mba 4th semister

8/8/2019 MBA 4th Semister

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Rent Utilities Insurance Admin. Exp. (PT Sec.) Legal & Accounting

Marketing Equipment Maintenance/Supplies Facility Maintenance Fees/Miscellaneous

Debt / Equity Investment: Equipment Loan Building Rehabilitation Loan Grants Owner Equity

Expenses Cost of Goods Sold Wages & Benefits Materials Supplies

Overhead Expenses: Rent Utilities Building Maintenance/Security Marketing Accounting Legal Administrative Expense Interest Expense Depreciation

The Business Priorities are based upon six top-level objectives; these are: To make Business data available both to decision-makers and as much as possible availablethe public domain; To ensure all holders of Business information are able to participate. To ensure that the data available through the NETWORK are of known quality; To ensure that the NETWORK Gateway gives access to data on Location and species usedinform decisions affecting Business at local, regional, national and international levels; To promote knowledge, use and awareness of the NETWORK; To enhance the skills base and expertise needed to support and develop the NETWORK.

i) The objectives have cross-cutting themes which are:

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A. Infrastructure developmentB. Data standards and toolsC. Capacity buildingD. Working with the wider publicE. Co-ordination and promotion

i) In addition, the partners will contribute to the overall realisation of the objectives through wthat they initiate on their own account, but which does not necessarily fall under the focussobjectives for the Network.ii) A series of assumptions have been made in formulating the Business Priorities and their associated work programme. These are: It is assumed that the present way of working, i.e. a lead partner approach for each project w be retained; The plan is not intended to represent all the work that could be undertaken; It is anticipated that other work towards the principal aim of adding content and providingfully functional gateway will be adopted by the NETWORK as part of its programme, but thwork would have to be prioritised against this core activity and separately resourced;

To give additional focus to the challenging nature of the task that the NETWORK is setting itsea series of principle drivers have been recognised.

The drivers are:ProcessesThis driver relates to facilitated targeted action on the ground through providing knowledgeresource location, extent, pattern of distribution, data quality and gaps. It also has the potential engaging more partners in the NETWORK; Environmental Impact Assessment (EIA) and Strategic Environmental Assessment This driis concerned with providing ready access to data on location, extent, pattern and quality Business. Data contributor engagement This driver is concerned with accessing sources of data for t NETWORK enabling the assessment of actions and continual improvement in the targetingactions from the two previous drivers; Operational use This relates to the use of the NETWORK within the day to day business agencies as a source of data relevant to local reporting or casework; Generic enhancement This driver encompasses capacity building and Recording Schemes aother contributing organisations and user groups, in order to ensure the continued and enhancsupply and use of information.These lead naturally to three broad areas of work: Developing the recording network; Enhancing the Internet Gateway in terms of its functionality and the data it accesses; Ensuring that the benefits already secured through the earlier work are maintained.The plan also acknowledges the need to co-ordinate activity between the members of t NETWORK and their partners, and to communicate the progress and successes of the wo programme.

b) importance of creativity in BusinessAnswerCreativityEveryone in business is creative.

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Some of most creative people are in manufacturing.They actually CREATE products that change the world.Some of the least creative people perhaps are in advertising.They spend most of their creative energy telling manufacturers that theyarent creative!Salespeople Are Creative They are natural born story-tellers.

Accountants are creative.Best Creative Exercise Ever Write down your ideas.You have a ton every day.But most of the time, you cant remember them by the days end.Dont let spelling and grammar issues or relentless self-editing stop you.Get your ideas on paper (Let someone else edit it.)Go retro: Carry a notebook, pen, and calendar into your meetings.Look up at people.Story First, Technology Last.Dont invest in a presentation class called How to Use PowerPoint.until youve taken

class called How to Tell Stories and Connect with Your Audience.

2 A Simple Creative Exercise

Simplify everything. Your life, your home, your office, your desk, your processes, vision, poli procedures. Everything.Fixing Problems is Creative.Your job is to fix problems, not to complain.

BrainstormingDont tell people that their ideas are bad, especially if you dont have a better one.Its only your lifes work. Never say, Its not my job to be creative.

How to Lose an Audience Show your audience slides with columns of numbers. Refuse to tell them a story about the meaning of the numbers. Do not read your speech or presentation. Instead, read your audience.How about a Show?Try giving a performance instead of merely giving a presentation.

Everyone in Sales Knows Tell stories. Dont just provide data.Avoid Meetings.Do not attend more than two meetings a day, or else you will never get any real creative wodone.

Get Fresh Ideas.

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Leave the office building at least once a day.Another Lame ExcuseDesigners should put more of their passion into designing great work, instead of endless (boridiscussions about the superiority of the Macintosh over the PC!The Lame Excuse

I cant [write/design/create] because I dont have the latest [software/hardware/ upgrade].You cant let a machine take credit for your creativity.And you cant blame a machine for your creative failures, either.

Dont Blame the Tool!The more you become a master of your particular creative form..the fewer tools you will use.Master carpenters use fewer tools than novices.So do cooks.Use what works.Creativity: Use it or Lose it.

Create something every day.Creativity takes place every day, not once in a while.Its not rare.Its just been mystified Own your creativity.Facts and observationsGiga-investments made in the paper and pulp industry, in the heavy metal industry and in oth base industries, today face scenarios of slow growth (2-3 % p.a.) in their key markets andgrowing over-capacity in Europe.

The energy sector faces growing competition with lower prices and cyclic variations of demandProductivity improvements in these industries have slowed down to 1-2 % p.a .

Global financial markets make sure that capital cannot be used non-productively, as its owners offered other opportunities and the capital will move (often quite fast) to capture theopportunities.

The capital markets have learned the American way, i.e. there is a shareholder dominanamong the actors, which has brought (often quite short-term) shareholder return to the forefrona key indicator of success, profitability and productivity.

There are lessons learned from the Japanese industry, which point to the importance immaterial investments . These lessons show that investments in buildings, production technologand supporting technology will be enhanced with immaterial investments, and that these are evmore important for re-investments and for gradually growing maintenance investments.

The core products and services produced by giga-investments are enhanced with life-time serviwith gradually more advanced maintenance and financial add-on services.

New technology and enhanced technological innovations will change the life cycle of a giginvestment.

Technology providers are involved throughout the life cycle of a giga-investment.

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Giga-investments are large enough to have an impact on the market for which they are positionA 3,00,000 ton paper mill will change the relative competitive positions; smaller units are longer cost effective.

A new technology will redefine the CSF:s for the market.

Customer needs are adjusting to the new possibilities of the giga-investment.The proposition that we can describe future cash flows as stochastic processes is no longer vaneither can the impact be expected to be covered through the stock market.

Types of options Option to Defer Time-to-Build Option Option to Expand Growth Options Option to Contract Option to Shut Down/Produce

Option to Abandon Option to Alter Input/Output Mix

Table of Equivalences:INVESTMENT OPPORTUNITY VARIABLE CALL OPTION

Present value of a projects operatingcash flows.

S Stock price.

Investment costs X Exercise priceLength of time the decision may be

deferred.t Time to expiry.

Time value of money. rf Risk-free interest rateRisk of the project. Standard deviation of returns on stock

Fuzzy numbers ( fuzzy sets ) are a way to express the cash flow estimates in a more realistic way.This means that a solution to both problems (accuracy and flexibility) is a real option model usfuzzy sets.

3. What factors are to be taken into account in a crisis communications strategy?AnswerThe following items should be taken into account in the crisis communications strategy:

Communications should be timely and honest. To the extent possible, an audience should hear news from the organization first. Communications should provide objective and subjective assessments. All employees should be informed at approximately the same time. Give bad news all at once do not sugarcoat it. Provide opportunity for audiences to ask questions, if possible. Provide regular updates and let audiences know when the next update will be issued. Treat audiences as you would like to be treated. Communicate in a manner appropriate to circumstances: Face-to-face meetings (individual and group)

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News conferences Voice mail/email Company Intranet and Internet sites Toll-free hotline Special newsletter

Announcements using local/national media.Preplanning for communications is critical. Drafts of message templates, scripts, and statemecan be crafted in advance for threats identified in the Risk Assessment.

