International Business

IBMS/NM/AS/IB/14
Total 100 marks paper

1) What efect could global developments in the feld of information and technology,
transportation, trade and oil production can have on the culture and business
dealings in Saudi Arabia?
2) o !hat e"tent #orter$s %iamond and &ec'scher()hlin theory are successful in
e"plaining the gro!th of South *orean economy?
+) What problems you can visuali,e in the deeper and !ider integration of -A.A?
/) What do you thin' are the main causes behind the decline in the 0ndian te"tile
e"ports? o !hat e"tent you thin' that 01. is responsible for the t!o crises?
2) What type of organi,ational architecture -estle has recently adopted? &o! it fts in
the current environment?
3) What impact could these e"poses have on the long(term proftability of -i'e?
4) 5"plain the importance of rade 6elated 0ntellectual #roperty 6ights in international
business7
8) What are the diferent types of regional arrangements in the !orld mar'et? 5"plain
them7
9) %escribe the procedure for international commercial arbitration7
1:) %iscuss international business environment and its impact on international business
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1 What efect could global developments in the feld of information and technology,
transportation, trade and oil production can have on the culture and business dealings in
Saudi Arabia?
With <+2: billion in ne! pro=ects, Saudi Arabia has embar'ed on a signifcant economic
development program !ith the goal ofestablishing the 'ingdom as a global industrial force7
o support this aim, and to position the country as a regional transport and logistics
platform, much of the investment is directed at the creation of a sophisticated infrastructure7
.rom !ater desalination plants to improved health(care facilities, the government is
upgrading capacity to meet the challenge of a gro!ing and increasingly a>uent population7
?ut no!here is this more evident than in the country$s transport system7
he country$s rail net!or' is preparing for change, on a massive scale7 -e! lines !ill lin' the
east and !est coasts of the country and population centers from north to south7 he
country$s ports and port(storage facilities !ill also be e"panded as the 'ingdom see's to
establish itself as a regional transshipment center, in competition !ith established @ulf
hubs7 he 1illennium #ort, to be built as part of the ambitious *ing Abdullah 5conomic7
5nergy in Saudi Arabia describes petroleum production, consumption and e"port, but also
natural gas and electricity production7 Saudi Arabia is the !orldAs top oil e"porter and
producer7 Saudi ArabiaAs economy is petroleum(basedB )il actually accounts for C9:D of the
countryAs e"ports and nearly 42D government revenuesC7E1F he oil industry produces about
/2D of Saudi ArabiaAs gross domestic product, against /:D from the private sector7 E2F Saudi
Arabia has per capita @%# of <2:,4::7E2F he economy is still very dependent on oil in spite
of a diversifcation efort, in particular in the petrochemical sector7
Saudi Arabia is a monarchy in south!estern Asia, and occupies most of the Arabian
#eninsula7 Saudi Arabia is bordered on the north by Gordan, 0raH, and *u!aitB on the east by
the #ersian @ulf and IatarB on the southeast by the Jnited Arab 5mirates and )man on the
south by the 6epublic of KemenB and on the !est by the 6ed Sea and the @ulf of AHaba7 he
southeast and southern boundaries are not precisely defned7
he @eert &ofstede analysis for Saudi Arabia is almost identical to other Arab countries their
1uslim faith plays a large role in the people$s lives7 Large po!er distance and uncertainty
avoidance are the predominant characteristics for this region7 his indicates that it is
e"pected and accepted that leaders separate themselves from the group and issue
complete and specifc directives7
he @eert &ofstede analysis for the Arab World, that includes the countries of 5gypt, 0raH,
*u!ait, Lebanon, Libya, Saudi Arabia, and the Jnited Arab 5mirates, demonstrates the
1uslim faith plays a signifcant role in the people$s lives7
Large #o!er %istance M#%0) M8:) and Jncertainty Avoidance MJA0) M38) are predominant
&ofstede %imension characteristics for the countries in this region7 hese societies are more
li'ely to follo! a caste system that does not allo! signifcant up!ard mobility of its citi,ens7
hey are also highly rule(oriented !ith la!s, rules, regulations, and controls in order to
reduce the amount of uncertainty, !hile ineHualities of po!er and !ealth have been allo!ed
to gro! !ithin the society7
When these t!o %imensions are combined, it creates a situation !here leaders have
virtually ultimate po!er and authority, and the rules, la!s and regulations developed by
those in po!er reinforce their o!n leadership and control7 0t is not unusual for ne!
leadership to arise from armed insurrection N the ultimate po!er, rather than from
diplomatic or democratic change7
he high #o!er %istance M#%0) ran'ing is indicative of a high level of ineHuality of po!er and
!ealth !ithin the society7 hese populations have an e"pectation and acceptance that
leaders !ill separate themselves from the group and this condition is not necessarily
subverted upon the population, but rather accepted by the society as their cultural heritage7
he high Jncertainty Avoidance 0nde" MJA0) ran'ing of 38, indicates the society$s lo! level of
tolerance for uncertainty7 0n an efort to minimi,e or reduce this level of uncertainty, strict
rules, la!s, policies, and regulations are adopted and implemented7 he ultimate goal of
these populations is to control everything in order to eliminate or avoid the une"pected7 As a
result of this high Jncertainty Avoidance characteristic, the society does not readily accept
change and is very ris' adverse7
he 1asculinity inde" M1AS), the third highest &ofstede %imension is 22, only slightly higher
than the 2:72 average for all the countries included in the &ofstede 1AS %imension7 his
!ould indicate that !hile !omen in the Arab World are limited in their rights, it may be due
more to 1uslim religion rather than a cultural paradigm7
he lo!est &ofstede %imension for the Arab World is the 0ndividualism M0%O) ran'ing at +8,
compared to a !orld average ran'ing of 3/7 his translates into a Pollectivist society as
compared to 0ndividualist culture and is manifested in a close long(term commitment to the
member AgroupA, that being a family, e"tended family, or e"tended relationships7 Loyalty in a
collectivist culture is paramount, and over(rides most other societal rules7
!ice, in 1949(81 and in 1982(83, Saudi Arabia !as the oil(producing country that pursued
an active, even aggressive, policy designed to shape the global oil mar'et7 0n the frst round,
oil prices !ent up three(fold, though not further, than's to Saudi eforts7 0n the second
instance, to recapture lost mar'et share, 6iyadh instigated a price !ar that resulted in a
severe drop in prices7 Saudi Arabia could fll this role because of its unrivaled position in the
!orld oil mar'et, one that resulted from a combination of factorsQ huge production
capabilities, a moderate pricing policy, the si,e of its reserves, and its relations !ith the
West7 Pould there be a third time? 0n other !ords, could Saudi Arabia again shape the oil
mar'et in a !ay that !ould have a pronounced efect on the !orld economy, or does that
belong to the ever(more distant past?
he reply is determined primarily by t!o factorsQ the role of oil in the !orld economy and the
role of Saudi Arabia in the oil mar'et7 0t is the Saudi misfortune that both are declining7 0n
the ne"t decade it appears that the uniHue role of Saudi oil !ill be confned to maintaining a
surplus that covers possible temporary shortages7 0mportant as this is, from a Western point
of vie!, it means that concerns about Saudi security !ill be less acute7
0ncreasing non(Saudi oil supplies7 he #ersian @ulfAs share of !orld oil production has gone
do!n and up dramatically over the past t!o decades7 #roduction in 1943 came to +4
percent of the !orld total and by 1982 !as estimated at =ust 14 percent of !orld output7
his trend then reversed itself, though not to the point of returning to the mid(194: levelsB in
1993 the #ersian @ulf produced 24 percent of !orld oil7 Saudi ArabiaAs standing in the oil
mar'et has been even more volatile, going from 12 percent of !orld output in 1943, to 13
percent in 198:, 3 percent in 1982, and 1+ percent in 199378 he relative decrease in
Western consumption had a particularly negative impact on #ersian @ulf oil e"porters7 )5P%
countries imported 24 million bRd in 194+ but only 21 million bRd in 1994, of !hich about
one(third imported from the #ersian @ulf7 9
Phanges in !orld energy use have reduced the role of energy in the !orld economy and the
role of oil in the !orld energy picture7 .urthermore, changes in the !orldAs oil production
pattern have undermined the @ulfAs centrality as the main source of oil for the West7 #lus,
some Saudis N such as &ani al(Kamani N argue that the country should dramatically increase
its oil output, !hich suggests the West has little reason to fear another oil price shoc' li'e
those of 194+ or 1949(8:7 At the same time, the @ulfAs position as the main source of global
reserves remains unchallenged, suggesting that @ulf security may still be a matter of
concern to the West7
I2 o !hat e"tent #orter$s %iamond and &ec'scher()hlin theory are successful in e"plaining
the gro!th of South *orean economy?

