoritarianism
 is a form of government in which one person or
political party exercises absolute control over all
spheres of human life and prohibits opposing
political parties.
1). Communist totalitarianism- found in States where
political power is monopolized by individuals.
2). Theocratic totalitarianism…found in States where a
political power is monopolized by a party, group, or
individual that governs according to religious
principles,
principles
d). Totalitarianism
3). Tribal totalitarianism- fund in States where a

political Party that represent the interests of
a particular tribe monopolizes power,
power
4). Right wing totalitarianism-

totalitarianism permits some
individual economic freedom, but restricts
individual political freedom.
2. What is economic system?
Economic Systems:
a). Market economies,
• All productive activities are privately owned and
production is determined by interaction of supply
and demand.
• Governments encourages free and faire competition
between private producers.
What is economic system?
Economic Systems:
b). Command economy- Government plans the goods

and services,
services the quantity that is produced, and prices
as which they are sold.
- All business are State owned and governments
allocate resources for the ‘‘good of the society’’
- Because there is little incentive to control costs and be
efficient, command economies tend to stagnate .
What is economic system?
Economic Systems:
C). Mixed economy

• Certain sectors of the economy are left to private ownership and
free market mechanisms while other sectors have significant State
owned and Government Planning.
Planning
• Governments tend to own firms that are considered
important to national security.

• In reality most economies are mixed market economies.
3. Difference of Countries in legal systems
Legal systems around the world
There are three types of legal systems:
1.Common Law legal system : based on tradition,

precedence, customs.
2. Civil law legal system: based on very detailed

set of written laws and codes,
3.Theocratic Law system; based on religious

teachings.
Contract Law
• is a body of law that governs agreement as
between two or more parties.
• Contracts in civil law system are shorter and less
specific since most are covered in the civil code
itself.
• Contract in Common law legal system is more
detailed and specified in detail.
• Contract drafting is more expensive in the
common law than in the civil law legal system.
• Under common law, contract disputes are more
opposing.
opposing Here it easy and flexible for judges to
interpret the contract among and between
parties (B/s precedence works).
Property rights
• Property rights are bundle of rights that
include tangible and intangible property
rights over the use to which a resource is put
and, over the use made of any income that
may be derived from that resource.
• Intellectual property is the product of
intellectual activity.
 Example: software, Music, Books, Articles,
etc.
Mechanisms of protecting intellectual
property rights
• Patents-
Patents grant the inventor exclusive right to
the manufacture, use, or sale of that
invention.
• Copy right- Exclusive legal rights of authors,
composers, playwrights, artists, and
publishers to publish and dispose of their
work as they see fit,
• Trade Marks- Designs and Names, often
officially registered, by which merchants and
manufacturers designate and differentiate the
product.
Differences of Nations in Economic
system of Nations:
1. Traditional Economy….
2. Market Economy…
3. Command Economy….Collectivism
4. Mixed Economy …
Types of Economic system
Economy Production How goods are How people get
produced products
Traditional Produce what people Farming, Hunting & People make their
(Aboriginals : need to survive (food Gathering own share, or Trade
Australia) Shelter, & Tools)
Command What ever the However, the -Class

(Soviet Union) government decides government decides - Reward system,
- Waiting inline,
Market Whatever, people are Business owners Determine by how
( e.g. Canada, willing to buy & sell determine the most much a person is
UK) efficient legal willing to pay or
methods in own.
production
Mixed Economy Mix of market economy
and Command economy
e.g. Japan, USA,
UK.
4. Cultural differences of States
What is culture?
4. Cultural differences of States
• There is no as such a commonly agreed definition of culture.
So, various scholars defined Culture differently.
• Culture is a concept and practice,
• Culture is the system of knowledge and standard for

perceiving, believing, evaluating and acting in a certain
manner.
manner
• Culture is the collective programming of mind which

distinguishes the member one category of people from those
of the other. (Hofstede G., 1984, pp.389-398)
4. Cultural differences of States (Contd)
Components of Culture :
• Is a way or system of knowledge/standard that
determines the behavior of people in a society.
society
• A mechanism that enable a societies to solve
their problems.
• The relationship of people to environment,
• Culture develops over time and, is constantly
and slowly evolving.
Components of Culture:
1. Language-various terminologies for a single object
2. Ethnicity…Psychological attachment
3. Religion…Values and belief
4. Food….variety of beliefs and practices
5. Work and materials
6. Customary practices
7. Attitude towards time….Sense of urgency and value of time
8. etc
Some of the elements of culture
Question: What could be a challenge which
international managers face in cultural
differences of nations?
challenge which international managers face:
• Communication distortion,
• Lack of communality of values, beliefs,
and norms between people,
challenge which international managers face:
Part III
Cross-Border Trade and Investment
• Concept of Cross-border trade and