Procedures to ensure that communications can be distributed at short notice should also established, particularly when using resources such as Intranet and Internet sites and toll-fhotlines.

Official Spokesperson

The organization should designate a single primary spokesperson, with back-ups identified, w

will manage/disseminate crisis communications to the media and others. This individual shou be trained in media relations prior to a crisis. All information should be funneled through a sinsource to assure that the messages being delivered are consistent.It should be stressed that personnel should be informed quickly regarding where to refer cafrom the media and that only authorized company spokespeople are authorized to speak to media. In some situations, an appropriately trained site spokesperson may also be necessary.

4. What elements should be included in a Marketing Plan under Due Diligence while seekinginvestment in for your Company? (10 marks).AnswerThe Process of Due DiligenceA business which wants to attract foreign investments must present a business plan. But business plan is the equivalent of a visit card. The introduction is very important but, once foreign investor has expressed interest, a second, more serious, more onerous and more tedio process commences: Due Diligence.

"Due Diligence" is a legal term (borrowed from the securities industry). It means, essentiallymake sure that all the facts regarding the firm are available and have been independently verifiIn some respects, it is very similar to an audit. All the documents of the firm are assembled areviewed, the management is interviewed and a team of financial experts, lawyers anaccountants descends on the firm to analyze it.

First Rule:The firm must appoint ONE due diligence coordinator. This person interfaces with all outside ddiligence teams. He collects all the materials requested and oversees all the activities which maup the due diligence process.

The firm must have ONE VOICE. Only one person represents the company, answers questiomakes presentations and serves as a coordinator when the DD teams wish to interview peopconnected to the firm.

Second Rule:

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Brief your workers. Give them the big picture. Why is the company raising funds, who are tinvestors, how will the future of the firm (and their personal future) look if the investor comes Both employees and management must realize that this is a top priority. They must be instructnot to lie. They must know the DD coordinator and the companys spokesman in the DD procesThe DD is a process which is more structured than the preparation of a Business Plan. It

confined both in time and in subjects: Legal, Financial, Technical, Marketing, Controls.The Marketing PlanMust include the following elements: A brief history of the business (to show its track performance and growth) Points regarding the political, legal (licences) and competitive environment A vision of the business in the future Products and services and their uses Comparison of the firms products and services to those of the competitors Warranties, guarantees and after-sales service Development of new products or services

A general overview of the market and market segmentation Is the market rising or falling (the trend: past and future) What customer needs do the products / services satisfy Which markets segments do we concentrate on and why What factors are important in the customers decision to buy (or not to buy) A list of the direct competitors and a short description of each The strengths and weaknesses of the competitors relative to the firm Missing information regarding the markets, the clients and the competitors Planned market research A sales forecast by product group The pricing strategy (how is pricing decided) Promotion of the sales of the products (including a description of the sales force, sales-relatincentives, sales targets, training of the sales personnel, special offers, dealerships, telemarketand sales support). Attach a flow chart of the purchasing process from the moment that the cliis approached by the sales force until he buys the product. Marketing and advertising campaigns (including cost estimates) broken by market and media Distribution of the products A flow chart describing the receipt of orders, invoicing, shipping. Customer after-sales service (hotline, support, maintenance, complaints, upgrades, etc.) Customer loyalty (example: churn rate and how is it monitored and controlled).Legal Details Full name of the firm Ownership of the firm Court registration documents Copies of all protocols of the Board of Directors and the General Assembly of Shareholders Signatory rights backed by the appropriate decisions The charter (statute) of the firm and other incorporation documents Copies of licences granted to the firm A legal opinion regarding the above licences A list of lawsuit that were filed against the firm and that the firm filed against third parti(litigation) plus a list of disputes which are likely to reach the courts

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Legal opinions regarding the possible outcomes of all the lawsuits and disputes including th potential influence on the firmFinancial Due Diligence Last 3 years income statements of the firm or of constituents of the firm, if the firm is the resof a merger. The statements have to include:

Balance Sheets Income Statements Cash Flow statements Audit reports (preferably done according to the International Accounting Standards, or, if firm is looking to raise money in the USA, in accordance with FASB) Cash Flow Projections and the assumptions underlying themControls Accounting systems used Methods to price products and services Payment terms, collections of debts and ageing of receivables Introduction of international accounting standards

Monitoring of sales Monitoring of orders and shipments Keeping of records, filing, archives Cost accounting system Budgeting and budget monitoring and controls Internal audits (frequency and procedures) External audits (frequency and procedures) The banks that the firm is working with: history, references, balancesTechnical Plan Description of manufacturing processes (hardware, software, communications, other) Need for know-how, technological transfer and licensing required Suppliers of equipment, software, services (including offers) Manpower (skilled and unskilled) Infrastructure (power, water, etc.) Transport and communications (example: satellites, lines, receivers, transmitters) Raw materials: sources, cost and quality Relations with suppliers and support industries Import restrictions or licensing (where applicable) Sites, technical specification Environmental issues and how they are addressed Leases, special arrangements Integration of new operations into existing ones (protocols, etc.)A successful due diligence is the key to an eventual investment. This is a process much moserious and important than the preparation of the Business Plan.

5. Distinguish between Joint Ventures and Licensing, explaining the relative advantages anddisadvantages of each.(10 marks).

AnswerLicensing and Assigning IP rightsOne basic choice is whether you should actively exploit your IP rights yourself, or to keep yourrights and license them to others to use, or sell or assign the rights to another person. You can,

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principle, make different choices in different countries for exploiting IP rights for the samunderlying invention. If you are based in Malaysia, you could in theory decide to exploit yo patent yourself in the East Asian region, grant a licence a Canadian company to use the inventin North America, and sell or assign the rights in Europe to a Danish company whether or nthis is the best approach in practice is a different matter, of course.

A licence is a grant of permission made by the patent owner to another to exercise any specifrights as agreed. Licensing is a good way for an owner to benefit from their work as they retownership of the patented invention while granting permission to others to use it and gaini benefits, such as financial royalties, from that use. However, it normally requires the owner of invention to invest time and resources in monitoring the licensed use, and in maintaining aenforcing the underlying IP right.

The patent right normally includes the right to exclude others from making, using, selling importing the patented product, and similar rights concerning patented processes. The license therefore cover the use of the patented invention in many different ways.

For instance, licences can be exclusive or non-exclusive. If a patent owner grants anon-exclusivelicence to Company A to make and sell their patented invention in Malaysia, the patent ownwould still be able to also grant Company B another non-exclusive for the same rights and tsame time period in Malaysia. In contrast, if a patent owner granted anexclusive licence toCompany A to make and sell the invention in Malaysia, they would not be able to give a licento anyone else in Malaysia while the licence with Company A remained in force.

Licenses are normally confined to a particular geographical area typically, the jurisdictionwhich particular IP rights have effect. You can grant different exclusive licences for differeterritories at the same time. For example, a patent owner can grant an exclusive licence to maand sell their patented invention in Malaysia for the term of the patent, and grant a separaexclusive licence to manufacture and sell their patented invention in India for the term of t patent.

Separate licences can be granted for different ways of using the same technology. For examplean inventor creates a new form of pharmaceutical delivery, she could grant an exclusive licenceone company to use the technology for an arthritis drug, a separate exclusive licence to anotcompany to use it for relief of cold symptoms, and a further exclusive licence to a third compato use it for veterinary pharmaceuticals.

A licence is merely the grant of permission to undertake some of the actions covered bintellectual property rights, and the patent holder retains ownership and control of the bas patent.