0nternational trade theory e"plains !hy it is benefcial for countries to engage in
international trade helps countries formulate their economic policy e"plains the pattern of
international trade in the !orld economy 0ntroduction
he approach loo's at clusters, a number of small industries, !here the competitiveness of
one company is related to the performance of other companies and other factors tied
together in the value(added chain, in customer(client relation, or in a local or regional
conte"ts7
E2F
he #orter analysis !as made in t!o steps7
E2F
.irst, clusters of successful
industries have been mapped in 1: important trading nations7
E2F
0n the second, the history of
competition in particular industries is e"amined to clarify the dynamic process by !hich
competitive advantage !as created7
E2F
he second step in #orterAs analysis deals !ith the
dynamic process by !hich competitive advantage is created7
E2F
he basic method in these
studies is historical analysis7
E2F
he phenomena that are analysed are classifed into si" broad
factors incorporated into the #orter diamond, !hich has become a 'ey tool for the analysis
of competitivenessQ
#orter Mp7 1)
E2F
raises the basic Huestion of international competitivenessQ CWhy do some
nations succeed and others fail in international competition?C As its title suggests, the boo'
is meant to be a contemporary eHuivalent of the !ealth of nations, a ne!(forged version of
Adam SmithAs opus7
E1:F
#orter argues that nations are most li'ely to succeed in industries or
industry segments !here the national AdiamondA is the most favorable7 he diamond has
four interrelated componentsQ M1) factor conditions, M2) demand conditions, M+) related and
supporting industries, and M/) frm strategy, structure, and rivalry, and t!o e"ogenous
parameters M1) government and M2) chance, as sho!n above7
his model cleverly integrates the important variables determining a nationAs
competitiveness into one model7 1ost other models designed for this purpose represent
subsets of #orterAs comprehensive model7 &o!ever, substantial ambiguity remains regarding
the signs of relationships and the predictive po!er of the AmodelA7
E11F
his is mainly because
#orter fails to incorporate the efects of multinational activities in his model7 o solve this
problem, %unning,
E12F
for e"ample, treats multinational activities as a third e"ogenous
variable !hich should be added to #orterAs model7 0n todayAs global business, ho!ever,
multinational activities represent much more than =ust an e"ogenous variable7 herefore,
#orterAs original diamond model has been e"tended to the generali,ed double diamond
model
E1+F
!hereby multinational activity is formally incorporated into the model7
.irms from small countries such as *orea and Singapore target resources and mar'ets not
=ust in a domestic conte"t, but also in a global conte"t M@lobal targeting also becomes very
important to frms from large economic systems such as the Jnited States)7 herefore, a
nationAs competitiveness depends partly upon the domestic diamond and partly upon the
AinternationalA diamond relevant to its frms7 he fgure on the left side sho!s the
generali,ed double diamond !here the outside one represents a global diamond and the
inside one a domestic diamond7 he si,e of the global diamond is f"ed !ithin a foreseeable
period, but the si,e of the domestic diamond varies according to the country si,e and its
competitiveness7 he diamond of dotted lines, bet!een these t!o diamonds, is an
international diamond !hich represents the nationAs competitiveness as determined by both
domestic and international parameters7 he diference bet!een the international diamond
and the domestic diamond thus represents international or multinational activities7 he
multinational activities include both outbound and inbound foreign direct investment M.%0)7
0n the generali,ed double diamond model, national competitiveness is defned as the
capability of frms engaged in value added activities in a specifc industry in a particular
country to sustain this value added over long periods of time in spite of international
competition7 heoretically, t!o methodological diferences bet!een #orter and this ne!
model are important7 .irst, sustainable value added in a specifc country may result from
both domestically o!ned and foreign o!ned frms7 #orter, ho!ever, does not incorporate
foreign activities into his model as he ma'es a distinction bet!een geographic scope of
competition and the geographic locus of competitive advantage7
E1/F
Second, sustainability
may reHuire a geographic confguration spanning many countries, !hereby frm specifc and
location advantages present in several nations may complement each other7 0n contrast,
#orter
E2FE12F
argues that the most efective global strategy is to concentrate as many
activities as possible in one country and to serve the !orld from this home base7 #orterAs
global frm is =ust an e"porter and his methodology does not ta'e into account the
organi,ational comple"ities of true global operations by multinational frms7
E13F
#orterAs narro! vie! on multinational activities has led him to underestimate the potential of
SingaporeAs economy7 #orter Mp7 233)
E2F
argues that Singapore is largely a production base for
foreign multinationals, attracted by SingaporeAs relatively lo!(cost, !ell(educated !or'force
and eScient infrastructure including roads, ports, airports, and telecommunications7
According to #orter, the primary sources of competitive advantage of Singapore are basic
factors such as location and uns'illedRsemi(s'illed labor !hich are not very important to
national competitive advantage7 0n fact, Singapore has been the most successful economy
among the -0Ps7 SingaporeAs success is mainly due to inbound .%0 by foreign multinational
enterprises in Singapore, as !ell as outbound .%0 by Singapore frms in foreign countries7
he inbound .%0 brings foreign capital and technologyB !hereas outbound .%0 allo!s
Singapore to gain access to cheap labor and natural resources7 0t is the combination of
domestic and international diamond determinants that leads to a sustainable competitive
advantage in many Singaporean industries7
1ultinational activities are also important in e"plaining *oreaAs competitiveness7 he most
important comparative advantage of *orea is its human resources !hich have been
ine"pensive and !ell(disciplined7 &o!ever, *orea has recently e"perienced severe labor
problems7 0ts labor is no longer cheap and controllable7 1a=or increases in the !ages in
*orea !ere a!arded to a ne!ly militant labor force in 1984N9:, !hich lifted average
earnings in manufacturing by 1173 per cent in 1984, 1973 per cent in 1988, 22 per cent in
1989 and 2:72 per cent in 199:7
E14F
*oreaAs !age level is no! comparable to that of the
Jnited *ingdom, but the Huality of its products has not 'ept pace7 .or the last several years,
*oreaAs !age increases have been signifcantly higher than those in other -0Ps and three or
four times as high as those in other developed countries7
E18F
.aced !ith a deteriorating labor
advantage, *orean frms have t!o choicesQ M1) go abroad to fnd cheap laborB M2) enhance
their production capabilities by introducing advanced technology from developed countries7
0n both cases, the implementation of these choices reHuires the development of
multinational activities7
o sum up, multinational activities are very important !hen analy,ing the global
competitiveness of *orea and Singapore7 0n fact the most important diference bet!een the
single diamond model
E2F
and the generali,ed double diamond model
E1+F
is the successful
incorporation of multinational activities in the latter7
he &ec'scher()hlin M&) hereafter) model !as frst conceived by t!o S!edish economists,
5li &ec'scher M1919) and ?ertil )hlin7 6udimentary concepts !ere further developed and
added later by #aul Samuelson and 6onald Gones among others7 here are four ma=or
components of the &) modelQ
17 .actor #rice 5Huali,ation heorem,
27 Stolper(Samuelson heorem,
+7 6ybc,yns'i heorem, and
/7 &ec'scher()hlin rade heorem7
%ue to the diSculty of predicting the pattern of trade in a !orld of many goods, instead of
the &ec'scher()hlin heorem, the &ec'scher()hlin(Oane' heorem that predicts the factor
content of trade received attention in recent years7
&ec'scher !as a S!edish economist7 &e is probably best 'no!n for his boo' C1ercantilist7C
Although his ma=or interest !as in studying economic history, he also developed the
essentials of the factor endo!ment theory of international trade in a short article in S!edish
in 19197 0t !as translated into 5nglish thirty years later7
&ec'scherAs student, ?ertil )hlin developed and elaborated the factor endo!ment theory7 &e
!as not only a professor of economics at Stoc'holm, but also a ma=or political fgure in
S!eden7
&e served in Riksdag MS!edish #arliament), !as the head of liberal party for almost a 1R/ of
a century7 &e !as 1inister of rade during World War 007
0n 1949 )hlin !as a!arded a -obel pri,e =ointly !ith James Meade for his !or' in
international trade theory7
&) 1odel T 2 U 2 U 2 model M2 countries, 2 commodities, 2 factors)
.or e"ample, there are t!o countries MAmerica and ?ritain)B each country is endo!ed
!ith 2 homogeneous factors Mlabor and capital) and produces 2 commodities7
his is the smallest case of CevenC model, i7e7, the number of commodities is eHual to
that of factors7 5"tending the model to a more general case is not easy7 0n fact, the results
obtained from a more general model do not have the clear, common sense interpretations
!hich the simple &) model en=oys
Among the four main results of the &) theory, .#5 is the most fragile theorem7 0f any of the
eight assumptions is violated, it !illl not hold7 &o!ever, perhaps this is the single most
important fnding in trade theoryB it sho!s ho! trade afects income distribution of the
global economy7
)f course, the assumptions are some!hat unrealistic in the sense that they are not
li'ely to be observed in the real !orld7 &o!ever, even if some of the assumptions are
violated, international trade has a tendency to eHuali,e factor pricesB it !ill remove the !age
gaps bet!een countries, despite the constraint that trading countries impose on the
movement of factors, in particular, on the movement of !or'ers
he creation of a large free trade area unifes and promotes its culture and po!er7
5specially, lo! !age countries tend to adopt the culture of high !age economy7
0n Phina, Iin Shihuang united the !arring states, and created a large free trade area in 221
?P7 PhinaAs culture spreads to *orea and Gapan through trade7
6etail prices during 5do period M13:+(1838)7 a" on harvests Mrent) !as about /: ( 2:D
during this period7 Similarly, rent !as 4:D of harvest in *orea during the 18th century7 -o
good statistics !ere available in America until after WW007
e!ks!"er#$"lin s"o% %"& it is bene'!ial (or a !ountr& to engage in international
trade e)en (or produ!ts it is able to produ!e (or itsel( International trade allo%s a
!ountr& to spe!iali*e in t"e manu(a!ture and e+port o( produ!ts t"at !an be
produ!ed most e,!ientl& in t"at !ountr&- and import produ!ts t"at !an be
produ!ed more e,!ientl& in ot"er !ountries T"e Bene'ts o( Trade
."ile t"e t"eories all suggest t"at trade is bene'!ial- t"e& la!k agreement in
t"eir re!ommendations (or go)ernment poli!& Mer!antilism makes a !ase (or
go)ernment in)ol)ement in promoting e+ports and limiting imports Smit"-
Ri!ardo- and e!ks!"er#$"lin promote unrestri!ted (ree trade Ne% trade t"eor&
and /orter 0usti(& limited and sele!ti)e go)ernment inter)ention to support t"e
de)elopment o( !ertain e+port#oriented industries Trade T"eor& and 1o)ernment
/oli!&
e!ks!"er and $"lin argued t"at !omparati)e ad)antage arises (rom di2eren!es
in national (a!tor endo%ments 3t"e e+tent to %"i!" a !ountr& is endo%ed %it"
resour!es su!" as land- labor- and !apital4 T"e more abundant a (a!tor- t"e lo%er
its !ost 5ountries %ill e+port goods t"at make intensi)e use o( t"ose (a!tors t"at
are lo!all& abundant- and import goods t"at make intensi)e use o( (a!tors t"at
are lo!all& s!ar!e e!ks!"er#$"lin T"eor&
&ec'scher and )hlin argued that comparative advantage arises from diferences in
national factor endo!ments Mthe e"tent to !hich a country is endo!ed !ith resources
such as land, labor, and capital)
he more abundant a factor, the lo!er its cost
Pountries !ill e"port goods that ma'e intensive use of those factors that are
locally abundant, and import goods that ma'e intensive use of factors that are
locally scarce
+What problems you can visuali,e in the deeper and !ider integration of -A.A?
