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AMITY INTERNATIONAL BUSINESS SCHOOL

Dr. Namrata Pancholi

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Barriers and Complexities of entering into

Global Business

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Barriers and Complexities of entering into

Global Business
- Geographic
- Economic
- Political and Legal
- Cultural
- Stages of Internationalization
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The World Economy - Overview

World Economy has changed profoundly during the
last 50 years
Integration of world economy (EU , NAFTA)
Emergence of global markets

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Success of business depends upon our understanding

of the following:
-Capital movements not trade are driving force of
world economy
-Production is uncoupled from employment
-World Economy dominates the scene.
Macroeconomics of individual countries no longer
control economic outcomes.
-Internet diminishes the importance of national
barriers.
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Economic Systems
Three types of economic systems
Capitalist
Socialist
Mixed

Classification based on dominant method of resource

allocation
Market allocation
Command or central plan allocation
Mixed allocation

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Economic Systems Market Allocation

Relies upon consumers to allocate resources: Economic
Democracy
Role of state
Promote competition
Ensure customer protection
Shift in role of Indian Government from manufacturer to
making rules, regulations, encouraging PPP.
Examples of predominately market economies
Western European Countries, United States, Japan

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Economic Systems Command Allocation

State has broad powers to serve public interest
Decides which products to make
Decides how to make them

Examples of countries that relied upon command

allocation systems for decades
China, former USSR

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Economic Systems Mixed Systems

There are in reality no pure market or command
allocation systems among the worlds economies
Command allocation sector is the proportion of GDP
that is taxed. Ex Sweden- 64%of all expenditures
are controlled by the government, eco system is more
command than market.

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Luxembourg ranks 1st in both GNP /Capita and PPP.

US Ranks 8th in GNP per capita income
Ranks 2nd in PPP.

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Regionalization of Markets (1)

Many different forms of economic co-operation between
countries
Free trade areas
Customs unions
Common market- (labor and capital)
Economic Union-(creation of central bank, single currency,
common policies)

World Trade Organisation (WTO)

Acts as mediator in global trade disputes
Ensures that trade flows are as smooth, predictable and as
free as possible

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FTA
All barriers to trade of goods and services are
removed;
each country can determine its own trade
policies relative to nonmembers
European Economic Area
NAFTA
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Customs Union
Same as FTA, except with common external
trade policy..
The Central American Common Market,
Mercosur
Andean Pact(Bolivia, Colombia, Ecuador, Peru)

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Common Market
Similar to Customs Union, but factors of
production (labor and capital) can move freely
across borders.

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Economic Union
Full evolution of economic union:
-Creation of one currency, centralised bank and
common monetary and fiscal policy
EU- Approaching its target.

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Significant Developments in
the
last
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50 years
Emerging economies are increasingly
becoming important players of global
economy
Other sig. developments:
- UR of GATT negotiations concluding
- WTO (2001)
- Another series of negotiations concludingDoha Round(Min. trade barriers)
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After 1992,
- European Union for Economic and Monetary
Union.
-1999, Common Currency
1994-NAFTA passed into a law.
-APEC Future of Asia Pacific free trading area.
-Economic & Political Reforms- East Europe
and Asia(Communist )
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www emerged as a backbone for global

networking and e-commerce
Post 9/11 and 26/11- Threat to Economic
development and Global Economic
Integration.

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- EU in 1999, wanted to create a single market

for financial services by Jan.2005

- Dismantle barriers to cross border activities in

financial services creating a continent wide
market for banking, financial services,
insurance and investment products.
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Nation-States and Sovereignty

Sovereignty = supreme and independent political authority
Implies that the nation-state
Is decision making authority of last resort in its territory
Is independent from other nation-states
Nation-state activities governed by
Economic development
Political and economic system
Global market integration erodes economic sovereignty
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Political Risk

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The risk that changes in governmental policy

adversely affect a companys activities
A lower level of political risk tends to attract
higher investments
Level of political risk is inversely proportional
to a countrys state of economic development
To reduce the risk of investors to and from
India- agreement- Bilateral Investment
Promotion and Protection Agreement-min
predictable investment climate

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Taxes
Many companies make efforts to minimize tax liability.
No universal international laws governing the levy of taxes.
A variety of international and bilateral treaties apply
India- DTAA, Double Tax Avoidance Agreement treaty with
80+ nations.

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Dilution of Equity Control

In lower-income countries there is often
political pressure for national control of
foreign-owned companies
Goal of national governance: protect the right
of national sovereignty
Political pressure often causes companies to
take local partners (strategic alliances, jointventures)
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Legislations in Gulf Countries force to have

local partners.
-Past Indian govt introduced FERA (now
replaced by FEMA).
FERA allowed 40% of foreign equity
participation.
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Expropriation
Expropriation = governmental action to dispossess or
control a companys ownership
Nationalization = ownership of property and assets is
transferred to the host government
Confiscation = nationalization without compensation
Creeping expropriation = severe limitations on
economic activities. E.g., limitations on repatriation
of profits, quotas for hiring locals, price controls
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International Law

International law = the rules and principles

nation-states consider binding upon
themselves
Two categories
Public law, or law of nations
International commercial law

To reduce legal uncertainty, international

organizations attempt to provide guidelines
The United Nations International Court of
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1995 WTO members agreed to comply by

TRIPS. Trade-Related Aspects of Intellectual Property Rights
India had to change its process patent to
product patent.(March, 2005, patent
amendment bill was passed in Parliament)
US it is registered under patent office, patent
holder retains all rights for the life of the
patent.
Indian Pharma companies product patent for
20 years.
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