An assignment of intellectual property rights is the sale of a patent right, or a share of the patenIt should be remembered that the person who makes an invention can be different to the perswho owns the patent rights in that invention. If an inventor assigns their patent rights to someoelse they no longer own those rights. Indeed, they can be in infringement of the patent rightthey continue to use it.

Patent licences and assignments of patent rights do not have to cover all patent rights together.

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Licences are often limited to specific rights, territories and time periods. For example, a patowner could exclusively licence only their importation right to a company for the territory Indonesia for 12 months. If an inventor owns patents on the same invention in five differecountries, they could assign (or sell) these patents to five different owners in each of thocountries. Portions of a patent right can also be assigned so that in order to finance yo

invention, you might choose to sell a half-share to a commercial partner.If you assign your rights, you normally lose any possibility of further licensing or commerciaexploiting your intellectual property rights. Therefore, the amount you charge for an assignmenusually considerably higher than the royalty fee you would charge for a patent licence. Whassigning the rights, you might seek to negotiate a licence from the new owner to ensure that ycan continue to use your invention. For instance, you might negotiate an arrangement that givyou licence to use the patented invention in the event that you come up with an improvementyour original invention and this falls within the scope of the assigned patent. Equally, the neowner of the assigned patent might want to get access to your subsequent improvements on invention.

Licensing Advantages An Inventive Incentive "Licensing", tried and true Fair and Balanced Product Exclusivity Inventions of interest to you You are free to view our inventions An informed business decision A production head start We are vitally committed to your success A resource for future projects

Joint Venture Agreements and Start-up CompaniesRather than simply exploit your IP rights by licensing or assignment, you might choose to set unew legal mechanism to exploit your technology. Typically this can be a partnership expressthrough a joint venture agreement or a new corporation, such as a start-up or spin-off company.These options require much more work on your part than licensing or assigning your intellect property rights. This could be a desirable choice in cases where:

you want to keep your institutes research activities separate from the development acommercialisation of technology, especially when your institute has a public interest focus or educational role; or you need to attract financial support from those prepared to take a risk with an unprovtechnology (angel investors or venture capitalists), and they will only take on a long-term rif they can get a share of future profits of the technology.

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In working out the right vehicle for your technology, you will normally need specific legal advfrom a commercial lawyer, preferably one with experience in technology and commercialisatiin your jurisdiction. The laws governing partnerships and companies differ considerably from ocountry to another, and this discussion is only intended to give a general flavour of the variooptions.

A joint venture agreement involves a formal, legally binding commitment between two or mo partners to work together on a shared enterprise. It is normally created for a specific purpose example, to commercialise a specific new technology) and for a limited duration. For instanyou might sign a partnership agreement with a manufacturing company to develop and marke product based on your invention.

Before entering into a joint venture agreement, you need to check out possible commerc partners and make sure that the objectives of your potential commercial partners are consistwith your objectives. In the joint venture agreement, the partners typically agree to share t benefits, as well as the risks and liabilities, in a specified way.

But this kind of partnership isnt normally able in itself to enter legal commitments, or own IPits own right, so that the partners remain directly legally responsible for any losses or othliabilities that the partnerships operations create.

In other words, a partnership which is not a corporation, a company or a specific institutidoesnt really separately exist as a legal entity.

By contrast, a company is a new legal entity (a legal person recognised by the law as havingown legal identity) which can own and license IP and enter into legal commitments in its owright.

A spin-off company is an independent company created from an existing legal body fexample, if a research institute decided to turn its licensing division or a particular laboratory ia separate company.

A start-up company is a general term for a new company in its early stages of development. Icompany is defined as a limited liability company, the partners or investors normally cannot lomore than their investment in the company (but officeholders in the company might be personaresponsible for their actions in the way they manage the company).

This separate legal identity means that a start-up company can be a useful way of developing acommercialising a new technology based on original research, while keeping the main reseaeffort of an institute focussed on broader scientific and public objectives, and insulated from commercial risks and pressures of the commercialisation process.

At the same time, the research institute can benefit from the commercialisation of its researthrough receiving its share of the profits and growth in assets of the spin-off company, thstrengthening the institutes capacity to do scientific research.

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The company is normally owned through shares (its equity). These effectively represen portion of the assets and entitlement to profits of the company. Investors can purchase sharesthe company, which is one way of bringing in new financial resources to support the developmof the technology in exchange, the investors stand to benefit from the growth in the companyworth, as their shares proportionately rise in value, and to receive a portion of any prof

produced by the companys operations, commensurate with the number of shares they own. If ia public company, shares in the company can be bought and sold on the open stock market. initial public offering is when the shares in a start up company are first made available to t public to purchase.

A private companys shares, by contrast, are not traded on the open market (but can still bought and sold).

The option of starting up your own company to manufacture and market your patented inventirequires you to have business skills, marketing skills, management skills and substantial capitadraw on for factory premises, hiring staff and so on. But it also can offer a mechanism f

attracting financial backing for research, development and marketing, which can improve accto the necessary resources and expertise.

Which model of commercialisation is best for you?Each new technology and associated package of IP rights is potentially difference, and tmechanism you choose for commercialisation should take into account the particular featuresthe technology. One basic consideration is to what extent you, as originator of the technologwish to be involved and to invest in the subsequent development of the technology. You will neto compare the advantages and disadvantages of each model of commercialisation. Generaspeaking, the higher degree of risk and commitment of finance and resources you can invest, higher the degree of control you can secure over exploitation of the technology invention, and higher the financial return to your institution may be.

There are many possible variations on each of these general models, and in practice they coverlap. In deciding which model of commercialisation is best for you, it is always a good ideaseek commercial or legal advice.

Remember that IPRs alone do not guarantee you a financial return on your invention. You needmake good commercial decisions to benefit financially from your intellectual property rights.Properly managed, intellectual property rights should not be a burden but should yield a retufrom your hard work in creating an invention.

Advantages of Joint ventures: Provide companies with the opportunity to gain new capacity and expertise Allow companies to enter related businesses or new geographic markets or gain ne

technological knowledge access to greater resources, including specialised staff and technology sharing of risks with a venture partner

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Joint ventures can be flexible. For example, a joint venture can have a limited life spand only cover part of what you do, thus limiting both your commitment and the busineexposure.

In the era of divestiture and consolidation, JVs offer a creative way for companies to exfrom non-core businesses.

Companies can gradually separate a business from the rest of the organisation, aneventually, sell it to the other parent company. Roughly 80% of all joint ventures end insale by one partner to the other.

6. You wish to commercialize your invention. What factors would you weigh in choosing anappropriate course? (10 marks).AnswerFollowing are the ways to commercialize my invention.Licensing and Assignment - DefinedThe difference between licensing and selling your invention is comparable to leasing vs. sellihouse. When you sell your house, you transfer your title, making someone else in charge of a

liable for the house from that point on. When you sell your invention, the scenario is the samexcept that the process is called assigning rather than selling. You, the inventor would be tassignor and the person receiving the title or ownership of the patent would be the assignee.Instead of selling, though, you may choose to rent out your house. In this case, you retain the tto the house and give someone permission to use it for a limited period of time.

In consideration for this, they pay you on a monthly, yearly or other basis. The terms of this leare entirely up to you and the person leasing your house. It is up to you to negotiate within t boundaries of the law.

When you license an invention, its nearly the same as leasing. Youre offering a manufacturfor example, the right to manufacture and sell your invention for a period of time, and consideration for this they pay you on a quarterly basis. In this case you are the licensor and company is the licensee. It is up to the parties to negotiate the terms of the license within boundaries of antitrust laws and other regulations that would affect licenses and similar businarrangements.

Should I Sell or License?You will generally have a better chance of licensing your invention instead of assigning (sellinyour rights for two reasons:

First, it is initially hard to ascertain what the eventual value of an invention will be. This walmost invariably result in a win/lose situation. If the value is estimated high, the inventor wand the company loses. On the other hand, if the estimates are low, the inventor loses out.