Investment.
• Trade
• Investment
• The challenges of FTAs and WTO
Functions
Compiled by Eshet Gebre (Ph.D.
Introduction:
• The world is not only interdependent but also
inter-linked.
• Because any research and development activity
at one corner affects many parts of the World.
• One of the areas of inter-linkage of the world is
Trade and Investment.
Introduction:
• The question is what is International Trade and
Foreign Direct Investment (FDI)?
 to go to International Trade and FDI, let’s
see what Trade and investment are
separately.
Definitions:
Trade:
• Trade is an exchange of raw materials and
manufactured goods and services between
individuals, Groups, MNCs or Nation States.
• Trade is a short term activity that creates forum of
only exchange of goods and services based on
demand and supply relationships.
• International business began with International
Trade which has created the concept of import and
export among Nation States.
What do we mean by Trade?
• Import and export relationship in turn has

created the wellbeing of the economies of
home and host Nations.
What is Investment?
Investment:
• is an asset that is created with the intention of
allowing money to grow.
grow
• This shows that it has procedures,
engagement on plant installation and / or
other activities that take longer period plan
and activity.
Cross-border trade and investment
• Cross border trade and investment is highly related with
the borders of home, host and participant nations.
• Often goods, services and labor cross more than one
border of States.
States
• Cross border transaction facilitation is not only the
responsibility of each parties to the transaction, but also
the collective responsibility of all countries that such
transitions either affect or benefit such nations.
Theories of Trade and FDI
• Several theories emerged that have become
the basis of International Trade and FDI.
• Theories provide a logical focusing on
purpose of investment.
Theories of Trade and FDI
Theories of Trade
1.Mercantilism
2.Absolute Cost advantage
3.Comparative Cost Advantage
4.Opportunity Cost Theory
FDI Theories
1.Heckseher-Ohlin Trade Model
2.Market imperfection approach
3.Industrial Organization Theory:
4.Mac Dougall-kemp Hypothesis
5.Location specific theories
6.Political Theory
A. Trade Theories
1. Mercantilism (pre-16th century Theory)
– This Theory takes us vs. them view of trade,
– It assumes other Country's gain is our Country's loss
– Mercantilism is the oldest trade theory that formed the

foundation of economic thought during 1500 to 1800.
Trade Theories
1. Mercantilist theory (contd):
- the holding of a nation's treasure primarily in the form
of Gold constituted its wealth.
wealth
- This theory specifies that Countries should export more
than they import and receive the value of trade surplus
in the form of gold from those Countries which
experience trade deficit.
Trade Theories
- Government imposed restriction on imports and
encourage exports in order to prevent trade deficits
and experience trade surplus.
- Colonial powers like UK used to trade with their colonies
like India, Siri lanka, etc. By importing the Raw Materials
from and exporting finished product/goods to colonies.
Trade Theories
- Colonial powers had to export less valued goods and
import high valued good. Thus Colonies were
prevented from manufacturing.
- This practice allowed the Colonial Powers to enjoy
trade surplus and forced colonies to experience
trade deficits.
Trade Theories
- This theory suggests for maintaining favorable balance of trade
in the form of import of Gold for export of goods and services.
- Neo-mercantilism proposes that Countries attempt to produce
more than the demand in the Domestic market in order to
achieve a social objective like full employment in the domestic
Country or a potential objective like assisting a friendly Country.
- The theory was criticized on the ground that the wealth of
nation is based on its available goods and services rather than
gold.
- Adam Smith developed the theory of absolute cost advantage of
international trade by producing certain goods more efficiently
than others.
Trade Theories
2. Absolute Cost advantage Theory:
• Adam Smith, the Scottish economist viewed free
trade enables a Country to produce a variety of
goods and services.
• Smith proposes the theory of absolute cost
advantage theory in international trade based on
the principle of division of labor.
• According to the theory, the principle of absolute
cost advantage will help Countries to specialize in
the production of these goods in witch they have
cost advantage over others.
2. Absolute Cost advantage Theory (contd):
• According to the theory, every Country should
specialize in producing those products at the cost
less than that of other Countries.
• Trade between two Countries takes place when one
Country produces one product at less cost than that
of another Country and having a cost advantage and
vise versa.
FDI Theories
Investment Theories help us to focus on:
 economic background and forecast,
 Corporate information and field trip
(field work),
 Stock price, and
 other investment areas
What is FDi
• Is a processes where by residents of one
nation called source Country acquire
ownership of assets for the purpose of
controlling the production and distribution
and other activities.
‘‘An investment that is made to acquire lasting
interest in an enterprise operating in an
economy other than that of an Investor,
Investor the
Investor’s purpose being to have voice in the
management of the enterprise.’’ IMF
What is FDi
• ‘‘FDI is an Investment having involved long