-A.A is a trilateral free(trade deal that came into force in Ganuary 199/, signed by J7S7
president ?ill Plinton, 1e"ican president Parlos Salinas, and Panadian prime minister Gean
PhrVtien7 he central thrust of the agreement is to eliminate most tarifs on products traded
among the Jnited States, 1e"ico, and Panada7 he terms of the agreement called for these
tarifs to be phased out gradually, and the fnal aspects of the deal !erenAt fully
implemented until Ganuary 1, 2::87 he deal s!ept a!ay import tarifs in several industriesQ
agriculture !as a ma=or focus, but tarifs !ere also reduced on items li'e te"tiles and
automobiles7 -A.A also implemented intellectual(property protections, established dispute(
resolution mechanisms, and set up regional labor and environmental safeguards, though
some critics no! lobby for stronger measures on this front7
0t is diScult to determine causality bet!een -A.AAs implementation and economic gro!th,
and it is impossible to Huantify the counterfactualWho! trade policy might have liberali,ed
!ithout -A.A7 0ntraregional trade Xo!s have increased signifcantly over the treatyAs frst
t!o decades, from roughly <29: billion in 199+ to more than <171 trillion in 2:127 Pross(
border investment and travel have also surged7 he Jnited States trades more in goods and
services !ith 1e"ico and Panada than it does !ith Gapan, South *orea, ?ra,il, 6ussia, 0ndia,
and Phina combined7 1uch of this gro!th has been due to increased trade bet!een the
Jnited States and 1e"ico, !here the trade balanceWthe diference bet!een e"ports and
importsWs!ung from a <174 billion J7S7 surplus in 199+ to a <317/ billion defcit in 2:127
C-A.A !as designed to promote economic gro!th by spurring competition in domestic
mar'ets and promoting investment from both domestic and foreign sources7 0t has !or'ed,C
!rite @ary Plyde &ufbauer and Gefrey G7 Schott, e"perts at the #eterson 0nstitute for
0nternational 5conomics and the authors of NAFTA Revisited: Achievements and Challenges.
)riginally, critics of -A.A focused on labor(mar'et dislocations, and !arned that the Jnited
States !ould e"perience sharp =ob losses as companies moved production to 1e"ico to
lo!er costs7 ?ut this efect has proven to be modest for the Jnited States because total
trade !ith 1e"ico and Panada account for a small percentage of the J7S7 economy7
1any trade e"perts say that in the long term, free(trade deals such as -A.A produce
benefts despite some painful short(term costs such as the movement of some =obs and
industries across borders7 ?ut according to at least one ma=or study, the benefts are limited7
he Pongressional ?udget )Sce attempted a full(scale e"amination of -A.AAs economic
conseHuences in 2::+, and concluded thatQ
J7S7 trade !ith 1e"ico !as gro!ing before -A.AAs implementation, and !ould li'ely
have continued to gro! !ith or !ithout the deal on a scale that Cd!arfs the efectsC
of -A.A itselfB
the direct efect of -A.A on J7S7(1e"ico trade is fairly small, and thus the direct
impact on the J7S7 labor mar'et is also smallB and
overall, the -A.A deal has only e"panded J7S7 gross domestic product M@%#) Cvery
slightly,C !ith a similarly small and positive efect on the Panadian and 1e"ican
economies
Some studies overloo' the efect of the development of supply chains, !hich has been
credited to -A.A7 Pompanies in the three countries, especially J7S7 auto manufacturers but
also -orth American ma'ers of electronics, machinery, and appliances, have beneftted from
spreading production lines across each country to reduce costs and become more globally
competitive, a tactic that !ould be more diScult !ithout the tarif reductions of -A.A7
5conomists estimate that /: percent of the content of J7S7 imports from 1e"ico and 22
percent of the content of J7S7 imports from Panada are of J7S7 origin E#%.F7 J7S7 imports
from Phina, by comparison, only contain / percent J7S7 content7 C0gnoring these input(output
lin'ages could underestimate potential trade gains,C noted a Pongressional 6esearch Service
report7
Wide disagreement persists on ho! and to !hat degree -A.A accounts for changes in net
employment from ad=ustments in the labor mar'et7 Supporters of -A.A, and many
economists, see a positive impact on J7S7 employment and note that ne! e"port(related
=obs in the Jnited States pay 12 to 2: percent more on average than those focused on
domestic production7 ?ut side efects of the treaty should not be ignored7 5d!ard Alden, a
senior fello! at the Pouncil on .oreign 6elations, notes that !ages havenAt 'ept pace !ith
labor productivity and that income ineHuality in the Jnited States has risen in recent years,
in part due to pressures on the J7S7 manufacturing base7 o some e"tent, he says, trade
deals have hastened the pace of these changes in that they have Creinforced the
globali,ation of the American economy7C
)ne lofty, unreali,ed promise of -A.A !as that the treaty !ould narro! the gap bet!een
the per capita incomes of 1e"ico, the Jnited States, and Panada7 #er capita income in
1e"ico rose at an annual average of 172 percent over the past t!o decades, from <3,9+2 in
199/ to <8,+94 in 2:12, far slo!er than Latin American countries such as ?ra,il, Phile, and
#eru7 -A.A !as also e"pected to discourage 1e"ican emigration to the Jnited States, yet
despite the 2::4N2::9 recession and increased deportations, 1e"ican(born people living in
the Jnited States doubled since 199/ to 12 million in 2:1+, !rites Gorge @7 PastaYeda, a
professor at -e! Kor' Jniversity and former foreign minister of 1e"ico7 0ndustries e"cluded
from -A.AWsuch as telecommunications, television, and transportationWallo!ed 1e"icoAs
!ealthiest to become even richerB the country no! claims the !orldAs richest man, Parlos
Slim &elu7
0f anything, Panada has seen the strongest gains among the three -A.A countries, though,
again, it is diScult to attribute direct causation, particularly given that Panada and the
Jnited States had a free(trade deal that predated -A.A7 Panada is the leading e"porter of
goods to the Jnited States, J7S7 and 1e"ican investments in Panada have tripled, and
Panada has added /74 million ne! =obs since 199+7 Panadian manufacturing employment
held steady, though the Cproductivity gapC bet!een the Panadian and J7S7 economies
!asnAt narro!edQ PanadaAs labor productivity stood at 42 percent of J7S7 levels in 2:12
despite PanadaAs highly educated !or' force7
8. What are the diferent types of regional agreements in the !orld mar'et? 5"plain them7
httpQRR!!!7!to7orgRenglishRtratopZeRregionZeRrtaZptaZe7htm
he ever(gro!ing number of regional trade agreements and preferential trade arrangements
is a prominent feature of international trade7 W) members participating in these
agreements are encouraged to notify the W) !hen ne! agreements are formed7
6egional integration has been a recogni,able feature of international trade relations in the
post(!ar period, though its salience has !a"ed and !aned7 !o !aves of regionalism can be
identifed and a third may be under!ay7 he frst started !ith the establishment in 1924 of
the forerunner of the 5uropean Jnion and, in the developing !orld, the adoption in Latin
America and Africa of import(substituting regional integration as the means to efect in!ard(
loo'ing gro!th7 1ost of the developing country schemes initiated at this time eventually
became moribund or collapsed, !hile the gro!ing momentum of multilateral liberali,ation in
the 194:s and 198:s contributed to the decline in the importance attached to regionalism7
Regional trade agreements, sometimes referred to as RTAs, are increasingly important in
global trade. Essentially, a regional trade agreement involves one or more countries
deciding to liberalie the e!change of goods and services across their borders. RTAs are an
important e!ception to the "orld Trade #rganiation$s %"T#& multilateral trade policy, 'hich
does not allo' any country to be discriminated againt by another country$s trade regime.
RTAs, on the other hand, do allo' neighboring countries to enter into preferential trade
agreements. (everal types of RTAs are commonly used in the 'orld today.