Second, companies dont like to pay cash up front unless they absolutely have to. Generallwhen a company makes a commitment to manufacture and promote an invention, they are alreaanticipating a substantial financial commitment for tooling, manufacturing setup, engineeriexpenses, advance purchases of raw materials, marketing, and promotional expenses. A compthat is savvy with licensing negotiations will state that the more money they pay the inventor front, the fewer resources they will have available to put into the promotion. This is a hard po

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to argue against, particularly if youre interested in the long-range commercial success of yoinvention.At this point, Inventors have often already incurred substantial initial expenses for patentin prototyping and research, and need to be reimbursed as soon as possible. Therefore, the inven

can argue that the potential licensees should at least reimburse them for these out-of-pockexpenses. After all, these are expenses the company would have normally paid if they hdeveloped such a product on their own. At that point, the company may very well come backthe table and agree to reimburse you for such initial expenses. However, they may want to makan advance against future royalties. Bear in mind that all negotiations are unique and this is justexample.

When you assign (sell) your invention, you will typically lose control of it. Although you mhave cash in hand from the sale of your invention, the company has the prerogative to ditch ytechnology and simply sit on it unless youve made other arrangements. In some cases it is jas important to the inventor to see his invention commercialized as it is to receive the cash fr

it. Having an invention commercialized can give an inventor a substantial head start in attractiinterest in his additional inventions. This may eventually be worth more to an inventor than tinitial cash he would receive from his first commercialized invention.

Should I Go It Alone?Some inventors prefer to keep their inventions close and go into business for themselves, whcomes with its own set of risks and rewards.

There are several different elements at play during the commercialization of an invention: tcompany, the management, the technology, the market, and the marketing team. Each of these ivariable. The more variables you introduce, the greater the risk of failure. If you start with a ncompany under new management with a new product, your chance of success is obviously muslimmer than an existing company already in the field with experience and knowledge in a simi product line. Even when you look at an experienced company like 3-M, which brings many n products to market, youll find that the companys new products fail often.

With all its resources, 3-Ms success rate is said to be only 30%. Unless you have greatresources, your success rate may be even less.

Because there are significant startup risks, its important to seriously investigate the distinadvantages of having your invention introduced by an existing company with experience in yfield can promote your product effectively and already has a skilled sales force with an existiclient base. These factors can greatly reduce the amount of time it takes to introduce yoinvention to the marketplace. What you lose in control when you license can be gained tenfofrom a timing standpoint, and in reducing your risk.

Licensing offers another strong advantage when it is time to sell your manufactured inventioncustomers. Manufacturers who introduce only one invention or a very small product line ofthave a hard time selling to large accounts. Large retail outlets prefer to deal with compani

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where they can do one-stop shopping. Buyers (or purchasing agents) for the big outlets wantreduce the number of bills they get and the number of vendors they see each week. This is wthe introduction of a new invention to retailers by a new company is particularly challenging.

Licensing also has advantages over starting your own company because few products have

unlimited life cycle. In time, your invention may be replaced by new technology. What will yocompany sell then? Most single-item companies that are still around after five years have done by introducing new products and expanding their product line. Companies need new productssurvive.

Sometimes starting your own company is the only way to go. If youve attempted the licensiroute and no manufacturer is interested in your invention at its current stage of development, ymay need to do a small market test with a limited production run to prove your invention has sa potential. Then if your sales results are positive, you may pique the interest of a potential licenwho can take your invention to the next step.

It is easy to get upside down financially with invention projects. This is especially true sininventors have a tendency to overestimate the ultimate value of their inventions. Get somrealistic market research as early in the game as possible. If you find that you must makesubstantial investment to actually manufacture an invention to prove its commercial viability ato interest potential licensees, keep careful track of your expenses and constantly weigh theexpenses against any royalty potential that may result.There are too many sad stories of inventors pouring money into inventions that can never prova return on their investment. Inventors always take a risk when they spend time and money onidea and if theyre lucky, itll pay off quite well. The lesson is to minimize your risks so you c bail out or put the project on hold if warranted. It will save you time, money, and the personenergy youll need for future successes.

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Course Code: MB0037 International Business Management

Set 1 & 2

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MB0037 International BusinessManagement

Q.1 a. How has liberalizing trade helped international business? (6 marks)AnswerThe Benefits of Trade LiberalizationPolicies that make an economy open to trade and investment with the rest of the world are needfor sustained economic growth. The evidence on this is clear. No country in recent decades hachieved economic success, in terms of substantial increases in living standards for its peopwithout being open to the rest of the world. In contrast, trade opening (along with openingforeign direct investment) has been an important element in the economic success of East Aswhere the average import tariff has fallen from 30 percent to 10 percent over the past 20 years.

Opening up their economies to the global economy has been essential in enabling ma

developing countries to develop competitive advantages in the manufacture of certain productsthese countries, defined by the World Bank as the "new globalizers," the number of peopleabsolute poverty declined by over 120 million (14 percent) between 1993 and 1998.

There is considerable evidence that more outward-oriented countries tend consistently to grfaster than ones that are inward-looking. Indeed, one finding is that the benefits of traliberalization can exceed the costs by more than a factor of 10. Countries that have opened theconomies in recent years, including India, Vietnam, and Uganda, have experienced faster growand more poverty reduction. On average, those developing countries that lowered tariffs sharin the 1980s grew more quickly in the 1990s than those that did not.

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Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the larimplicit subsidies, often channeled to narrow privileged interests that trade protection providMoreover, the increased growth that results from free trade itself tends to increase the incomesthe poor in roughly the same proportion as those of the population as a whole. New jobs a

created for unskilled workers, raising them into the middle class. Overall, inequality amocountries has been on the decline since 1990, reflecting more rapid economic growth developing countries, in part the result of trade liberalization.

The potential gains from eliminating remaining trade barriers are considerable. Estimate of tgains from eliminating all barriers to merchandise trade range from US$250 billion to US$6 billion per year. About two-thirds of these gains would accrue to industrial countries. But amount accruing to developing countries would still be more than twice the level of aid thcurrently receive. Moreover, developing countries would gain more from global traliberalization as a percentage of their GDP than industrial countries, because their economies more highly protected and because they face higher barriers.

Although there are benefits from improved access to other countries markets, countries benemost from liberalizing their own markets. The main benefits for industrial countries would cofrom the liberalization of their agricultural markets. Developing countries would gain aboequally from liberalization of manufacturing and agriculture. The group of low-income countrhowever, would gain most from agricultural liberalization in industrial countries because of tgreater relative importance of agriculture in their economies.

b. What are the merits and demerits of international trade? (4 marks)AnswerAdvantages and Disadvantages of International Trade Advantages to consider:

Enhance your domestic competitiveness Increase sales and profits Gain your global market share Reduce dependence on existing markets Exploit international trade technology Extend sales potential of existing products Stabilize seasonal market fluctuations Enhance potential for expansion of your business Sell excess production capacity Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind: You may need to wait for long-term gains Hire staff to launch international trading Modify your product or packaging Develop new promotional material

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Incur added administrative costs Dedicate personnel for traveling Wait long for payments Apply for additional financing Deal with special licenses and regulations

Q. 2 Discuss the impact of culture on International Business. (10 marks)AnswerThe following can be looked as the various aspects of the cultural dichotomies.

Table 2.1: Cultural Dichotomies

In this new millennium, few executives can afford to turn a blind eye to global busineopportunities. Japanese auto-executives monitor carefully what their European and Korecompetitors are up to in getting a bigger slice of the Chinese auto-market. Executives Hollywood movie studios need to weigh the appeal of an expensive movie in Europe and Asiamuch as in the US before a firm commitment. The globalizing wind has broadened the mindsof executives, extended the geographical reach of firms, and nudged international business (Iresearch into some new trajectories. One such new trajectory is the concern with national cultur

Whereas traditional IB research has been concerned with economic/ legal issues an

organizational forms and structures, the importance of national culture broadly defined values, beliefs, norms, and behavioural patterns of a national group has become increasingimportant in the last two decades, largely as a result of the classic work of Hofstede (1980 National culture has been shown to impact on major business activities, from capital structu(Chui et al., 2002) to group performance (Gibson, 1999). For reviews, see Boyacigiller aAdler (1991) and Earley and Gibson (2002).