term relationship and reflecting a lasting
interest and control of resident entity in the
one economy in an enterprise resident in the
economy other than that of a foreign direct
investor.’’ (UNICTAD) Report, 1999.
What distinguishes FDI fro other
investment?
• The distinguishing feature of FDI in
comparison with other forms of international
investments is the element of control over the
management policy and decision (Razin, 1999)
Approaches/ Theories of FDI
1. Mac Dougall-kemp Hypothesis
• FDI moves from Capital abundant economy to
Capital scares economy till the Marginal
production is equal in both Countries.
Countries
• This leads to improvement in efficiency in
utilization of resources in which leads to ultimate
increase in welfare.
• According to this theory, FDI is a result of
differences in capital abundance b/n economies.
• This theory, was developed by MacDougal (1958)
and was elaborated by Kemp (1964)
2. Industrial Organization Theory:

• The theory was coined by Krugman (1989)
• According to this theory, MNC with higher
tech. moves from a Nation to another to
supply Innovated products to make ample
gains.
• Tech. superiority is the main driving force and
not capital abundance.
3. Currency based approach

• A firm moves from Strong currency Country to
weak Currency Country. (Aliber, 1971).
• Here being cheaper for foreign firms to acquire
assets in economically weak Countries.
• Therefore, FDI moves from Countries with
strong currencies move to those weak with
weak or depreciating currencies.
4. Location specific Theory

• According to Hood and Young (1979) FDI moves
to a Country with abundant raw materials and
cheaper labor force.
• Since real wage cost various among Countries,
firms with low-cost tech. moves to low wage
Countries.
• Abundance of Raw material and cheap labor are
the driving forces of Location specific Theory.
4. Location specific Theory
• According to Hood and Young (1979) FDI
moves to a Country with abundant raw
materials and cheaper labor force.
• Since real wage cost various among Countries,
firms with low-cost tech. moves to low wage
Countries.
• Abundance of Raw material and cheap labor
are the driving forces of Location specific
Theory.
5. Product cycle theory
• FDI takes place only when the product in
question achieve specific stage in its life cycle.
 Introduction stage, Growth stage, Maturity
stage and Decline stage
 Maturity stage- greater demand for the
product and high competition- new FDI
appear.
Compiled by Eshet Gebre (Ph.D.)
5. Political economic Theories
• This theories concentrate on the political risk.
• They concentrate on the political risk. Political
stability in the host Country leads to FDI.
WTO and RTAs
• The two major trends in international Trade
and investment (economy) in the 1990s have
been globalization and regionalism.
regionalism
• A number of contributions have pointed to
the costs of a ‘‘spaghetti bowl’’ of different
preferential rules and how these might be
seen as ‘‘stumbling blocks rather than building
blocks’’ for the wider multilateral system.
WTO and RTAs
• National states have a long tradition in setting

rules for trade and investment.
investment
• The growth of the international economic
transitions has created a growing demand for
an additional rule making at the global level
• GATT, later WTO has provided such legal
framework for an economic multilateralism
that complements the national frameworks.
WTO and RTAs
• In addition to WTO, Regional Trade agreements (RTAs)
have now become important supplemental rule
makers that created more basis of economic
integration of Nation States.
• According to a study issued by the World Bank
(2005), the number of RTAs now in force surpasses
200 and it has risen six fold in just two decades.
• Preferential RTAs account today for more than one
third of global trade and this is expected to increase.
increase
• The rise of RTAs seems to be part of a broader
worldwide move towards more regionalism and
regional integration
Multilateral trade agreements
• Almost all global trade agreements are
multilateral in nature (Treaties, pacts,…).
Why ?
• Multilateral trade agreements strengthen
the global economy by making developing
countries competitive.
• They standardize import and export
procedures, giving economic benefits to all
member nations.
• Their complexity helps those that can take
advantage of globalization,
globalization while those who
cannot often face hardships.
Advantages and disadvantages of multilateral
agreement:
Advantages:
•Treats all member nations equally
•Makes international trading easier
•Trade regulations are the same for everyone
•Helps emerging markets
•Multiple nations are covered by one treaty
Disadvantages :
•Negotiations can be lengthy, risk breaking down
•Easily misunderstood by the public
•Removing trade borders affects businesses
•Benefits large corporations, but not small businesses
• WTO is one of the systems created
by Multilateral agreements between
States.
• WTO has created systems of rules
dedicated to open, fair and
undistorted competition.
• WTO was established in1995 and HQ
is located in Geneva, Switzerland.
(see Member States on:
https://www.wto.org/english/thewt
o_e/whatis_e/tif_e/tif_e.htm
)
Functions of WTO
• Administering WTO trade agreements
• Forum for trade negotiations.
• Handling trade disputes.
disputes
• Monitoring national trade policies.
• Technical assistance and training for
developing countries.
countries
• Cooperation with other international
organizations.
• The other plat-forms created by
Multilateral conventions are Regional
Trade agreements (signed as between
those with common interests in a
region).
• The economic integration believed to
have started in 1780s with few States in
few corners of the world have now as of
15 October 2021 reached 350 to 420
RTAs in number.
Source: (
https://en.wikipedia.org/wiki/Spaghetti_bowl_effect)
• The Most known trade agreements of the day include:
 NAFTA (North American Free Trade Area) ,
 ASEAN (Association of North East Asian Nations),
 EU (European Union),
 ANDEAN Community
 COMESA (Common Market for Eastern and