16 /re(erential Trade Areas
o .irst(level 6As are also called preferential trade areas7 A preferential trade
area is created !hen t!o countries lo!er their trade barriers !ith one another, but do
not completely eliminate them7 his type of 6A does not involve any type of
integration of the t!o countriesA labor, capital or money mar'ets7 his type of 6A is
not allo!ed by the W), and they can have a harmful efect on multilaterial trade7
7ree Trade Areas
o A second(level 6A is called a free trade area, or .A7 his involves the
complete removal of all trade barriers bet!een t!o countries, but still does not
involve the integration of labor or capital mar'ets7 0n this system, each member of
the agreement is allo!ed to maintain its trade barriers !ith third parties not involved
in the agreement7 .As represent 8/ percent of all 6As7
Source Huality products at ?est S1? Site ( h'tdc7com
!!!7h'tdc7com
5ustoms 8nions
o hird(level 6As are also called customs unions7 Jnder this type of 6A, the
member countries must eliminate all trade barriers bet!een one another, but also
adopt the same trade policy in regard to other countries not a part of the agreement7
his is often referred to as a common e"ternal tarif7 &o!ever, under this type of 6A
capital and labor mar'ets remain unintegrated7 his type of 6A represents about 8
percent of all 6As7
5ommon Markets
o .ourth(level 6As are called common mar'ets7 0n this type of 6A, all barriers
bet!een the movement of labor and physical capital are removed7 5ssentially, this
allo!s the movement of production factors across borders along !ith the products
produced7
T&pes o( Regional Trade Agreements
[ .ree trade Area
[ Pustoms Jnion
[ Pommon 1ar'et
[ 5conomic Jnion
6egional trade agreements M6As) have become increasingly prevalent since the early
199:s7 As of12 Gune 2:1/, some 282 notifcations of 6As Mcounting goods, services and
accessions separately) had been received by the @ARW)7 )f these, +49 !ere in force7
What all 6As in the W) have in common is that they are reciprocal trade agreements
bet!een t!o or more partners7 0nformation on 6As notifed to the W) is available in the
6A %atabase7
he W) also receives notifcations from W) members regarding preferential trade
arrangements M#As)7 0n the W), #As are unilateral trade preferences7 0nformation on #As
notifed to the W) is available in the #A %atabase7
9. 9es!ribe t"e pro!edure (or international !ommer!ial arbitration6
International arbitration is a leading method for resolving disputes arising from
international commercial agreements and other international relationships7 As !ith
arbitration generally, international arbitration is a creation of contract, i7e7, the partiesA
decision to submit disputes to binding resolution by one or more arbitrators selected by or
on behalf of the parties and applying ad=udicatory procedures, usually by including a
provision for the arbitration of future disputes in their contract7
E1F
he practice of
international arbitration has developed so as to allo! parties from diferent legal and cultural
bac'grounds to resolve their disputes, generally !ithout the formalities of their respective
legal systems7
Main 7eatures o( International Arbitration
0nternational arbitration has en=oyed gro!ing popularity !ith business and other users over
the past 2: years7 here are a number of reasons that parties elect to have their
international disputes resolved through arbitration7 hese include the desire to avoid the
uncertainties and local practices associated !ith litigation in national courts, the desire to
obtain a Huic'er, more eScient decision, the relative enforceability of arbitration
agreements and arbitral a!ards Mas contrasted !ith forum selection clauses and national
court =udgments), the commercial e"pertise of arbitrators, the partiesA freedom to select and
design the arbitral procedures, confdentiality and other benefts7
0nternational arbitration is sometimes described as a hybrid form of dispute resolution, !hich
permits parties broad Xe"ibility in designing arbitral procedures7 As one e"ample, consider
the 0nternational ?ar Association M0?A)As 6ules on the a'ing of 5vidence in 0nternational
Pommercial Arbitration, revised in 2:1:7
E2F
hese rules adopt neither the common la!
=urisdictionsA broad disclosure procedures M%iscovery), nor follo! fully the civil la! in
eliminating entirely the ability to engage in some disclosure(related practices7 he 0?A 6ules
blend common and civil systems so that parties may narro!ly tailor disclosure to the
agreementAs particular sub=ect matter7
%avid 6iv'in,
E+F
!ho chaired the committee that drafted the rules, has noted that the !ide
adoption of these rules in international arbitration has led in practice to an une"pected use
by common la! practitioners to limit disclosure and by civil la! practitioners to e"pand it7
With a possibly more intuitive cause and practical efect, arbitral tribunals !ill often read
party election of the 0?A 6ules as an election most a'in to JS(style %iscovery7 his is hardly
surprising given the 6ulesA language and the 0?AAs close ties through the years to the
American ?ar Association MA?A)7
6ules of evidence represents =ust one e"ample of the diferent practice that applies to
international arbitration, and !hich distinguishes it from provincial forms of arbitration
rooted in the procedures of a particular legal system7 here are a variety of approaches to
international arbitration at the national level, even !here model la!s have been adopted7
E/F

hese approaches can be further impacted by arbitral rules that may be agreed bet!een the
parties7 Similarly, international arbitral practice has given rise to its o!n non(country(specifc
standards of ethical conduct !hich are believed to apply in international proceedings and,
more to the point, to the arbitrators !ho are appointed to conduct them7
E2F
9ra(ting International Arbitration 5lauses
1ost arbitral institutions have promulgated model clauses for parties to use to authori,e the
institution to oversee the arbitration7 A number of speciali,ed publications regarding the
drafting of international arbitration clauses are available7
E12F
A number of essential elements should be included in almost all international arbitration
agreements7 hese include the agreement to arbitrate, a defnition of the scope of disputes
sub=ect to arbitration, means for selecting the arbitratorMs), a choice of the arbitral seat and
the adoption of institutional or ad hoc arbitration rules7
E13F
A number of other provisions can
also be included in international arbitration clauses, including the language for the conduct
of the arbitration, choice of applicable la!, arbitrator Hualifcations, interim relief, costs,
procedural matters and the li'e7
0n order to bridge the gap !hen parties to an international agreement have diSculty in
agreeing upon an arbitral institution, some international arbitration specialists recommend
using an arbitration clause that authori,es t!o arbitral institutions in the same city7 hose
clauses generally empo!er the party commencing the arbitration to select the arbitral
institution7
E14F
Writing in the ?usiness La! oday of the American ?ar Association, 5ric Sherby M0srael)
suggested a mnemonic device N \?L0-P LLP] N designed to enable the draftsman to
remember a chec'list for Huic'ly drafting an international arbitration clauseQ ?road, La!,
0nstitutional, -umber, Posts, Location Language, and Parve(out7
E18F
International Arbitration Institute 3IAI4
he 0nternational Arbitration 0nstitute, headed by 5mmanuel @aillard, !as created in 2::1
under the auspices of the PomitV .ran^ais de l$Arbitrage MP.A) to promote e"changes and
transparency in the international commercial arbitration community7
T"e Asso!iation (or International Arbitration 3AIA4
he Association for 0nternational Arbitration is a non(proft organi,ation, founded in #aris in
2::1 by Gohan ?illiet7 he Association for 0nternational Arbitration has an increasing number
of members among arbitrators and mediators of international bac'grounds7
1:7 %iscuss international business environment and its impact on international business
As the international environment is constantly changing due to today$s economic crisis,
!here are !e going to be able to gro! our businesses? Kou may need to gro! your business
internationally7
he international business environment can be defned as the environment in diferent
sovereign countries, !ith factors e"ogenous to the home environment of the organi,ation,
that inXuences decision(ma'ing on resource use and capabilities7 his includes the social,
political, economic, regulatory, ta", cultural, legal, and technological environments 7
he international business environment can be defned as the environment in
diferent sovereign countries, !ith factors e"ogenous to the home environment of
the organi,ation, inXuencing decision(ma'ing on resource use and capabilities7
he political environment in a country inXuences the legislation and government
rules and regulations under !hich a foreign frm operates7
he technological environment comprises factors related to the materials and
machines used in manufacturing goods and services7
5conomic factors e"ert huge impacts on frms !or'ing in an international business
environment7 he economic environment relates to all the factors that contribute
to a countryAs attractiveness for foreign businesses, such as monetary systems,
inXation, and interest rates7
here are a number of factors that increasingly drive international business7 here is the
potential to increase customer base and mar'et share, the opportunity to reduce the
reliance on any single mar'et and the benefts that becoming a multi(national
corporation can provide7
he main driver of international mar'eting is the increase in customer base that it
provides to organisations7 Whilst many domestic mar'ets are Huite large, they fade in
comparison !ith a truly global mar'et7 An increased customer base allo!s for the sale of
far more products and services and can increase the proftability of an organisation7 he
global customer base is gro!ing all the time as the living standards and levels of
employment increase in developing nations7
he Poca(Pola Pompany M-KS5Q *)) is an American multinational beverage corporation and
manufacturer, retailer and mar'eter of non(alcoholic beverage concentrates and syrups7 0t
!or's in an international business environment7
The political environment in a country inXuences the legislation and government rules and
regulations under !hich a foreign frm operates7 5very country in the !orld follo!s its o!n
system of la! and a foreign company operating !ithin it has to abide by these la!s for as
long as it continues to operate there7
The technological environment comprises factors related to the materials and machines
used in manufacturing goods and services7 he organi,ationAs receptivity and !illingness to
adopt to ne! technology, as !ell as the !illingness of its consumers to do li'e!i,e,
inXuences decisions made in an organi,ation7
As frms have no control over the e"ternal environment, their success depends upon ho!