The purpose of this Unit is to provide a state-of-the-art review of several recent advancesculture and IB research, with an eye toward productive avenues for future research. It is not purpose to be comprehensive; our goal is to spotlight a few highly promising areas fleapfrogging the field in an increasingly boundary-less business world. We first review the issu

surrounding cultural convergence and divergence, and the processes underlying cultural changeWe then examine novel constructs for characterizing cultures, and how to enhance the precisiof cultural models by pinpointing when the effects of culture are important. Finally, we examithe usefulness of experimental methods, which are rarely employed in the field of culture and A schematic summary of our coverage is given in Table 2.1, which suggests that the topireviewed are loosely related, and that their juxtaposition in the present paper represents oattempt to highlight their importance rather than their coherence as elements of an integratiframework.

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1 Cultural change, convergence and divergence in an era of partial globalizationAn issue of considerable theoretical significance is concerned with cultural changes atransformations taking place in different parts of the world. In fact, since the landmark studyHaire et al. (1966) and the publication of Industrialism and Industrial Man by Kerr et al. (196researchers have continued to search for similarities in culture-specific beliefs and attitudes

various aspects of work related attitudes and behaviours, consumption patterns, and the likecultures of the various locales of the world are indeed converging (e.g., Heuer et al., 1999), related practices would indeed become increasingly similar. Standard, culture-free busine practices would eventually emerge, and inefficiencies and complexities associated with diverg beliefs and practices in the past era would disappear. In the following section, we review tevidence on the issue and conclude that such an outlook pertaining to the convergence of variIB practices is overly optimistic.

2 Evolution of partial globalizationGlobalization refers to a growing economic interdependence among countries, as reflected in increased cross-border flow of three types of entities: goods and services, capital, and know-ho

(Govindarajan and Gupta, 2001, 4). Few spoke of world economy 25 years ago, and t prevalent term was international trade (Drucker, 1995). However today, international trade culminated in the emergence of a global economy, consisting of flows of information, technolomoney, and people, and is conducted via government international organizations such as t North American Free Trade Agreement (NAFTA) and the European Community; globorganizations such as the International Organization for Standardization (ISO); multinationcompanies (MNCs); and cross border alliances in the form of joint ventures, internationmergers, and acquisitions. These inter relationships have enhanced participation in the woeconomy, and have become a key to domestic economic growth and prosperity (Drucker, 199153).

Yet, globalization is not without its misgivings and discontents (Sassan, 1998). A vivid imaassociated with the G8 summits is the fervent protests against globalization in many parts of world, as shown in television and reported in the popular media. Strong opposition globalization usually originates from developing countries that have been hurt by the destabilizeffects of globalization, but in recent times we have also seen heated debates in Westeeconomies triggered by significant loss of professional jobs as a result of off shoring to lowwage countries.

Indeed, workers in manufacturing and farming in advanced economies are becoming increasinwary of globalization, as their income continues to decline significantly. In parallel to the ang protests against globalization, the flow of goods, services, and investments across national bordhas continued to fall after the rapid gains of the 1990s. Furthermore, the creation of regional tra blocs, such as NAFTA, the European Union, and the Association of Southeast Asian Natiohave stimulated discussions about creating other trade zones involving countries in South AsAfrica, and other parts of the world.

Although it is often assumed that countries belonging to the World Trade Organization (WTOhave embraced globalization, the fact is that the world is only partially globalized, at be(Schaeffer, 2003). Many parts of Central Asia and Eastern Europe, including the former republof the Soviet Union, parts of Latin America, Africa, and parts of South Asia, have been sceptiof globalization (Greider, 1997). In fact, less than 10% of the worlds population is ful

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globalized (i.e., being active participants in the consumption of global products and service(Schaeffer, 2003). Therefore, it is imperative that we analyze the issues of cultural convergenand divergence in this partially globalized world.

Universal culture often refers to the assumptions, values, and practices of people in the W

and some elites in non-Western cultures. Huntington (1996) suggested that it originates from tintellectual elites from a selected group of countries who meet annually in the World EconomForum in Davos, Switzerland. These individuals are highly educated, work with symbols anumbers, are fluent in English, are extensively involved with international commitments, atravel frequently outside their country.

They share the cultural value of individualism, and believe strongly in market economics a political democracy. Although those belonging to the Davos group control virtually all of tworlds important international institutions, many of the worlds governments, and a gremajority of the worlds economic and military capabilities, the cultural values of the Davos groare probably embraced by only a small fraction of the six billion people of the world.

Popular culture, again mostly Western European and American in origin, also contributes toconvergence of consumption patterns and leisure activities around the world. However, tconvergence may be superficial, and have only a small influence on fundamental issues such beliefs, norms, and ideas about how individuals, groups, institutions, and other important socagencies ought to function. In fact, Huntington (1996, 58) noted that The essence of Westecivilization is the Magna Carta, not the Magna Mac. The fact that non-Westerners may bite inthe latter has no implications for their accepting the former.This argument is obvious if we reverse the typical situation and put Western Europeans a

Americans in the shoes of recipients of cultural influence. For instance, while Chinese Kung dominates fight scenes in Hollywood movies such as Matrix Reloaded, and Chinese restauraabound in the West, it seems implausible that Americans and Europeans have espoused moChinese values because of their fondness of Chinese Kung Fu and food. A major argumeagainst cultural convergence is that traditionalism and modernity may be unrelated (Smith aBond, 1998). Strong traditional values, such as group solidarity, interpersonal harmon paternalism, and feminism, can co-exist with modern values of individual achievement acompetition.

A case in point is the findings that Chinese in Singapore and China indeed endorsed botraditional and modern values (Chang et al., 2003; Zhang et al., 2003). It is also conceivable th just as we talk about Westernization of cultural values around the world, we may also talk aboEasternization of values in response to forces of modernity and consumption values imposedglobalization (Marsella and Choi, 1993).

Although the argument that the world is becoming one culture seems untenable, there are soareas that do show signs of convergence. We explore in the following the roles of several factthat simultaneously cause cultures of the world to either converge or diverge, in an attempt identify several productive avenues for future research.

3 Role of multiculturalism and cultural identityThe broad ideological framework of a country, corporation, or situation is the most importadeterminant of the cultural identity that people develop in a given locale (Triandis, 1994). T

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melting pot ideology suggests that each cultural group loses some of its dominant characterisin order to become the mainstream: this is assimilation, or what Triandis (1994) calls subtractimulticulturalism.

In contrast, when people from a cultural group add appropriate skills and characteristics of ot

groups, it may be called integration, or additive multiculturalism. Both of these processes aessential for cultural convergence to proceed. However, if there is a significant history of conf between the cultural groups, it is hard to initiate these processes, as in the case of Israelis aPalestinians. In general, although there has been some research on the typology of animosagainst other nations (e.g., Jung et al., 2002), we do not know much about how emotionantagonism against other cultural groups affects trade patterns and intercultural cooperation i business context. The issues of cultural identity and emotional reactions to other cultural grouin an IB context constitute a significant gap in our research effort in this area.

4 Implications of convergence and divergence issuesOne message is clear: while convergence in some domains of IB activity is easily noticeab

especially in consumer values and lifestyles, significant divergence of cultures persists. In faHofstede (2001) asserts that mental programs of people around the world do not change rapid but remain rather consistent over time. His findings indicate that cultural shifts are relativeopposed to absolute.