Southern Africa)
Source: © 2021 World Economic Forum
WTO and RTAs
Spaghetti effect
• Why do you think Spaghetti bowl effect is
taken as stumbling blocks, rather than
building blocks of free trade?
The Spaghetti Bowl Effect
• The spaghetti bowl effect is the multiplication

of free trade area (FTAs), supplanting
multilateral World Trade Organization,
negotiations as an alternative path
toward Globalization.
• The term was first used by Jagdish Natwarlal
Bhagwati in 1995 in the paper: “US Trade policy:
The infatuation with free trade agreements”,
where he openly criticized FTAs as being
paradoxically counter-productive in promoting
freer and more opened global trades.
• According to Bhagwati, too many criss-crossing
FTAs would allow countries to adopt
discriminatory trade policies and reduce the
economic benefits of trade.
trade
(https://en.wikipedia.org/wiki/Spaghetti_bowl_effect)
• According to Jagdish N. Bhagwati
(1995), Spaghetti effect contradicts the major
objective of WTO.
• The World Trade Organization (WTO) deals
with the global rules of trade between
nations. Its main function is to ensure that
trade flows as smoothly, predictably and
freely as possible.
• is an interesting phenomenon in trade
economics where the increasing number of Free
Trade Agreements (FTAs) between countries
slows down trade relations between them.
• This term (spaghetti bowl) makes an analogy
between the tangling of spaghetti in a bowl with
the tangling of different FTAs in a region.
• In free trade agreements, members agree on a
lowered internal tariff to be applied between
them, while at the same time each member can
have its own external tariff levied on imports
from non-member countries.
Spaghetti Bowel effect
Challenges posed by FTAs according to J.
Bhagwati
• This FTA trend has been described by many
economists as a more pragmatic way to
promote free trade and globalization.
• Jagdish Bhagwati strongly opposes this
opinion, describing the entanglement of
hundreds of FTAs with various rules, tariffs
and institutional arrangements as a “spaghetti
bowl”
• Bhagwati identifies several problems inherent
to FTAs, which make them unfit to promote a
clear and global trade liberalization with
widespread benefits:
 A founding principle of the GATT, and later
the WTO, is the non-discriminatory principle
or (MFN clause), stating that GATT country-
members cannot discriminate between their
trade partners.
 In this way, any special favor should be
granted to all trade partners without
distinction.
• Bhagwati identifies several problems inherent to FTAs,
FTAs
which make them unfit to promote a clear and global
trade liberalization with widespread benefits:
 FTAs would constitute a loophole in the MFN
clause, enabling states to enforce different level of
tariffs and trade barriers.
 Rules of Origins (RoO) define traded goods’ eligibility
for FTAs’ preferential tariffs regimes. Every FTA sets
its own geographical conditions of production for
concerned goods. Because of globalization and the
development of international supply chains, rules of
origins fail to reflect goods’ complex international
origins and are often impossible to enforce.
• FTAs are associated with high costs for both
governments and firms.
• To enjoy FTAs’ preferential tariffs, firms need
to undergo complex administrative tasks,
prove goods’
goods origins and adapt to FTAs’
many regulations.
• Thus, FTAs would entail high administrative
fixed costs for firms, precluding smaller firms
to fully enjoy preferential tariffs, and
depleting member-countries’ overall
competitiveness.
• While multilateral trade liberalization
increases World trades level, FTAs can
sometimes be trade-diverting.
trade-diverting
• Bilateral trades surge between two FTAs
signatories, however trades with tier-
countries are likely to fall. Thus, FTAs lead to
both trade creation and diversion.
• Bhagwati, also deplores the lack of political and
economic equality characterizing FTA relations. In
general, FTAs would be signed between an important
economic power, such as the United States or the
European Union, with smaller and less powerful
countries. The bigger state can use its larger market as
a leverage to introduce non-trade related measures
concerning regulations, migration, labor standards or
the environment. At the opposite, multilateral
negotiations would allow for a more equal
liberalization since every country can defend its own
interests.
• Freer trades are a useful tool for least developed
countries to obtain more capital, new technologies
and better business practices. However, those
countries often offer fewer market and investment
opportunities, thus more developed countries will
choose to direct their negotiations capacities toward
richer regions. In 2017, the European Union had 5
FTAs with Sub-Saharan countries out of a total of 43
FTAs in place.[4] As developed countries effectively
lower trade barriers and tariffs between them,
countries at the margin are faced with higher tariffs
which are hurtful for their development.
• Several empirical studies have been led to determine
the Spaghetti Bowl Effect's true cost on countries’
trade volumes and competitiveness.
• Japanese Researchers from Keio University, observed
132 countries and established that, even though trade
volumes were positively correlated with FTAs, this
effect was characterized by diminishing returns.
• In this way, the increasingly heavy and costly
administrative burden caused by the multiplication of
FTAs would deter firms to use FTA's preferential
tariffs, thus proving a Spaghetti Bowl Effect.
Management
Part IV
International Monetary system
Content:
• Gold standard
• Meaning and Historical Background of International