!ell they adapt to it7 A frmAs ability to design and ad=ust its internal variables to ta'e
advantage of opportunities ofered by the e"ternal environment, and its ability to control
threats posed by the same environment, determines its success7
Economic factors e"ert huge impacts on frms !or'ing in an international business
environment7 he economic environment relates to all the factors that contribute to a
countryAs attractiveness for foreign businesses7
?usinesses rely on a predictable and stable mechanism7 A monetary system that
ac'no!ledges countriesA and economiesA interdependence and that fosters gro!th,
stability and fairness at a global level is important for prosperity, and the operation
and gro!th of companies7
0nXation, interest rates, and the borro!ing costs of companies also contribute to a
countryAs attractiveness7 0f a country has a high rate of inXation, its central ban's !ill
raise the interest rate, !hich increases the cost of borro!ing for frms7 &igh inXation
also ma'es the value of the revenue in domestic currency fall, and this e"poses frms
to foreign e"change ris's7 0t is even !orse if frms produce in countries of high
inXation and then sell products to countries of lo! inXation, since the input costs are
on the rise !hile the revenue stays stable7
Absolute purchasing po!er parity posits that the e"change rate bet!een t!o
countries !ill be identical to the ratio of the price levels for those t!o countries7 his
concept is derived from a basic idea 'no!n as the la! of one price, !hich states that
the real price of a good must be the same across all countries7 As the currency of a
country depreciates, its competitiveness is improved since its goods are cheaper
than other countriesA, helping companies e"port more7
6elative purchasing po!er parity M###) is an economic theory used to determine the
relative value of currencies, estimating the amount of ad=ustment needed on the
e"change rate bet!een countries in order for the e"change to be eHuivalent to Mor on
par !ith) each currencyAs purchasing po!er7 0t as's ho! much money !ould be
needed to purchase the same goods and services in t!o countries, and uses that to
calculate an implicit foreign e"change rate7 ### rates facilitate international
comparisons of income, as mar'et e"change rates are often volatileB afected by
political and fnancial factors that do not lead to immediate changes in income, and
that tend to systematically understate the standard of living in poor countries7
Another interpretation is that the diference in the rate of change in prices at home
and abroadWthe diference in the inXation ratesWis eHual to the percentage
depreciation or appreciation of the e"change rate so that the competitiveness of one
country could be maintained7
I/ What do you thin' are the main causes behind the decline in the 0ndian te"tile e"ports?
o !hat e"tent you thin' that 01. is responsible for the t!o crises?
he e"tile industry in 0ndia traditionally, after agriculture,is the only industry that has
generated huge employment for both s'illed and uns'illed labor in te"tiles7 he te"tile
industry continues to be the second largest employment generating sector in 0ndia7 0t ofers
direct employment to over +2 million in the country7E1F he share of te"tiles in total e"ports
!as 117:/D during AprilNGuly 2:1:, as per the 1inistry of e"tiles7 %uring 2::9(2:1:, 0ndian
te"tiles industry !as pegged at JS<22 billion, 3/D of !hich services domestic demand7E1F 0n
2:1:, there !ere 2,2:: te"tile !eaving factories and /,1+2 te"tile fnishing factories in all of
0ndia
he 0ndian te"tile industry is one the most important industries for the 0ndian economy7 0ts
importance is underlined by the fact that it accounts for around /D of @%#, 1/D of the
industrial production and 14D of the country$s total e"port earnings7 ?esides, the sector
employs nearly +2 mn employeesB the te"tile industry is the second(largest employment
generating industry in both rural and urban areas, after the agriculture industry7
he vast pool of s'illed and uns'illed !or'ers, availability of labour at lo! costs, strong
base for production of ra! materials characterise the te"tile industry in 0ndia7 he increase
in domestic demand and ability of the units in the industry to process small or customised
orders are some of the advantages for the te"tile industry in 0ndia7 he te"tile sector is
highly diverse and has hand(spun and hand !oven segments at one end of the spectrum,
and capital(intensive, sophisticated and modern mills at the other7
he te"tile segment is highly fragmented and many large te"tile companies are also
conglomerates of medium(si,ed mills7 According to the statistics released by the 1inistry of
e"tiles, the entire te"tile industry is highly fragmented e"cept the spinning sub(segment7
he organised sector contributes more than 92D of spinning, but hardly 2D of !eaving
fabric7 SS0s perform the bul' of !eaving and processing operations7 he unorganised sector
forms the bul' of the industry, comprising handlooms, po!erlooms, hosiery and 'nitting,
and also readymade garments, 'hadi and carpet manufacturing units7 he organised mill
sector consists of spinning mills involved only in spinning activities and composite mills
!here spinning, !eaving and processing activities are carried out under a single roof7 hese
organised units are mostly independent and small scale in nature unli'e the composite
units that underta'e all activities together7
he te"tile industry of 0ndia operates largely in the form of clusters ( mostly natural clusters
( !ith roughly 4: te"tile clusters producing 8:D of the country$s total te"tiles7 ?ased on a
J-0%) study conducted on S15 clusters in 0ndia, some of the 'ey te"tile clusters in 0ndia
areQ
#anipat, accounts for 42D of the total blan'ets produced in the country
irupur, responsible for 8:D of the country$s hosiery e"ports
Ludhiana, accounts for 92D of 0ndia$s !oolen 'nit!ear produced7
As on Ganuary 2::9, there !ere 1,828 mills in the organised sector in 0ndia7 )f these, 144
mills !ere composite mills and 1,321 mills !ere spinning mills7 he cloth production in the
organised mills sector has increased from 1,/93 mn sH mtrs in 2::2(:+ to a pro=ected 1,493
mn sH mtrs in 2::8(:9 M#)7 %espite the increase in the production, the organised sector
contributes merely +D to the total fabric production of the country7 he remaining 94D of
the fabric is produced in the unorganised sector7
he competitiveness of composite mills has declined in comparison to po!erlooms in the
decentralised segment7 #olicy restrictions relating to labour la!s and the fscal advantages
en=oyed by unorganised sectors are t!o of the ma=or constraints that are responsible for
the decline7 he number of composite mills in 0ndia decreased from 282 in 1999(:: to 144
in Ganuary 2::97
he po!erloom segment is the largest manufacturer of fabric in the unorganised sector7
he segment produces a !ide variety of grey and processed cloth7 According to the 1inistry
of e"tiles, as on %ecember +1, 2::8, 0ndia had nearly 272 mn po!erlooms that !ere
distributed across /82,::: units7
In!rease in demand o( non#!otton (abri!s
Potton te"tiles continue to be the predominant base of the 0ndian te"tile industry, though
other types of fabric have emerged in recent years7 0n 1992(93, the share of cotton fabric
and non(cotton fabric !as 3:D and 24D in the total te"tile production, respectively7 1ore
recently, cotton fabrics accounted for /8D of the total fabric produced in 2::8(:9 Mup to
Ganuary 2::9), !hile non(cotton fbres held a share of over +8D7 he decrease in production
of cotton fabric over a period of time represents a shift in consumer preferences to!ards
non(cotton fabrics such as sil', !ool, 'hadi, etc7
he production of fabrics pea'ed 22,238 mn sH mtr in 2::4(:8B ho!ever, during 2::8(:9
M#), the production of fabrics registered a yearly decline due to the decrease in demand for
0ndian te"tiles in both domestic and international mar'ets7 %uring April(Ganuary 2::9, the
production of cotton fabrics, !hich constitute around /8D of the total fabric produced,
registered a yearly decline of over 14D, !hereas the production of 1::D non(cotton
fabrics, !hich constitute over +8D to the total fabric production, declined by 12D7
industrial re)olution in britain ( after th industrial revolution britain started
producing machine made te"tiles !hich !ere often of better Huality and cheaper
than indian te"tiles 7since indian artisan could not compete !ith british goods, indian
handicrafts slo!ly died
loss o( e+ternal markets( te"tiles from india had high demands in europe7 british
on feeling threatened by this , passed strict la!s banning the import of te"tiles in
britain
indi2eren!e in britis" rulers( after the industrial revolution !hen machine goods
replaced the hand made goods, the britidh government made provisiond to absorb
them in ne! factories7 but in india east india company made no such provisions as
they !ere concerned !ith ma'ing ma"7 proft7 thus millions of artisans !ere left
=obles 7
he global fnancial crisis, bre!ing for a !hile, really started to sho! its efects in the middle
of 2::4 and into 2::87 Around the !orld stoc' mar'ets have fallen, large fnancial
institutions have collapsed or been bought out, and governments in even the !ealthiest
nations have had to come up !ith rescue pac'ages to bail out their fnancial systems7
)n the one hand many people are concerned that those responsible for the fnancial
problems are the ones being bailed out, !hile on the other hand, a global fnancial meltdo!n
!ill afect the livelihoods of almost everyone in an increasingly inter(connected !orld7 he
problem could have been avoided, if ideologues supporting the current economics models
!eren$t so vocal, inXuential and inconsiderate of others$ vie!points and concerns7
We face a global economic and fnancial meltdo!n that may yet rival the @reat %epression7
0f
national economic and fnancial policies are suSciently focused and mutually supportive, !e
can avoid the trade and fnancial protectionism and competitive e"change(rate devaluations
that e"acerbated economic distress eight decades ago7 he 0nternational 1onetary .und
M01.), the World ?an', and !hat is no! the World rade )rgani,ation !ere established at
the end of World War 00 to mitigate, if not prevent, recurrence of such destructive policies7
he Huestion is !hether the 01. in particular is up to its assigned tas'7
.irst, the 01. is the principal institution of global economic governance positioned to
help deal !ith the current economic and fnancial crisis7 Jnfortunately, the .und$s legitimacy
and relevance has been undermined in recent years7 1oreover, even in the best of
circumstances, the .und can only be as successful as its principal members !ant it to be7
Second, in the near term, the .und shouldQ Ma) lend to countries that have been
adversely afected by the crisis, Mb) help to establish an agreed approach to global economic
and fnancial recovery, and Mc) monitor the implementation of national economic and
fnancial policies, in particular e"change(rate policies, to minimi,e the negative, spillover
efects of one country$s policies on other countries7
hird, in the longer term, the .und should step up its surveillance of national fnancial
systems and the global system and help to develop a better frame!or' for macroprudential
supervision7 Mhere is not even a generally accepted defnition of macroprudential
supervision7
0 defne it as a concern for the inXuence of fnancial system developments on the global
economy and, eHually important, vice versa7)
&o!ever, the JS dollar !as the linchpin of the system, and it became overvalued7
1oreover, international capital mobility increased, e"erting increased pressures on f"ed
e"change rates7 he result in 1941 !as the collapse of the ?retton Woods system and the
eventual emergence of substantially greater Xe"ibility in e"change rates among the ma=or
currencies, and ultimately among most currencies7
&o!ever, the 01. did not go out of business once its principal raison d$_tre of
supporting f"ed e"change rates largely disappeared7 Pountries continued to e"perience
e"ternal fnancial crises7 1oreover, they tended to be more generali,edB crises !ere
associated
!ith the oil shoc's of the 194:s, !ith recession and the global debt crisis in the early 198:s,
and !ith 1e"ico and Asia in the 199:s7 01. fnancial assistance and policy advice helped to
cushion those shoc's7 he 01. also !as called upon to play a ma=or role in helping the
socalled transition countries of 5astern 5urope and the former Soviet Jnion to adopt
mar'etoriented economic systems7
%espite substantial continued, overall success over the past three decades, three
problems emergedQ .irst, a country$s adoption of economic ad=ustment programs in
connection !ith 01. fnancial assistance is politically controversial7 Second, the private
sector
came to play the dominant role as the source of international capital Xo!s, and global
surveillance and supervisory systems failed to 'eep pace !ith many of the resulting
implications for the countries attracting the inXo!s7 hird, the governance of the 01.