Although clusters of some countries in given geographical locales (e.g., Argentina, Brazil, Chmight indicate significant culture shifts towards embracing Anglo values, the changes do ndiminish the absolute differences between such countries and those of the Anglo countries (iUS, Canada, UK). Huntington, in his The Clash of Civilizations (1996), presents the view tthere is indeed a resurgence of non-Western cultures around the world, which could result in redistribution of national power in the conduct of international affairs.

The attempt by the Davos group to bring about uniform practices in various aspects of IB awork culture, thereby sustaining the forces of globalization, is certainly worthwhile. However, oanalysis suggests that there is no guarantee that such convergence will come about easily, without long periods of resistance.

IB scholars need to understand that although some countries might exhibit strong tendencitoward cultural convergence, as is found in Western countries, there are countries that will rejglobalization, not only because of its adverse economic impacts (Greider, 1997) but also becauglobalization tends to introduce distortions (in their view) in profound cultural syndromes tcharacterize their national character.

Furthermore, reactions to globalization may take other forms. Bhagat et al. (2003) have recenargued that adaptation is another approach that could characterize the tendencies of some cultuin the face of mounting pressures to globalize. Other approaches are rejection, creative syntheand innovation (Bhagat et al., 2003). These different approaches highlight once again the compdynamics that underlie cultural convergence and divergence in a partially globalized world. Alin discussing issues of convergence and divergence, it is necessary to recognize that the shiftvalues is not always from Western society to others, but can result in the change of Weste

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cultural values as well. For example, the emphasis on quality and teamwork in the West is partlresult of the popularity of Japanese management two decades ago.

Scholars of IB should recognize that the issue of convergence and divergence in this era of parglobalization will remain as a persistent and complex issue whose direction might only

assessed on a region-by-region basis. It is also wise to adopt an interdisciplinary perspectiveunderstanding the forces that create both convergence and divergence of cultures in different paof the world. For instance, in Understanding Globalization, Schaeffer (2003) has provided insightful discussion of the social consequences of political, economic and other changes, whhave significant implications for IB.

The cause-effect relationships of globalization and its various outcomes, especially the cultuoutcomes, are not only characterized by bi-directional arrows, but are embedded in a complweb of relationships. How these complex relationships and processes play out on the stage ofremains to be uncovered by IB researchers.

5 Processes of cultural changesIn the previous section, we make the point that, through the process of globalization, cultuinfluence each other and change, but whether or not these changes will bring about cultuconvergence is yet to be seen. In this section, we delineate a general model that describes aexplains the complex processes underlying cultural changes. As explained before, IB is bothagent and a recipient of cultural change, and for international business to flourish it is importanunderstand its complex, reciprocal relationships with cultural change.In line with the view of Hofstede (2001) that culture changes very slowly, culture has been treaas a relatively stable characteristic, reflecting a shared knowledge structure that attenuavariability in values, behavioral norms, and patterns of behaviours (Erez and Earley, 199Cultural stability helps to reduce ambiguity, and leads to more control over expected behaviououtcomes (Weick and Quinn, 1999; Leana and Barry, 2000). For instance, most existing modof culture and work behaviour assume cultural stability and emphasize the fit between a givculture and certain managerial and motivational practices (Erez and Earley, 1993).

High fit means high adaptation of managerial practices to a given culture and, therefore, hieffectiveness. The assumption of cultural stability is valid as long as there are no environmenchanges that precipitate adaptation and cultural change. Yet, the end of the 20th century and the beginning of the new millennium have been characterized by turbulent political and economichanges, which instigate cultural changes.

In line with this argument, Lewin and Kim (2004), in their comprehensive chapter on adaptatand selection in strategy and change, distinguished between theories driven by the underlyiassumption that adaptation is the mechanism to cope with change, and theories driven by tunderlying assumption of selection and the survival of the fittest, suggesting that ineffectiforms of organization disappear, and new forms emerge. However, although organizationchanges as a reaction to environmental changes have been subjected to considerable conceptanalyses, the issue of cultural change at the national level has rarely been addressed.

There are relatively few theories of culture that pertain to the dynamic aspect of culture. Oexception is the eco-cultural model by Berry et al. (2002), which views culture as evolviadaptations to ecological and socio-political influences, and views individual psychologi

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characteristics in a population as adaptive to their cultural context, as well as to the broadecological and socio-political influences. Similarly, Kitayama (2002) proposes a system viewunderstanding the dynamic nature of culture, as opposed to the entity view that sees culture astatic entity.

This system view suggests that each persons psychological processes are organized through active effort to coordinate ones behaviours with the pertinent cultural systems of practices a public meanings. Yet, concurrently, many aspects of the psychological systems develop rathflexibly as they are attuned to the surrounding socio-cultural environment, and are likely to configured in different ways across different socio-cultural groups.

These adaptive views of culture are supported by empirical evidence. For example, Van de Vliet al. (1999) identified curvilinear relationships between temperature, masculinity and domes political violence across 53 countries. Their findings showed that masculinity and domesviolence are higher in moderately warm countries than in countries with extreme temperaturInglehart and Baker (2000) examined cultural change as reflected by changes in basic values

three waves of the World Values Surveys, which included 65 societies and 75% of the world population.

Their analysis showed that economic development was associated with shifts away frotraditional norms and values toward values that are increasingly rational, tolerant, trusting, a participatory. However, the data also showed that the broad cultural heritage of a society, whethit is Protestant, Roman Catholic, Orthodox, Confucian, or Communist, leaves an enduring impron traditional values despite the forces of modernization.

The process of globalization described before has introduced the most significant change in Iwith its effects filtering down to the national, organizational, group and individual leveReciprocally, changes at micro-levels of culture, when shared by the members of the socieculminate into macro level phenomena and change the macro-levels of culture. In the absenceresearch models that can shed light on this complex process of cultural change, Erez and G(2004) proposed that the general model of multi-level analysis (Klein and Kozlowski, 2000) co be adopted for understanding the dynamics of culture and cultural change.

6 The dynamics of culture as a multi-level, multi-layer constructThe proposed model consists of two building blocks. One is a multi-level approach, viewiculture as a multi-level construct that consists of various levels nested within each other from most macro-level of a global culture, through national cultures, organizational cultures, grocultures, and cultural values that are represented in the self at the individual level, as portrayed

Figure 2.1. The second is based on Scheins (1992) model viewing culture as a multi layconstruct consisting of the most external layer of observed artefacts and behaviours, the deeplevel of values, which is testable by social consensus, and the deepest level of basic assumptiwhich is invisible and taken for granted.

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The present model proposes that culture as a multi layer construct exists at all levels from global to the individual and that at each level change first occurs at the most external layer behaviour, and then, when shared by individuals who belong to the same cultural context becomes a shared value that characterizes the aggregated unit (group, organizations, or nationsIn the model, the most macro-level is that of a global culture being created by global networ

and global institutions that cross national and cultural borders. As exemplified by the effort of tDavos group discussed earlier, global organizational structures need to adopt common rules a procedures in order to have a common language for communicating across cultural bord(Kostova, 1999; Kostova and Roth, 2003; Gupta and Govindarajan, 2000).

Figure 2.1: The dynamic of top-downbottom-up processes acrosslevels of culture.Given the dominance of Western MNCs, the values that dominate the global context are oft based on a free market economy, democracy, acceptance and tolerance of diversity, respect freedom of choice, individual rights, and openness to change (Gupta and Govindarajan, 2000).

Below the global level are nested organizations and networks at the national level with their locultures varying from one nation or network to another. Further down are local organizations, a

although all of them share some common values of their national culture, they vary in their loorganizational cultures, which are also shaped by the type of industry that they represent, the tyof ownership, the values of the founders, etc.

Within each organization are sub-units and groups that share the common national aorganizational culture, but that differ from each other in their unit culture on the basis of tdifferences in their functions (e.g., R&D vs manufacturing), their leaders values, and t professional and educational level of their members. At the bottom of this structure aindividuals who through the process of socialization acquire the cultural values transmittedthem from higher levels of culture.