Monetary system,
system
• International Monetary Institutions
 Bretton Woods Institutions.

Objective:
After going through this part, You will be able to:
•Understand what is meant by Gold standard in the
process of monetary system,
•As an International Business Management student,
you will be familiar with the history of Bretton
Woods institutions : IMF and WB, and
• You will be able to have slight information on the
mandates of IMF and WB.
The Gold Standard and Currency Exchange
What is Gold Standard? What were its functions?

• Before WWII, the exchange rate was basically guided by
gold standard.
• The gold standard had its origin in the use of gold coins
as a medium of exchange, unit of account, and store of
value—a practice that dates to ancient times before
1930s.
• When the volume of trade b/n states were minimal,
minimal
exchange rate was managed using gold or silver.
• As the volume of international trade expanded a more

convenient means of financing international trade was
needed.
• Shipping large quantities of gold and silver around the
world to finance international trade seemed impractical.
• The solution adopted was to arrange for payment in
paper currency and for governments to agree to convert
the paper currency into gold on demand at a fixed rate.
• Pegging currencies to gold and guaranteeing

convertibility is known as the gold standard.
• By 1880, most of the world's major trading nations,
including Great Britain, Germany, Japan, and the
United States, had adopted the gold standard.
standard
• Given a common gold standard, the value of any

currency in units of any other currency (the exchange
rate) was easy to determine.
• For example, under the gold standard, one U.S. dollar was
defined as equivalent to 23.22 grains of “fine” (pure) gold.
• Thus, one could, in theory, demand that the U.S.

government convert that one dollar into 23.22 grains
of gold.
• The amount of a currency needed to purchase one

ounce of gold was referred to as the gold par value.
• One ounce of gold= 480 grains of gold= 28.3495 gm
• The British pound was valued at 113 grains of fine

gold. In other words, one ounce of gold cost £4.25 (480
grains of gold= £4.25).
• From the gold par values of pounds and dollars, we can

calculate what the exchange rate was for converting
pounds into dollars.
• The gold standard worked reasonably well from the
1870s until the start of World War I in 1914, when it
was abandoned.
• During the war, several governments financed part
of their massive military expenditures by printing
money. This resulted in inflation,
inflation and by the end war
in 1918, price levels were higher everywhere.
• The United States returned to the gold standard in
1919, Great Britain in 1925, and France in 1928.
• Great Britain returned to the gold standard by
pegging the pound to gold at the prewar gold parity
level of £4.25 per ounce, despite substantial inflation
between 1914 and 1925. This priced British goods
out of foreign markets, which pushed the country
into a deep depression.
• The international monetary system refers to the
institutional arrangements that govern exchange
rates.
• Exchange rate means the impersonal market forces of

demand and supply determined the relative value of
any two currencies (i.e., their exchange rate).
• Demand and supply of currencies is influenced by

