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Because learning changes everything.® Bonus Module A International Institutions from a Business Perspective © 2023 McGraw Hill, LL...

Because learning changes everything.® Bonus Module A International Institutions from a Business Perspective © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.  Learning Objectives A-1 Explain the importance of major international institutions to business decision makers. A-2 Describe institutions, drawing on new institutional theory. A-3 Describe the United Nations as an institution and its relevance to international managers. A-4 Describe the purposes of the two monetary institutions, the IMF and the World Bank. A-5 Discuss the resources of the Organisation for Economic Co-operation and Development and the World Trade Organization. A-6 Identify the types of trading blocs by their level of economic integration, with examples. © McGraw Hill, LLC 2  The World Bank: Funding Global Efforts to Combat COVID-19 When the COVID-19 pandemic began, governments in many developing countries struggled to contain its spread. The World Bank stepped in and fast-tracked emergency assistance for low- and middle-income countries, reaching over 110 countries in 2020. This included not just tests, treatments, and vaccines, but also logistics and supply chain management support and training of health care personnel. The World Bank’s efforts were strengthened through extensive collaboration with a broad array of other organizations, including those of a local, regional, and global nature. In the face of a major global pandemic such as COVID-19, the important role of institutions such as the World Bank is clear. © McGraw Hill, LLC 3  What Are Institutions, and Why Are They Useful? Institutions provide: A way to resolve conflict before it reaches open hostility. Support and infrastructure for decision makers. © McGraw Hill, LLC 4  Institutional Theory 1 New Institutional Theory. Understanding of institutions as social constructs that limit behavior. A collection of norms that structure the relations of individuals to one another. Provide the rules of the game for business. © McGraw Hill, LLC 5  Institutional Theory 2 Types of Institutions. Formal Institutions. Influence behavior through laws and regulations. Use threat of force and sanctions. Informal Institutions. Influence behavior through norms, values, customs, and ideologies. No penalty for noncompliance. © McGraw Hill, LLC 6  Institutional Theory 3 Types of Institutions. Informal Normative Institutions. Organizations that establish standards and propagate principles (the UN, NGOs). Informal Cognitive Institutions. Collections of shared ideas that define reality by means of conceptual frameworks or schema. Often neither explicit nor tangible (guanxi). © McGraw Hill, LLC 7  Figure A.1 New Institutional Theory: Characteristics of Institutions Institution Type Formal Informal Informal Social Agreement is: Regulative Normative Cognitive Compliance based on Expedience Social obligation Predisposition (taken for granted) Institutionalization Coercion Norms Imitation based on Logic based on Means to an end Appropriateness Conformance, orthodoxy Legitimacy based on Legal Moral governance Cultural support, enforcement concept correctness Indicators/ Evidence Rules, laws, Certification, Prevalence, similarity sanctions accreditation Source: McNett, J. after Scott, W. R., Institutions and Organizations. Thousand Oaks, C A: Sage, 1995, 10. © McGraw Hill, LLC 8  Figure A.2 Influence of Institutions on Firms, Managers, and Firm Behavior Source: Influenced by Scott, W. R., Institutions and Organizations. Thousand Oaks, C A: Sage, 2008, 266; Peng, W. M., Global Business. Mason, O H: South-Western Cengage, 2009, 266. Access the text alternative for slide images. © McGraw Hill, LLC 9  The United Nations 1 General UN Support of Business. Set technical standards and norms. Lay groundwork for investment in emerging economies. Focus on areas such as health, education, governance, and political stability, terrorism, crime, drugs, and arms traffic. Seek solutions to global environmental problems. Promote social justice and human and labor rights. © McGraw Hill, LLC 10  The United Nations 2 Direct UN Impact on Business. Ships, airlines, airwaves, and weather forecasts are protected by UN rules. WHO sets criteria for pharmaceuticals. Universal Postal Union protocols. Rules for international commercial transactions. © McGraw Hill, LLC 11  The United Nations 3 UN Organization. General Assembly. Deliberative body of the UN made up of all member nations, each with one vote regardless of size, wealth, or power. Security Council. Main peacekeeping body of the UN, composed of 15 members including 5 permanent members. © McGraw Hill, LLC 12  The United Nations 4 UN Organization. Economic and Social Council (ECOSOC). UN body concerned with economic and social issues such as trade, development, education, and human rights. International Court of Justice (ICJ). UN body that makes legal decisions involving disputes between national governments. Secretariat. The staff of the UN, headed by the secretary-general. © McGraw Hill, LLC 13  International Monetary Institutions 1 Bretton Woods. 