Individuals who belong to the same group share the same values that differentiate them froother groups and create a group level culture through a bottom-up process of aggregationshared values. For example, employees of an R&D unit are selected into the unit because of thcreative cognitive style and professional expertise. Their leader also typically facilitates tdisplay of these personal characteristics because they are crucial for developing innovati products. Thus, all members of this unit share similar core values, which differentiate them frother organizational units. Groups that share similar values create the organizational cultuthrough a process of aggregation, and local organizations that share similar values create tnational culture that is different from other national cultures.

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Both top-down and bottom-up processes reflect the dynamic nature of culture, and explain hculture at different levels is being shaped and reshaped by changes that occur at other leveeither above it through top-down processes or below it through bottom-up processes. Similarchanges at each level affect lower levels through a top-down process, and upper levels throug bottom-up process of aggregation. The changes in national cultures observed by Inglehart a

Baker (2000) could serve as an example for top-down effects of economic growth, enhancedglobalization, on a cultural shift from traditional values to modernization. However, in line wSchein (1992), the deep basic assumptions still reflect the traditional values shaped by the brocultural heritage of a society.

Global organizations and networks are being formed by having local-level organizations join global arena. That means that there is a continuous reciprocal process of shaping and reshaporganizations at both levels. For example, multinational companies that operate in the globmarket develop common rules and cultural values that enable them to create a synergy betwethe various regions, and different parts of the multinational company.

These global rules and values filter down to the local organizations that constitute the globcompany, and, over time, they shape the local organizations. Reciprocally, having locorganizations join a global company may introduce changes into the global company becauseits need to function effectively across different cultural boarders. A study by Erez-Rein et (2004) demonstrated how a multinational company that acquired an Israeli company that develoand produces medical instruments changed the organizational culture of the acquired companThe study identified a cultural gap between the two companies, with the Israeli company beihigher on the cultural dimension of innovation and lower on the cultural dimension of attentiondetail and conformity to rules and standards as compared with the acquiring company.

The latter insisted on sending the Israeli managers to intensive courses in Six Sigma, whichan advanced method of quality improvement, and a managerial philosophy that encompassesorganizational functions. Upon returning to their company, these managers introduced qualimprovement work methods and procedures to the local company, and caused behaviouchanges, followed by the internalization of quality oriented values. Thus, a top-down processtraining and education led to changes in work behaviour and work values. Sharing comm behaviours and values by all employees of the local company then shaped the organizatioculture through bottomup processes.

The case of cultural change via international acquisitions demonstrated the two building blocksour dynamic model of culture: the multi-level structure explains how a lower-level culture being shaped by top-down effects, and that the cultural layer that changes first is the most exterlayer of behaviour. In the long run, bottom up processes of shared behaviours and norms shathe local organizational culture.

7 Factors that facilitate cultural changeCulture itself influences the level of resistance or acceptance of change. Harzing and Hofste(1996) proposed that certain cultural values facilitate change, whereas others hinder it. The valof low power distance, low uncertainty avoidance, and individualism facilitate change. Chanthreatens stability, and introduces uncertainty, and resistance to change will therefore be highercultures of high rather than low uncertainty avoidance (Steensma et al., 2000). Change al

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threatens the power structure, and therefore will be avoided in high power distance culturFinally, change breaks the existing harmony, which is highly valued in collectivistic cultures, atherefore will not be easily accepted by collectivists (Levine and Norenzayan, 1999).

A recent study by Erez and Gati (2004) examined the effects of three factors on the chan

process and its outcomes: the cultural value of individualism collectivism; the reward structure and its congruence with the underlying cultural values; and the degree of ambiguity in the reward structure.The change process examined was a shift from choosing to work alone to a behavioural choiceworking as part of a team, and vice versa. Working alone is more prevalent in individualiscultures, whereas working in teams dominates the collectivistic ones.

8 Understanding when culture matters: increasing the precision of cultural modelsBeyond exploring new cultural constructs and the dynamic nature of culture, we also argue for importance of examining contingency factors that enhance or mitigate the effect of nation

culture. Consider the following scenario. A senior human resource manager in a multinatiofirm is charged with implementing an integrative training program in several of the firmsubsidiaries around the globe. Over the term of her career, the manager has been educated abdifferences in national culture and is sensitive to intercultural opportunities and challenges. At same time, she understands the strategic need to create a unified global program that servesfurther integrate the firms basic processes, creating efficiencies and synergies across the remsites. She approaches the implementation with trepidation. A key challenge is to determiwhether the program should be implemented in the same manner in each subsidiary or modifaccording to the local culture at each site. Put another way, in this complex circumstance, doculture matter?

Q.3. a. Explain the brief structure of WTO. (5 marks)AnswerStructure of World Trade Organization (WTO)The WTOs overriding objective is to help trade flow smoothly, freely, fairly and predictably.It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues, through technical assistance and train programs Cooperating with other international organizations

StructureThe WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 othare negotiating membership.Decisions are made by the entire membership. This is typically by consensus. A majority votealso possible but it has never been used in the WTO, and was extremely rare under the WTO predecessor, GATT. The WTOs agreements have been ratified in all members parliaments.The WTOs top level decision-making body is theMinisterial Conference which meets at leastonce every two years.

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Below this is theGeneral Council (normally ambassadors and heads of delegation in Geneva, butsometimes officials sent from members capitals) which meets several times a year in the Geneheadquarters. The General Council also meets as the Trade Policy Review Body and the DispSettlement Body.

At the next level, theGoods Council, Services Council and Intellectual Property (TRIPS)Council report to the General Council. Numerous specialized committees, working groups and working parties deal with theindividual agreements and other areas such as the environment, development, membershapplications and regional trade agreements.

SecretariatThe WTO Secretariat, based in Geneva, has around 600 staff and is headed by a director-geneIts annual budget is roughly 160 million Swiss francs. It does not have branch offices outsiGeneva. Since decisions are taken by the members themselves, the Secretariat does not have

decision-making role that other international bureaucracies are given with. The Secretariats mduties are to supply technical support for the various councils and committees and the ministerconferences, to provide technical assistance for developing countries, to analyze world trade, ato explain WTO affairs to the public and media.The Secretariat also provides some forms of legal assistance in the dispute settlement process aadvises governments wishing to become members of the WTO.

Figure 5.1: Structure of WTO

The WTO is member-driven, with decisions taken by consensus among all membgovernments.The WTO is run by its member governments. All major decisions are made by the membershipa whole, either by ministers (who meet at least once every two years) or by their ambassadorsdelegates (who meet regularly in Geneva). Decisions are normally taken by consensus.In this respect, the WTO is different from some other international organizations such as tWorld Bank and International Monetary Fund. In the WTO, power is not delegated to a boarddirectors or the organizations head.

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When WTO rules impose disciplines on countries policies, that is the outcome of negotiatioamong WTO members, the rules are enforced by the members themselves under agre procedures that they negotiated, including the possibility of trade sanctions. But those sanctiare imposed by member countries, and authorized by the membership as a whole. This is qudifferent from other agencies whose bureaucracies can, for example, influence a countrys pol

by threatening to withhold credit.Reaching decisions by consensus among some 150 members can be difficult. Its main advantais that decisions made this way are more acceptable to all members. And despite the difficulsome remarkable agreements have been reached. Nevertheless, proposals for the creation osmaller executive body perhaps like a board of directors each representing different groupscountries are heard periodically. But for now, the WTO is a member-driven, consensus-basorganization.

Highest authority: the Ministerial ConferenceSo, the WTO belongs to its members. The countries make their decisions through vario

councils and committees, whose membership consists of all WTO members. Topmost is tministerial conference which has to meet at least once every two years. The MinisterConference can take decisions on all matters under any of the multilateral trade agreements.Second level: General Council in three guisesDay-to-day work in between the ministerial conferences is handled by three bodies: The General Council The Dispute Settlement Body The Trade Policy Review BodyAll three are in fact the same the Agreement Establishing the WTO states they are all tGeneral Council, although they meet under different terms of reference. Again, all three consistall WTO members. They report to the Ministerial Conference.The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It meetsthe Dispute Settlement Body and the Trade Policy Review Body to oversee procedures fsettling disputes between members and to analyze members trade policies.Third level: councils for each broad area of trade, and more

Three more councils, each handling a different broad area of trade, report to the General Counc The Council for Trade in Goods (Goods Council ) The Council for Trade in Services (Services Council ) The Council for Trade Related Aspects of Intellectual Property Rights (TRIPS Council )As their names indicate, the three are responsible for the workings of the WTO agreemendealing with their respective areas of trade. Again they consist of all WTO members. These thalso have the subsidiary bodies.

Six other bodies report to the General Council. The scope of their coverage is smaller, so they committees. But they still consist of all WTO members. They cover issues such as trade adevelopment, the environment, regional trading arrangements, and administrative issues. TSingapore Ministerial Conference in December 1996 decided to create new working groupslook at investment and competition policy, transparency in government procurement, and trafacilitation.

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Two more subsidiary bodies dealing with theplural-lateral agreements (which are not signed byall WTO members) keep the General Council informed of their activities regularly.Fourth level: down to the nitty-gritty

Each of the higher level councils has subsidiary bodies. TheGoods Council has 11 committees

dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumpimeasures and so on). Again, these consist of all member countries. Also reporting to the GooCouncil is the Textiles Monitoring Body, which consists of a chairman and 10 members actingtheir personal capacities, and groups dealing with notifications (governments informing the Wabout current and new policies or measures) and state trading enterprises.

The Services Council s subsidiary bodies deal with financial services, domestic regulationsGATS rules and specific commitments.

At the General Council level, theDispute Settlement Body also has two subsidiaries: the disputesettlement panels of experts appointed to adjudicate on unresolved disputes, and the Appell

Body that deals with appeals.Heads of Delegations and other boards: the need for informalityImportant breakthroughs are rarely made in formal meetings of these bodies, least of all in thigher level councils. Since decisions are made by consensus, without voting, informconsultations within the WTO play a vital role in bringing a vastly diverse membership roundan agreement.

One step away from the formal meetings is informal meetings that still include the fumembership, such as those of the Heads of Delegations (HOD). More difficult issues have tothrashed out in smaller groups. A common recent practice is for the chairperson of a negotiatgroup to attempt to forge a compromise by holding consultations with delegations individually,twos or threes, or in groups of 20 30 of the most interested delegations.

These smaller meetings have to be handled sensitively. The key is to ensure that everyone is kinformed about what is going on (the process must be transparent) even if they are not in particular consultation or meeting, and that they have an opportunity to participate or provinput (it must be inclusive).

One term has become controversial, but more among some outside observers than amodelegations. The Green Room is a phrase taken from the informal name of the directogenerals conference room. It is used to refer to meetings of 20 40 delegations, usually at tlevel of heads of delegations. These meetings can take place elsewhere, such as at MinisterConferences, and can be called by the minister chairing the conference as well as the directgeneral. Similar smaller group consultations can be organized by the chairs of committenegotiating individual subjects, although the term Green Room is not usually used for these.

In the past delegations have sometimes felt that Green Room meetings could lead to compromi being struck behind their backs. So, extra efforts are made to ensure that the process is handcorrectly, with regular reports back to the full membership.

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The way countries now negotiate has helped somewhat. In order to increase their bargaini power, countries have formed coalitions. In some subjects such as agriculture virtually countries are members of at least one coalition and in many cases, several coalitions. Thmeans that all countries can be represented in the process if the coordinators and other key playare present. The coordinators also take responsibility for both transparency and inclusivene

by keeping their coalitions informed and by taking the positions negotiated within their allianceIn the end, decisions have to be taken by all members and by consensus. The membership awhole would resist attempts to impose the will of a small group. No one has been able to findalternative way of achieving consensus on difficult issues, because it is virtually impossible members to change their positions voluntarily in meetings of the full membership.

Market access negotiations also involve small groups, but for a completely different reason. Tfinal outcome is a multilateral package of individual countries commitments, but thocommitments are the result of numerous bilateral, informal bargaining sessions, which dependindividual countries interests. (Examples include the traditional tariff negotiations, and maraccess talks in services.)

So, informal consultations in various forms play a vital role in allowing consensus to be reach but they do not appear in organization charts, precisely because they are informal.

They are not separate from the formal meetings, however. They are necessary for making formdecisions in the councils and committees. Nor are the formal meetings unimportant. They are forums for exchanging views, putting countries positions on the record, and ultimately fconfirming decisions. The art of achieving agreement among all WTO members is to strike appropriate balance, so that a breakthrough achieved among only a few countries can acceptable to the rest of the membership.

b. Highlight the drawbacks of GATT. (5 marks)Answer

Given its provisional nature and limited field of action, the success of GATT in promoting asecuring the liberalization of much of world trade over 47 years is incontestable. Continureductions in tariffs alone helped spur very high rates of world trade growth around 8 per cenyear on average during the 1950s and 1960s. And the momentum of trade liberalization helpensure that trade growth consistently out-paced production growth throughout the GATT era. Trush of new members during the Uruguay Round demonstrated that the multilateral tradisystem, as then represented by GATT, was recognized as an anchor for development and ainstrument of economic and trade reform.

The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign difficult times to come. GATTs success in reducing tariffs to such a low level, combined withseries of economic recessions in the 1970s and early 1980s, drove governments to devise othforms of protection for sectors facing increased overseas competition. High rates unemployment and constant factory closures led governments in Europe and North Americaseek bilateral market-sharing arrangements with competitors and to embark on a subsidies race

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maintain their holds on agricultural trade. Both these changes undermined the credibility aeffectiveness of GATT.

Apart from the deterioration in the trade policy environment, it also became apparent by the ea1980s that the General Agreement was no longer as relevant to the realities of world trade as

had been in the 1940s. For a start, world trade had become far more complex and important th40 years before: the globalization of the world economy was underway, international investmwas exploding and trade in services not covered by the rules of GATT was of major interestmore and more countries and, at the same time, closely tied to further increases in wormerchandise trade. In other respects, the GATT had been found wanting: for instance, wirespect to agriculture where loopholes in the multilateral system were heavily exploited aefforts at liberalizing agricultural trade met with little success and in the textiles and clothisector where an exception to the normal disciplines of GATT was negotiated in the form of tMulti-fibre Arrangement. Even the institutional structure of GATT and its dispute settlemesystem were giving cause for concern.

Together, these and other factors convinced GATT members that a new effort to reinforce aextend the multilateral system should be attempted. That effort resulted in the Uruguay Round.

.4. a. Give a short note on the regional economic integration. (5 marks)AnswerRegional Economic Integration

Regional integration can take many forms, and nowhere is this more evident than in the vasdifferent integration processes taking place in the regions of Europe and East Asia. The subjecthis paper is regional integration as it has developed in East Asia with a focus on the driversthat integration. While the paper is not intended as a direct comparison of integration in East Aand Europe, it will include some comparisons between the two regions.

Integration in East Asia has progressed very slowly and is still in an early stage despite that t process has continued for decades. In fact, it could be said that the process began centuries ageven as far back as the 15th century. By comparison, European integration has progressed steadand has gradually deepened over the last 50 years to reach an advanced stage today withcommon currency and well-developed regional institutions. Thus, the speed of progression a

the level of integration attained in the two regions are quite dissimilar.In addition to these differences, the drivers behind the integration process in each region adifferent. In Europe, the origins of integration have been institutional in nature, and tdevelopment of institutions has been prominent throughout the process. Thus, regional institutihave been the driving force behind integration in Europe. In East Asia, the development regi

mba 4th semister

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