their respective countries' relative inflation rates and
interest rates
• When demand and supply of currencies guide the
exchange rates of currencies, we call it floating
exchange rate regime.
For example as their exchange rates were
determined by market forces:
-the four major trading currencies of the World: U.S.D,
euro, Japanese yen, and the British pound—are all
free to float against each other and fluctuate from
time to time.
time
• Many of the world's developing nations peg their
currencies, primarily to the dollar or the euro.
euro
• A pegged exchange rate means the value of the
currency is fixed relative to a reference currency,
such as the U.S. dollar, and then the exchange rate
between that currency and other currencies is
determined by the reference currency exchange rate.
• Ethiopia, for example, pegged (1usd=2.10ETH. Birr) its
exchange rate to the dollar throughout the 1970s to
1990s and , before allowing it to float these days.
• There are also currency exchange called dirty floating
where there is government intervention for
devaluation and regulation.
 It is floating b/s it’s exchange rate value is
determined by market forces, and it is dirty float
(as opposed to clean float), b/s there government
intervention when it feels necessary)
• Still other countries have operated with a fixed

exchange rate, in which the values of a set of
currencies are fixed against each other at
some mutually agreed-on
agreed exchange rate
(example: most EU Countries before
introduction of euro).
• The fixed exchange rate collapsed in 1973,
many argue fixed rate is good to reestablish.
History and Functionality of the Bretton Woods
Agreement
• The Bretton Woods Agreement was reached in a 1944
summit held in New Hampshire, USA on a site by the
same name.
• The agreement was reached by 730 delegates, who
were the representatives of the 44 allied nations that
attended the summit.
• The delegates, within the agreement, used the gold
standard to create a fixed currency exchange rate.
History and Functionality of the Bretton
Woods Agreement
The Bretton Woods System is:

• a set of unified rules and policies that provided
the framework necessary to create fixed
international currency exchange rates.
History and Functionality of the Bretton
Woods Agreement
• The Bretton Woods Agreement established a
system through which a fixed currency exchange
rate could be created using gold as the universal
standard.
• The agreement involved representatives from 44
nations and brought about the creation of the
International Monetary Fund (IMF) and the
World Bank (WB).
• The fixed currency exchange rate system
eventually failed; however, it provided much-
needed stability at the time of its creation.
Agreement
• As mentioned above, 44 allied nations met in Bretton
Woods, NH in 1944 for the UN Monetary and
Financial Conference.
• At that time, the world economy was very shaky, and
the allied nations sought to meet to discuss and find
a solution for the prevailing issues that plagued
currency exchange.
Agreement
• The summit was also looking for policies and

regulations that would maximize the potential
benefits and profits that could be derived from the
global trading system.
– What resulted from the conference were the
Bretton Woods Agreement and the Bretton
Woods System.
Agreement
• The Bretton Woods System is a set of unified rules
and policies that provided the framework necessary
to create fixed international currency exchange
rates.
• Essentially, the agreement called for the newly
created IMF to determine the fixed rate of exchange
for currencies around the world.
History and Functionality of the BWs Agreement
• Every represented country assumed the responsibility of
upholding the exchange rate, with incredibly narrow
margins above and below.
• Countries struggling to stay within the window of the
fixed exchange rate could petition the IMF for a rate
adjustment, which all allied countries would then be
responsible for following fixed rate.
• The Bretton woods system was depended on and was
used heavily until the beginning of the 1970s.
The Collapse of the Bretton Woods System
• Backing currency by the gold standard
started to become a serious problem
throughout the late 1960s.
• By 1971, the issue was so bad that US
President Richard Nixon gave
notification that the ability to convert
the dollar to gold was being suspended
“temporarily.” The move was inevitably
the final straw for the system and the
agreement that outlined it.
The Collapse of the Bretton Woods System
• Still, there were several attempts by
representatives, financial leaders, and
governmental bodies to revive the
system and keep the currency exchange
rate fixed. However, by 1973, nearly all
major currencies had begun to float
relatively toward one another, and the
entire system eventually collapsed.
Significance of the Bretton Woods Agreement
• Despite falling apart, the Bretton Woods

summit and agreement are responsible
for a number of notably important
aspects in the financial world. First and
foremost is the creation of the IMF and
the World Bank. Both institutions
remain vital to the global economy to
this day.
Significance of the Bretton Woods Agreement
• On a larger scale, however, the

agreement unified 44 nations from
around the world, bringing them
together to solve a growing global
financial crisis. It helped to strengthen
the overall world economy and
maximize international trade profit.
The Bretton Woods System
When did Bretton Woods system merged? And
why?
•In 1944, at around the end of World War II,
representatives from 44 countries met at
Bretton Woods (New Hampshire, USA), to
design a new international monetary system.
•With the collapse of the gold standard and the
Great Depression of the 1930s, these states
were determined to build an enduring economic
order that would facilitate postwar economic
growth. Email: eshetg58@gmail.com
When did Bretton Woods system merged? And
why?
•There was consensus that fixed exchange
rates were desirable. In addition, the
conference participants wanted to avoid the
senseless competitive devaluations of the
1930s, and they recognized that the gold
standard would not ensure this. The major
problem with the gold standard as previously
constituted was that no multinational
institution could stop countries from engaging
in competitive devaluations Email: eshetg58@gmail.com
When did Bretton Woods system merged? And why?