1944 conference at which Allied nations’ treasury and central bank representatives met to establish the International Monetary Fund and the World Bank. International Monetary Fund (IMF). Institution that fosters global monetary cooperation, financial stability, international trade, high employment and sustainable economic growth, and reduction of poverty. World Bank. Institution that lends money for development projects focused on reducing poverty. © McGraw Hill, LLC 14  International Monetary Institutions 2 International Monetary Fund. Special drawing rights (SDRs). An international reserve asset established by the IMF. Value linked to basket of currencies, not a claim on IMF but on members’ currencies. Quotas are contributions of members and they form the pool for IMF lending. © McGraw Hill, LLC 15  International Monetary Institutions 3 International Monetary Fund. IMF and Exchange Rates. Fixed exchange rates with par value: stated value based on gold and the U.S. dollar. Criticisms of the IMF. Forcing free-market policies on poor countries. Increasing poverty and political chaos (Bolivia, Indonesia, Thailand). © McGraw Hill, LLC 16  International Monetary Institutions 4 International Monetary Fund. Current IMF issues. Aid coupled with mandatory advice to reduce budget deficits and inflation lead to increased poverty. IMF largely controlled by developed Western countries. IMF strengthens economies of dictatorial regimes so they become markets for multinationals; does not apply political test, but an economic one. IMF is making attempts to address these issues. © McGraw Hill, LLC 17  International Monetary Institutions 5 The World Bank. Nonprofit cooperative to fund developing nations. Organized into two major and three smaller institutions. International Bank for Reconstruction and Development (IBRD) with focus on middle income nations. International Development Association (IDA) with focus on poorest nations via interest-free loans and grants. © McGraw Hill, LLC 18  Economic Development The Kajaki hydroelectric dam, which will provide power and irrigation for Afghanistan’s Helmand Province, was funded by USAID and the World Bank. © McGraw Hill, LLC U.S. State Department/Alamy Stock Photo 19  World Development and Trade Organizations 1 Organisation for Economic Co-operation and Development (OECD). Group of developed countries dedicated to promoting their own and other nations’ economic expansion. Provides research on economic and business topics. © McGraw Hill, LLC 20  Table A.1 OECD Member Countries Australia France Latvia Slovenia Austria Germany Lithuania Spain Belgium Greece Luxembourg Sweden Canada Hungary Mexico Switzerland Chile Iceland Netherlands Turkey Colombia Ireland New Zealand United Kingdom Czech Republic Israel Norway United States Denmark Italy Poland Estonia Japan Portugal Finland Korea Slovak Republic Source: OECD, "Where: Global Reach," www.oecd.org/about/members-and-partners, accessed March 15, 2021. © McGraw Hill, LLC 21  World Development and Trade Organizations 2 World Trade Organization (WTO). An international organization that establishes and helps implement rules of trade between nations. 164 members, representing 98 percent of all world trade. © McGraw Hill, LLC 22  World Development and Trade Organizations 3 WTO Principles. 1. Trade without discrimination. 2. Freer trade through negotiation. 3. Predictability through binding and transparency. 4. Promoting fair competition. 5. Encouraging development and economic reform. 6. Protecting the environment. © McGraw Hill, LLC 23  World Development and Trade Organizations 4 Doha Development Agenda. Focused on trade between developed and developing economies. Most concerns market access for developing nations, especially for textiles, clothing, agriculture, and fish. Still in talks since 2001. © McGraw Hill, LLC 24  World Development and Trade Organizations 5 Doha Development Agenda. Trade-related intellectual property rights (TRIPS). WTO agreement that protects copyrights, trademarks, trade secrets, and other intellectual property matters. Determined that property rights should not take precedence over public health. © McGraw Hill, LLC 25  Economic Integration Agreements 1 Free Trade Area (FTA). Area in which tariffs among members have been eliminated, but members keep their external tariffs. Customs Union. Collaboration that adds common external tariffs to an FTA. © McGraw Hill, LLC 26  Economic Integration Agreements 2 Common Market of the South (Mercosur or Mercosul). Presently a South American customs union of Argentina, Brazil, Paraguay, Uruguay, and Venezuela, with associate members Chile, Peru, Ecuador, Bolivia, and Colombia. Common Market. Customs union that includes mobility of services, people, and capital within the union. Economic Integration. © McGraw Hill, LLC 27  Economic Integration Agreements 3 United States-Mexico-Canada Agreement (USMCA). Agreement creating a free trade area among Canada, Mexico, and the United States (formerly NAFTA). African Trade Groups. ECOWAS, COMESA, SADC, AU. Latin American Trade Groups. Mercosur, DR-CAFTA, Andean Community (CAN). © McGraw Hill, LLC 28  Critical Thinking Question In your judgment, do bilateral trade agreements such as NAFTA and Mercosur undercut the WTO? Explain your reasoning. © McGraw Hill, LLC 29  Economic Integration Agreements 4 Association of Southeast Asian Nations (ASEAN). Agreement among Southeast Asian nations that began as a security agreement, grew to a free trade agreement, and is continuing toward a a free trade area, known as AFTA. European Union (EU). A body of 27 European countries that resulted from the Maastricht Treaty. Three areas of integration: economic, foreign policy, and domestic affairs. © McGraw Hill, LLC 30  Economic Integration Agreements 5 European Union. Economic and Monetary Union (EMU) established the euro. European Parliament represents the people of Europe. Council of the European Union represents the member states. European Commission administers daily operations. © McGraw Hill, LLC 31  Global Debate The issue is that international institutions weaken national sovereignty, the nation’s authority to govern itself. The supranational agreements they foster may be seen as an assault on the nation’s independence. The major counterargument to protect-our-sovereignty objections is that the benefits of supranational agreements far outweigh their trade-offs. 1. Do international institutions such as the United Nation promote harmony, or do they violate the sovereignty and thereby reduce the power of nation-states? Defend your reasoning. 2. Would a world without international institutions be a good or better world? Why or why not? 3. Do the ends (the achievements of international institutions) justify the means (supranational agreements)? © McGraw Hill, LLC 32  Economic Integration Agreements 6 European Union. 27 sets of national rules and harmonize hundreds of thousands of national standards, labeling laws, testing procedures, and consumer protection measures. Common currency and common import and export processes have reduced the cost of doing business within the European Union. Maintains a higher standard of data privacy. © McGraw Hill, LLC 33  Get That Job! From Backpack to Briefcase Autumn Sprunk Autumn Sprunk gained international experience through her work with AIES EC. After graduation, mshe joined the Peace Corps in Colombia. Her advice is to get uncomfortable with uncertainty, get creative, and enjoy the experience. Do you think Autumn’s experience would hold for you, that you would develop cross-cultural skills through student organizations or connecting with international students? © McGraw Hill, LLC 34  MiniCase The minicase “Getting Help from Global Institutions” explores the development challenge of the need for a French alternative energy company exploring FDI in response to Chinese activities in that sector in West Africa. 1. Which organizations discussed in this module would you look to for help in developing a list of investment alternatives and of criteria for the ownership recommendation? © McGraw Hill, LLC 35  Because learning changes everything. ® www.mheducation.com © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.  Accessibility Content: Text Alternatives for Images © McGraw Hill, LLC 37  Figure A.2 Influence of Institutions on Firms, Managers, and Firm Behavior – Text Alternative Return to parent-slide containing images. Formal institutions have formal and informal constraints. They impact firms, which in turn impact managers and firm behavior. Informal institutions have normative and cognitive constraints. They impact managers, which in turn impact firms and firm behavior. Return to parent-slide containing images. © McGraw Hill, LLC 38