continued to be dominated by the ma=or industrial countries, in particular the Jnited States
and the 5uropean countries, !hich undermined the legitimacy of the institution in a
changing
!orld7
he 01. has evolved !ith the globali,ation of our economies, but not as fast as some
!ould prefer7 A fresh reform efort !as begun four years ago, but there !as little sense of
urgency given the benign global economic and fnancial conditions that generally persisted
until the middle of last year7 1any observers argued that the 01. no longer had a ma=or role
to play as a lender or in helping to guide the global economy and fnancial system7 01.
credit
outstanding pea'ed Mon an end(of(year basis) at almost <1:: billion at the end of 2::2, but
had declined to about <1: billion by the end of September 2::87 )ne conseHuence !as that
the pac'age of 01. reforms that !as agreed in the spring of 2::8, after years of contentious
discussions, !as modest at best72
0t is ironic that a year ago it !as fashionable to argue that the 01. !as irrelevant as a
lender and marginali,ed in its surveillance of the global economy and fnancial system7
?enign
economic and fnancial conditions !ere pro=ected to continue indefnitely7 1oreover, the
prevailing vie! !as that the systemically important countries either had guaranteed access
to
international fnancial mar'ets or had efectively self(insured against future e"ternal fnancial
crises by amassing huge stoc's of foreign e"change reserves7
I2 What type of organi,ational architecture -estle has recently adopted? &o! it fts in the
current environment7
his is an evaluation of -estlV in 2::8 case study from %eWit and 1eyer M2:1:) \StrategyQ
#rocess, Pontent and Ponte"t] /th 5dition7 his report evaluates the strategic process of the
company and ho! it stri'es a balance bet!een multiple products, structure and corporate
goals7 he cross(business synergies !ithin the organi,ation !ere identifed, and the
corporate mechanisms to leverage the synergies are discussed7 0t highlights the importance
of cross(business synergy initiatives among the business(units !ithin the -estlV corporate
structure7 ?ased on the integrated organisation and portfolio organi,ation perspective, the
future scenarios of -estle corporate level strategies !ere outlined7 he corporate gro!th
direction of the company !as identifed in this process7
A short 0ntroduction of -estlV )rganisation
With the establishment of -estlV by &enri -estlV in the mid(183:s in S!it,erland, the
company has e"panded from being a S!iss company to a global brand7 -estlV is Huite
every!here7 0t has become a household brand name in many countries and has established
oSces in more than 8: countries7 he -estlV brand portfolio covers practically all foods and
beverage categoriesQ mil' and dairy products, nutrition, ice cream, brea'fast cereals, cofee
and beverages, culinary products, chocolate and confectionery, petcare, bottled !ater7 1any
of these brands have category leadership, both globally and in local mar'ets7 he best(
'no!n global brands include -escafV, -estea, 1aggi, ?uitoni, #urina and of course -estlV
itself7 )ther brands also sell in many countries N for e"ample, 1ilo, -esHui', -espresso, *it
*at, Smarties, #olo, .ris'ies, #errier and Oittel7 he total number of brands N including local
brands N reaches into several thousands7
-estlV had gone through several name changes from 1833(19297 .arine Lactee &enri -estlV
merged !ith the Anglo(S!iss Pondensed 1il' Po7 in 19:2, and the company$s name became
-estlV ` Anglo(S!iss Pondensed 1il' Po7 0n 1929, #eter(Pailler(*ohler Phocolats Suisses S7A7
merged !ith the company7 he name !as then changed to -estlV ` Anglo(S!iss &olding Po7
Ltd, on -ovember 24, 19+37 ?y late 19/4, the company name had been changed to -estlV
Alimentana S7A7 through the acHuisition of shares of Alimentana S7A7 he current name
!hich is -estle S7A !as adopted in 19447
Pross(?usiness Synergies !ithin -estle
he primary logic behind implementing strategy in a multi business organisation li'e -estleV
is to increase the business performance7 A business strategy of an organisation is the !ay it
chooses to go about succeeding in its industry7 0t is simply a process of loo'ing at the range
of options a frm can underta'e to achieve its stated ob=ectives !ith high priority to increase
corporate performance7 .or many multi(business frms, cross(business gro!th is the ma=or
lever of gro!th in their saturated mar'et M*noll 2::8, p7 1)7 Pross(business synergies is
defned as \the value that is created and captured, over time, by the sum of the business
together relative to !hat it !ould be separately] M1artin and 5isenhardt 2::1, p7 +)7 he
pursuit of synergy is at the heart of the rationale for the e"istence of a multibusiness
corporation M#orter, 1982)7
he frst identifed cross(business synergies of -estlV is the strong organisation
implementation7 he strong business performance by -estlV in 2::8 is as a result of strong
organisational efectiveness !hich dates bac' in its history7 his is very critical to getting
organisation strategy right7 As stated by #aul ?ul'e, P5) of -estlV, the -estlV 2::8
performance reXects its ability to achieve a high level of organic gro!th7 his in a sense is
that the systemic arrangements of the company diferent sections and brands enable its
gro!th !hich !as reXected in the company 5?0 margin in 2::87 he company operational
eSciency !as a result of it strong organisation implementation7 he 5?0 value is useful
!hen comparing various sections Mdepartments) in a multi business company li'e -estlV7
he company policy of rationalising underperforming product lines also serve as one of the
ma=or drivers of improved performance7 -estlV strong organisation implementation has
therefore ensured the optimisation of management rules and orderly operation of the
company7 Another cross(business synergy of -estlV is that it engaged in multi(business team
decision process7 he multi(business teams, certainly in collaboration !ith the corporate
oSce, are the locus of value creation and identify potential synergy initiatives7 0t is a form of
leveraging in terms of relational resources and strategic alignment7 0n relation to this, -estlV
has a dedicated initiative teams overseeing each of the company four gro!th platforms7 he
company #opularly #ositioned #roduct M###) strategy is one of these platforms !ith a specifc
business model !hich focuses on lo!er income consumers by ofering them high(Huality
nutritious products at daily afordable prices7
-estlV Porporate @oal %irection
he importance of goals to any organisation cannot be underestimated7 5very organisation
small or large aims for success and in order for an organisation to become successful it
needs clearly defned goals7 -estlV not only have clearly defned goals, the operational plans
of the company meets its strategic plan7 he company corporate goal direction is to be the
!orld$s largest and best branded food manufacturer and to ensure products of the highest
Huality7 0t is a holistic strategic thin'ing !hich the organisation as a system that integrates
each part in relationship to the !hole7 he point is that this approach allo!s the managers of
-estlV to employ an advance form of analytical reasoning that ensure creativity7 %eWit and
1eyer M1998) submits this as generative thin'ing perspective7 0n -estlV, ho!ever, the
creative and logical thin'ing perspectives are combined7 Logical thin'ing emphasi,ed the
ability of managers to critically reXect on the assumptions they hold and to ma'e their tacit
beliefs more e"plicit M0bid)7 his in a !ay ensures creativity !hich is critical for innovations7
he company is a mar'et leader in many product lines such as cofee, mil', chocolate, food
seasoning, bottle !ater and pet food7 0ts corporate slogan, \good food, good life] is
understandably a slogan that pushes consumers to buy -estlV products as it signifes a
better and healthier products for consumers7 he gro!th of the company is also been driven
by -estlV commitment to ma'ing better healthier products for its consumers around the
!orld7 -estlV corporate goal is founded on corporate innovation and 'no!ledge
management !hich involve collecting and utili,ing information, innovation and 'no!ledge
resources for the reali,ation of corporate ob=ectives of the organisation7 his is to achieve
the corporate goal of being the !orld largest and best branded food and confectionaries
producer7 With the resources at the company disposal, the goal of -estlV is aspecifc$,
ameasurable$, aattainable$, arelevant$ and atimed$7
-estlV Porporate 1anagement 1echanisms
he management responsibility is based on a system of specifc individual responsibility for
each post7 his is reXected in the company corporate business principles, and !ith specifc
policies related to each principle7 hese principles are respected by all employees and their
application is monitored and regularly audited7 he company strengthen management of
rules and regulations through standardi,ation and simplifcation7 here are diferent levels of
management and the company step(by(step according to levels ensure that the
management of diferent sections and brands of the company can be conducted separately7
o optimi,e the management of rules and ensure orderly operation of the company, -estlV
reach aggregation among the internal control through management system for ris' control,
management system for product development and innovation, corporate information
mechanism Mthat allo!s the company to ma'e full use of 'no!ledge resource and improve
managing eSciency) and management system for cost control7 All of these ma'e corporate
performance better7
Accordingly, 'no!ledge based corporate management is the 'ey corporate management
mechanism adopted by -estlV7 0t is basically driven by information system and includes
learning process, corporate culture, trust and po!er relations M5pstein and 1an,oni 2::3, p7
143)7 he -estlV programme \@lobal ?usiness 5"cellence] M@L)?5) !hich aims to harmoni,e
and simplify business process architecture through and integrated information system is an
e"ample of information system in governing 'no!ledge7 he main goal of this programme is
to ensureQ a best practice that is creating common business processes, establishing best
practices for activities such as purchasing, sales forecasting, production planning and
customer serviceB data standardi,ation !hich is to manage data as a corporate asset7 he
company has an established common coding system for various items such as ra! material
and pac'aging, fnished goods, vendors and customer7 0n order to support best practices and
standardi,ation, -estlV has a common information system7 he programme also see's to
standardi,e internal and e"ternal databases and to implement a common business process
architecture7 his provides -estlV companies !ith common guidelines, structures and best
practices to integrate operations across the !hole organisation and to align organisational
strategies !ith corporate goals M0bid, p7 144)7
-estlV Porporate Level Strategy
Porporate level strategy is essentially !hat ma'es the !hole company greater than the sum
of its business units7 he separation of strategic and tactical decision ma'ing as argue by
Phandler M1932B 1991) is the most eScient corporate organisation as it allo!s the corporate
centre to focus on the destiny of the corporation and allo! business units to focus on !ithin
business unit operations7 1int,berg puts for!ard fve formal defnitions of strategyQ planB
ployB patternB positionB and perspective7 #lanning is concern !ith the development of
mission or vision of !hat the company !ould aim to achieve7 he organisation must have a
vision of !hat they !ant the company to be at a point in future7 he pattern has to do !ith
ho! the strategy unfolds and becomes concrete7 0f strategy as plan refers to deliberate,
intended strategy that may or may not be realised, then strategy as pattern suggests
unplanned, emergent strategic patterns or consistencies that are realised despite, or in the
absence, of intentions M1int,berg and Waters, 1982 in @rae, 2::2, p7 /23)7
An integrated organisation strategy is based on overall orientation to!ards gro!th and
stability7 0n the case of -estlV, the overall orientation is to be the !orld$s largest and best
branded food manufacturer !ith the highest Huality standard7 A company may also focus
portfolio corporate strategy, !hich is a strategy focus on the mar'et that the frm competes
in through product line and business units7 0n fact this is the basic underpinning strategy
that drives -estlV orientation of producing the !orld healthiest product7 he core principle of
-estlV is helping consumers to have a balanced healthier diet7 \.or frms to sell successfully
to foreign customers reHuires culturally sensitive adaptations to product services, services,
mar'eting and advertising M6ugman and Pollinson 2::9, p7 1+2)7 0n the face of an
unpredictable, highly volatile and competitive mar'etplace, a capacity for innovative,
divergent strategic thin'ing at multiple organisational levels is seen as central to creating
and sustaining competitive advantages MLiedt'a 1998 in @rae, 2::2, p7 /23)7 -estlV uses
both planning scenario and strategic business models7
-estlV -utrition, an autonomous unit !ithin -estlV, is responsible for the claim(based
business of infant and healthcare -utrition7 his is one of the strategic units of -estlV
created in order to maintain the company competitiveness7 his unit aims at delivering
superior business performance by developing and ofering consumable nutritious products7
he unit in particular !ould strengthen -estlV leadership in this mar'et hence a 'ey element
of the company corporate strategy71ichael #orter M1949) came up !ith four competitive
strategies for business7 he frst strategy is to be the cost leader !hich means having the
lo!er cost either across the industry or !ithin the industry segment7 An e"ample of across
the industry cost leader strategy of -estlV is its ability to ma'e its entire product available
and afordable to consumers regardless of countries7 0ncome disparities e"ist among
countries, so -estlV produce and repac'age products in line !ith consumers capacities to
purchase if diferent countries7 he cost leader !ithin the industry segment !ould be -estlV
ma'ing its product to be the cheapest in the entire industry7
he second strategy is diferentiation, !hich means having your product better or ma'ing
your service better and uniHue among the competition7 A company can either diferentiate
its productRservice in the industry or across the industry segment =ust li'e the cost leader7 An
e"ample of having diferentiation across the mar'et place is the -estlV ma'es it products to
be ma=or healthy products to consume7 0n fact, -etslV agreement !ith L$)rVal in 2::8 is a
good e"ample of the company continuous product diversifcation strategy7 0n Asia and Africa,
-estlV$s strategy has been to acHuire local companies in order to form a group of
autonomous regional managers !ho 'no! more about the culture of the local mar'ets7
5isenhardt and ?ro!n M1998) argue that !hile, traditionally, strategy !as about building
long(term defensible positions or sustainable competitive advantage$$, today strategy must
focus on continuous adaptation and improvement and be constantly shifting and evolving in
!ays that surprise and confound the competition M5isenhardt and ?ro!n 1998, p7 484 in
@rae,, .7 2::2)7 he -estlV Ponsumer Pommunication #rinciples contain mandatory rules on
mar'eting communication to all consumers, including accurate representation and portrayal
of foods in a !ay that does not encourage over(consumption7
Ponclusion
-estlV !ill continue to remain a competitive global brand for time to come7 he structure,
organisation and strategy of the company reXect an organisation that is !ell focus to
achieve its stated ob=ectives and goals7 As a food, nutrition, health and !ellness company,
-estlV has targeted the essential primary motivation for consumer to purchase7 1ore than
ever before, consumers are concerned about the nutritional contents of products they
consume7 hrough its global strategic approach, -estlV has transformed its organisation to a
!orld recognised leader in nutrition, health and !ellness7 he company #opularly #ositioned
#roduct M###) strategy is best for -estlV as big portion of their core competence and
resources are directed fast gro!ing product and division7 As a mar'ets see'er, -estlV has
the motivation to e"pand internationally and invest in foreign countries7 he organisation
'no!ledge of customers in diferent conte"ts has improved its proft margin relative to its
competitors7
:; ."at impa!t !ould t"ese e+poses "a)e on t"e long#term pro'tabilit& o( Nike<
he foot!ear company has been pushing sustainability from ris' and reputation
management into 6`% and innovation
1a'ing a third of the !orldAs sports!ear and training shoes is a proftable business7 -i'e
posted recession(beating revenues of <2/71bn Mb12bn) in the last fnancial year, up 13D
from 2:117 ?ut turning out an estimated 12:m trainers and hundreds of millions of tonnes of
athletic gear each year carries a high price tag !hen it comes to environmental and social
impacts7
Since 2::/, &annah Gones, vice(president of -i'eAs sustainability and business innovation
unit, has had to balance this gro!th !ith the companyAs huge consumption of energy, !ater
and materials7
CAs !e move into a sustainable economy, !e !ill need to move into a closed loop economy,C
she says7 CWe !ill be providing products that allo! businesses to gro!, are proftable, meet
the demands of shareholders but are also de(coupled from scarce resources7
?ut, she says, the company doesnAt see the future as consuming less7 C0tAs not about saying
to the emerging middle class in Phina Ayou donAt get to consume as muchA,C says Gones7 C0tAs
about a ne! defnition of premium products, that are closed loop, using only materials that
can be fully recycled7C
-i'e last year issued a ne! set of performance standards by 2:12 that included a 2:D
reduction in P:2 emissions per pair of running shoes by from 2:11 levelsB an increase in
!ater eSciency by 12D and a 1:D reduction from manufacturing !aste7 ?y 2:2:, -i'e has
also set a target to eliminate the discharge of ha,ardous chemicals from all products across
its supply chain, follo!ing a @reenpeace campaign !hich e"posed dangerous levels of to"ins
at Phinese apparel factories7
he company has come a long !ay on sustainability and corporate responsibility since the
199:s, !hen company co(founder #hil *night said it had Cbecome synonymous !ith slave
!ages, forced overtime, and arbitrary abuseC7
here are signs that -i'e is producing some concrete results and setting the pace for the
rest of the industry7
Last year, -i'e !as ran'ed si"th among only 32 companies as having developed an
CecosystemC of long(term sustainability targets according to %eloitteAs ,ero impact gro!th
monitor7
0n 2:1:, -i'e rolled its corporate responsibility department into the sustainability unit to
develop disruptive innovations in materials7
CWeAll see a very signifcant movement in industries that are !or'ing on logistics and !aste
management but it !ill start !ith materials science,C said Gones7 CJltimately, you can only
refurbish materials based on the science and the chemistry and ho! itAs actually
assembled7C
he company uses around 13,::: materials annuallyB running shoes alone can be comprised
of +: materials, from natural fbres to polyester, nylon, rubber, synthetic leather and
ethylene vinyl acetate M5OA)7 1aterials account for 3:D of the lifecycle of a pair of running
shoes, manufacturing about 22D and the remainder is split bet!een transport, retail, oSce
facilities, pac'aging, use and disposal7
1ost of these materials are still petroleum(based or have a high dependence on fossil fuels,
such as fertiliser for cotton7 And as oil prices rise and stoc's decline, fnding ne! materials
!ill become the holy grail for apparel manufacturers7
-i'eAs .ly*nit technology launched last year is the result of a four(year Cmicro(engineering
missionC that resulted in a design that can be 'nitted to a pattern, much li'e a s!eater, from
single fbres rather than cut from rectangular fabric7 he .ly'nit Lunar1c reduces !aste by
an average of 8:D !hen compared to typical -i'e running foot!ear7
-i'e last year entered into a strategic partnership !ith %utch company, %yePoo e"tile
Systems, !hich has developed a !aterless dyeing machine that uses recycled carbon
dio"ide7 Last Gune, it announced a strategic !or'ing group !ith Poca(Pola, .ord, &ein, and
#rocter ` @amble to accelerate the development of 1::D plant(based polyethylene
terephthalate M#5), used to ma'e everything from plastic bottles to foot!ear7 -i'e also has
a number of other partnerships that havenAt been announced yet !ith academia and
research labs7
C)ne of the lynchpins of the strategy is that over the last fe! years, !e have really shifted
our sustainability team from being a ris'(management and reputation management agency
to really also having signifcant 6`% and innovation capabilities,C says Gones7
Pollaboration !ithin the industry has also gained traction in recent years7 -i'eAs materials
sustainability inde" that !as developed for its o!n designers to select materials !ith lo!er
environmental impacts has no! been incorporated into the Sustainable Apparel PoalitionAs
&igg inde" launched last year7
Some of the !orst to"ic ofenders have already been removed over the last 1: years7 Water(
based chemistry has replaced petroleum(based solvents, and phthalates and #OP have also
been eliminated, although no alternative has yet been found for screenprinting7
-i'e has also reduced carbon emissions from 1,384,9:: tonnes of P)2 in 2::9 to 1,3/:,4::
tonnes of P)2 in 2:11, a reduction of 278D7 Although -i'e does not publish its overall
carbon reduction goal, it aims to achieve a 2:D reduction in P)2 emissions per unit of
foot!ear by 2:127
:;6 =+plain t"e importan!e o( Trade Related Intelle!tual /ropert& Rig"ts in
international business6
Trade#Related Aspe!ts o( Intelle!tual /ropert& Rig"ts 3TRI/S4
rade(6elated Aspects of 0ntellectual #roperty 6ights M60#S) is arguably the most important
and comprehensive international agreement on intellectual property rights7 1ember
countries of the W) are automatically bound by the agreement7 he Agreement covers
most forms of intellectual property including patents, copyright, trademar's, geographical
indications, industrial designs, trade secrets, and e"clusionary rights over ne! plant
varieties7
$bligations under t"e TRI/S Agreement
he 60#S agreement outlines several important trade related aspects of intellectual
property7 1ore specifcally, it reHuires signatory countries to adhere to its criteria for
intellectual property monopoly grants of limited duration, along !ith reHuiring adherence to
the #aris Ponvention, ?erne Ponvention and other W) Ponventions7 he criteria are
minimum standards for granting a monopoly over any type of 0#, as !ell as duration limits,
enforcement provisions and methods of 0# dispute settlements7
When the 60#S Agreement too' efect on Ganuary 1, 1992, all developed countries !ere
given t!elve months from the date of signing the agreement to implement its provisions7
%eveloping countries and transition economies Munder certain conditions) !ere given fve
years, until 2:::7 Least developed countries ML%Ps) !ere given 11 years, until 2::3, to
comply7 Some countries have indicated that a longer period should obtain7 .or
pharmaceutical patents in these L%Ps, the term for compliance has been e"tended to 2:137
here are currently +: L%Ps !ithin the W) organi,ation bound by 60#S and another 1:
L%Ps are !aiting accession7
Some of the most important Mand controversial) provisions in the 60#S agreement concern
patent protection7 60#S signatories are obliged to ma'e patents available for all inventions,
!hether products or processes, in all felds of technology !ithout discrimination MArticle
2471)7 0nterestingly, 60#S does not defne the term CinventionC7 he agreement states three
e"ceptions that countries may rely on to e"clude other!ise patentable sub=ect matter7 hese
includeQ
17 inventions !hich are contrary to ordre public or morality, i.e. inventions !hich are
dangerous to human, animal or plant life or health or seriously pre=udicial to the
environment7 MArticle 2472)
27 diagnostic, therapeutic and surgical methods for the treatment of humans or animals
MArticle 247+Ma))7
+7 plants and animals other than microorganisms and essentially biological processes
for the production of plants or animals other than non(biological and microbiological
processes7 Any country e"cluding plant varieties from patent protection must provide
an efective sui generis system of protection MArticle 247+ Mb))7
he interpretation of this last clause has been e"tremely contentious7 he term sui generis
MLatin for Aof its o!n genderRgenusA) is not defned in the agreement, but it is generally
believed that it enables member countries to fashion their o!n protection scheme for plants7
#ossible protection mechanisms include the #lant ?reederAs 6ights system ofered by J#)O
Ponvention, plant patents or a licensing regime7 1ore than one form of plant protection can
be implemented in a given member country7
5ontro)ers& surrounding Arti!le >?6@
)ne of the controversies of Arti!le >?6@ focuses on the meaning of Asui generisA and e"actly
!hat is considered an AefectiveA form of plant variety monopoly right7 0n part because of the
diSculties !ith this provision, Article 247+ !as to be revie!ed in 1999, four years after the
entry into force of the agreement7 he revie! has never been completed, and this Article
remains a hot issue7 o date, some +: countries are calling for further discussion on Article
247+, and some have proposedQ
17 re!riting the Article to e"clude patents for any organisms or genetic material
Malthough ostensibly countries could achieve this by defning these sub=ect matters
as CdiscoveriesC and not CinventionsC)B
27 defning in detail !hat an efective plant variety development right system isB
+7 e"tending e"clusionary rights of some sort to traditional or indigenous 'no!ledgeB
and
/7 ma'ing e"plicit lin'ages !ith obligations for the conservation and use of biodiversity,
including mandatory disclosure of the source of genetic materials used in a patented
invention, and creating obligations to record arrangements for access to genetic
resources as evidence of prior informed consent7
0t remains to be seen !hether any of these proposals !ill be adopted7
/atentee Rig"ts- Term o( /rote!tion and =n(or!ement Rig"ts
he rights obtainable by patentees are clearly outlined in Arti!le >A7 he Article also
provides that rights are conferred for products !hich are directly obtained by a patented
process or method7
5dA1#L5Q 0f a patent is issued for a novel method of manufacturing sno! s'is, the s'is
produced !ill also be protected by the patent7
he 60#S agreement provides that inventions must be disclosed by publication MArticle 29)
and sets out a minimum term of 2: years for patent protection7 he 2: year term is
calculated from the fling date MArticle ++)7 Although a patent term begins at fling,
enforcement rights only ensue from the date of patent grant7
60#S also provides rules regarding domestic procedures and remedies for the enforcement
of intellectual property rights7 he rules are general principles applicable to all enforcement
procedures, i.e. they contain provisions on civil and administrative procedures and
appropriate remedies so that right holders, be they patentees, copyright o!ners or other
intellectual property o!ners, can efectively enforce their rights7
=2e!ts o( TRI/S and t"e Resulting 5ontro)ersies
)ne of the efects of the 60#S agreement has been to tie trade and intellectual property
together7 raditionally, developing countries have opposed the range of nontarif barriers,
such as the protection of inventions, !hich they see as preventing them from trading
competitively throughout the rest of the !orld7 Pontroversy has arisen over perceptions of
inconsistency bet!een the 60#S Agreement and other international agreements, such as
the Ponvention on ?iological %iversity7 here have also been suggestions, for e"ample, that
patenting restricts the availability of the latest chemicals, pharmaceuticals and fertili,ers,
thereby necessitating the use of older, less(safe and more to"ic products7 here have been
reports that intellectual property rights on plant varieties erode biological diversity,
especially in agriculture7 Some countries are also demanding that the e"isting intellectual
property system should accommodate concepts traditionally outside of the scope of
intellectual property, for e"ample indigenous and traditional 'no!ledge7
he e"amples above highlight some of the issues surrounding the 60#S agreement !hich
are the sub=ect of much international debate7
Some nine years after 60#S !as frst implemented, its provisions are still in a state of
revie! and alteration7 .or individual country positions on 60#S see @rainAs 60#S 6evie!
pages7 @rain is an international non(governmental organisation !hich promotes the
sustainable management and use of agricultural biodiversity based on peopleAs control over
genetic resources and local 'no!ledge7
Arti!le >? Patentable Subject Matter
+7 1embers may also e"clude from patentabilityQ
Mb) plants and animals other than microorganisms, and essentially biological processes for
the production of plants or animals other than non(biological and microbiological processes7
&o!ever, 1embers shall provide for the protection of plant varieties either by patents or by
an efective sui generis system or by any combination thereof7 he provisions of this
subparagraph shall be revie!ed four years after the date of entry into force of the W)
Agreement7
Arti!le >A Rights Conferred
17 A patent shall confer on its o!ner the follo!ing e"clusive rightsQ
Ma) !here the sub=ect matter of a patent is a produ!t, to pre)ent third parties not having
the o!nerAs consent from the acts ofQ making- using- o2ering (or sale- selling- or
importing (or t"ese purposes t"at produ!tB
Mb) !here the sub=ect matter of a patent is a pro!ess, to pre)ent third parties not having
the o!nerAs consent from the act of using t"e pro!ess, and from the acts ofQ using-
o2ering (or sale- selling- or importing (or t"ese purposes at least t"e produ!t
obtained dire!tl& b& t"at pro!ess7
27 #atent o!ners shall also have the right to assign, or transfer by succession, the patent
and to conclude licensing contracts7