•The agreement reached at Bretton Woods established
two multinational institutions—the International
Monetary Fund (IMF) and the World Bank.
•The task of the IMF would be to maintain order in the
international monetary system and that of the World
Bank would be to promote general economic
development.
•The Bretton Woods agreement also called for a system
of fixed exchange rates that would be policed by the
IMF.
•Under the agreement, all countries were to fix the
value of their currency in terms of gold but were not
required to exchange their currencies for gold.
•Only the dollar remained convertible into gold—at a
price of $35 per ounce. Each country decided what it
wanted its exchange rate to be vis-à-vis the dollar and
then calculated the gold par value of the currency based
on that selected dollar exchange rate.
•All participating countries agreed to try to maintain the value
of their currencies within 1 percent of the par value by buying
or selling currencies (or gold) as needed.
– For example, if foreign exchange dealers were
selling more of a country's currency than
demanded, that country's government would
intervene in the foreign exchange markets, buying
its currency in an attempt to increase demand and
maintain its gold par value.
– Another aspect of the Bretton Woods agreement
was a commitment not to use devaluation as a
weapon of competitive trade policy. However, if a
currency became too weak to defend, a
devaluation of up to 10 percent would be allowed
without any formal approval by the IMF. Larger
devaluations required IMF approval.
Compiled by Eshet Gebre (Ph.D.
International Business Management
Part V
Competing in a Global Marketplace
• In order to understand competition in the
Global Market place, one need to understand:
• the competitors,
• their strategy
• their purpose and
• means of competition.
• International Business companies are the
main competitors in the Global market place.
• These companies rely on global strategies to
succeed in the Global market.
• Beginning from early international trade up to
today, vulnerability of International Companies
has been reduced and reached invincibility in
the competitive Global Market.
• To be able to understand International business
organizations’ ability to compete in international
business, one need to understand such
organizations architecture.
• Organization architecture is the nature of such
Organizations that enables them to undertake
their international businesses so as to manage
and direct their global operations.
• By organizational architecture we mean the

totality of a firm's organization, including:
• formal organization structure,
• control systems and incentives, processes,
• organizational culture, and
• The people they work with.
Organizational architecture
By organizational structure, we mean three things:
• The formal division of the organization into
subunits such as product divisions, national
operations, and functions (most organizational
charts display this aspect of structure);
• The location of decision-making responsibilities
within that structure (e.g., centralized or
decentralized); and
• The establishment of integrating mechanisms to
coordinate the activities of subunits including
cross-functional teams and/or pan-regional
committees.
• Organizational structure can be thought of in
terms of three dimensions:
dimensions
(1) vertical differentiation, which refers to the
location of decision-making responsibilities
within a structure;
(2) horizontal differentiation, which refers to the
formal division of the organization into subunits;
and
(3) the establishment of integrating mechanisms,
which are mechanisms for coordinating subunits.
Control systems are the metrics used to measure
the performance of subunits and make judgments
about how well managers are running those
subunits.
– For example, historically Unilever measured the
performance of national operating subsidiary
companies according to profitability—profitability was
the metric.
•Incentives are the devices used to reward
appropriate managerial behavior. Incentives are very
closely tied to performance metrics.
– For example, the incentives of a manager in charge of a
national operating subsidiary might be linked to the
performance of that company. Specifically, an
employee might receive a bonus if her subsidiary
exceeds its performance targets.
Processes are the manner in which decisions are made
and work is performed within the organization.
Examples are the processes for formulating strategy, for
deciding how to allocate resources within a firm, or for
evaluating the performance of managers and giving
feedback.
Processes are conceptually distinct from the location of
decision-making responsibilities within an organization,
although both involve decisions.
For example:
While the CEO might have ultimate responsibility for
deciding what the strategy of the firm should be (that is,
the decision-making responsibility is centralized), the
process he or she uses to make that decision might
include the solicitation of ideas and criticism from lower-
level managers.
Basis of centralization and Decentralization of
decision in Organizations
• The choice between centralization and

decentralization is not absolute.
absolute
• Usually, it makes sense to centralize some
decisions and to decentralize others,
depending on the type of decision and the
firm's strategy.
Basis of centralization and Decentralization of
decision in Organizations
For example:
• Decisions regarding overall firm strategy,
strategy major
financial expenditures, financial objectives,
objectives and
legal issues are typically centralized at the
firm's headquarters.
• However, operating decisions,
decisions such as those
relating to production, marketing, R&D, and
human resource management,
management may or may not
be centralized depending on the firm's
strategy.
Examples of Organizations in International
Competition
MTV music Company (North America) have

now reached the who world.
• MTV changed it strategy in the 1990s. It broke its service
into “feeds” aimed at national or regional markets, first in
Europe, and then in the rest of the world. Thus today MTV
offers local feeds for the United Kingdom and Ireland;
another for Germany, Austria, and Switzerland; one for
Scandinavia; one for Italy; one for France; one for Spain;
one for Holland; and so on.
• In Asia, MTV has an English–Hindi channel for India,
separate Mandarin feeds for China and Taiwan, a Korean
feed for South Korea, a Bahasa-language feed for
Indonesia, Japanese feed for Japan, and so on. Digital and
satellite technology have made the localization of
programming cheaper and easier. MTV Networks can now
beam half a dozen feeds off one satellite transponder.
Strategy of Business in International
Competition
• Strategy…. ‘‘A firm's strategy can be defined
as the actions that managers take to attain
the goals of the firm’’
• For most firms, the preeminent goal is to
maximize the value of the firm for its owners,
its shareholders (subject to the very important
constraint that this is done in a legal, ethical,
and socially responsible manner)
Competition
Profitability:
• To maximize the value of a firm, managers
must pursue strategies that increase the
profitability of the enterprise and its rate of profit
growth over time.
• Profitability can be measured in a number of
ways. Profit is usually define as the rate of return
that the firm makes on its invested capital (ROIC),
which is calculated by dividing the net profits of
the firm by total invested capital.
. Email: eshetg58@gmail.com
Competition
Profit:
• Profit growth is measured by the percentage increase
in net profits over time.
• In general, higher profitability and a higher rate of
profit growth will increase the value of an enterprise
and thus the returns garnered by its owners, the
shareholders.
Competition
Profit:
• Managers can increase the profitability of the firm :
• by pursuing strategies that lower costs or
• by pursuing strategies that add value to the
firm's products, either of which enables the firm
to raise prices.
• Managers can increase the rate at which the
firm's profits grow over time:
– by pursuing strategies to sell more products in
existing markets or
– by pursuing strategies to enter new markets.
VALUE CREATION
Competition
• Expanding the Market:
Market Leveraging products and
competencies.
• Location Economies…enables us to look into
comparative advantage in the production of certain
products in Countries with various political ideologies,
Cultures, Languages, Legal and other differences that
could be identified through R& D.
• Example:
Ethiopia may excel in Organic food production,
whereas
Japan could be in the production of Automobiles
Means of Competition at International
business
• There are three basic methods by which
companies can compete in foreign markets:
exporting, licensing and other contractual
agreements, and investment.
• These are done through technological and
political factors as well as economic factors.
• Industries that are experiencing rapid
technological advancements are already global in
nature.
• Production facilities can and are being located
virtually anywhere in the world
Further Reference
Carpenter, Mason A. and Dunung, Sanjyot P. (2010):
Challenges and Opportunities in International Business
(V.1.0)
De Lombaerde, P. (Ed.). (2006). Assessment and measurement of
regional integration. Routledge.
H i l l, C h a r l e s W. L . (2009 ). I n t e r n a t i o n a l B u s i n e s s: C O M P E T I N
G I N T H E G L O B A L M A R K E T P L A C E, U N I V E R S I T Y
OFWASHINGTON
H i l l, C h a r l e s W. L . & Hult, G. Tomas M. (2019). International Business :
Competing in the Global Marketplace

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2 Credit Hours

Eshet Gebre, Ph.D

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To develop knowledge and understanding,

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• IB includes any types of trade of goods, services

• A multi-national Company is also known as Multi-

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Q: What kind of skill and knowledge needs an

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The expansion of the global market has created a

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Mover of Globalization Factors restraining Globalization

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1.What are the advantages and disadvantages of

2.What can Nations/individuals/organizations do

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• May lead to more environmental problems,

• Globalization can lead to financial problems,

• Some of the poorest Countries in the world, especially in

• Decrease in environmental protection.

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• Refers to poorly coordinated economic

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stakeholders, the capability to conduct

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To undertake IB, there need to be:

• Compatible technical standards,

• Common marketing regulations,

• Interdependence among countries,

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• Advances in computers and communications

• Other facilitating infrastructures are also vital

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the following skills or qualifications: