AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
Ques 1:- Define the concept of International Marketing? Discuss the differences between
International Trade/ Business & Marketing?
Ans:- International Market refers to the exchange process across nations. It is performance of business
activities that direct the flow of business activities that direct the flow of company’s goods and services to
consumers in more than one country for profit.
According to Kugan “International Marketing is going beyond the export marketing and becoming more
involved in the market environment in which a company is doing business. The advancement in
Information Technology has facilitated international marketing. This trend of Globalization has made
essential for corporate managers to understand international marketing operations.
The terms international trade and international Marketing/ Business are quiet distinct from each
other. The differences between the two may be explained as follows:International Trade is a broad term which includes movement of goods and services between countries. It
reflects an aggregate of supplies and demand in different countries. Thus, it involves major policy
decision by export/ import as also the national economic development. The trends towards globalization
of trade has resulted in a number of multilateral global agreements. The WTO plays a predominant role
while determining trade policy by each member nation.
International Business on the other hand, may be defined as those business transactions among
individuals, firms or corporate entities in private/ public sector that result in movement of goods/ services
across nations. The International business not only includes export/ import but also investment of capital
transactions in intangible assets such as TMs, Patents, Licenses, Franchises, transfer of manufacturing
technologies etc.
Thus, International Business includes a gamut of activities. Business activities across nations require
corporate to understand the different variables of the environment of the nation in which they operate.
These variables include socio-economic factors, political, legal, technological, cultural & geographical
factors.
Thus challenges posed by these factors and its understanding help managers to work its understanding
help managers to work effectively. International business may be categorized as follows:1.
Real:- Studies trade theories-entry modes to be adopted to enter in a country.
2.
Financial:- Studies financial aspects – force rates, balance of payments & international
marketing systems. Appropriate cost of capital, opportunities of international diversification.
Thus it may be said that both international trade & international Business are very different from each
other but which globalization very important subjects of study for any country/ nation.
The scope of International Business/ Market may be divided into 3 categories:1.
Internationalization of domestic trade
2.
Multi-domestic market
3.
Global Marketing
The task of International Marketing includes
International Marketing decision
Market Selection
Market Entry Mode
Marketing Mix
Marketing Organization
To conclude international marketing is a dynamic aspect of corporate strategy for survival and
generation of business opportunities in this world of globalization.
Ques 2:- Discuss the Economic Environment for International Marketing?
OR
What are the Economic variables affecting international business?
Ans:- International marketing is affected by a no. of economic, variables that include:- Level, rate &
direction of economic growth of a country. GDP, std. of living, consumption pattern, purchasing power
and disposable income, balance of payment, dependability on import etc.
The differences in the levels of development and income have implication for the business . In developing
countries of products/ services is limited by low incomes, therefore their import policies are very
restrictive.. A number of developing nations however hold good business prospects for many
companies because of following factors:A steady increase in population
Increasing incomes
Growing democracies
Page: 1/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
The developed countries are on the other hand are characterized by:High Incomes
High Level of Consumption
Business Competition
Liberal Foreign Trade
The Markets however in these countries are nearing saturation or have already saturated
While the advanced economies are characterized by high level of competition in the industrial sector and
fast technological changes and innovation, most developing countries lag behind in these aspects. The
difference in income levels may force comprise in the nature of demand has important implication for
marketing.
Changes in the world economy:- These changes have largely affected the way in which businesses are
carried on. These changes may be explained as follows:1.
Capital Movement rather than trade have become have driving forces of world economy.
Based upon the attractiveness of a country in terms of the govt. economic policies investment
friendly environment nation like – China, India & Brazil have become major economic forces to
recon with.
The huge foreign investment in China has made it a strong economic nation and in no time it will
emerge as a major production base for the world.
2.
Production has become uncoupled from employment:- Nation like India although are
seeing and 8% growth but unfortunately this economic growth rate is same employment meaning
that this growth is not creating employment, thus the long run prospect of such a growth is
negative.
3.
Primary Factors of Production, that is land, labour, capital and machinery are no longer
the driving force for an economy rather innovation, technical advancement have taken
prominence ion spearheading the economic growth.
4.
Separation of Politics from Economics:- The economy is in control of Market forces as
other factors as govt., politics are taking a back seat because of more economies opening up.
Globalization, Liberalization & Privatization is what is driving economies rather than policies &
govts.
5.
New World Economic order: where capitalism has won our socialism, collapse of
communism and size of capitalism is likely to persuade more & more countries to open up and
allow free play of market forces.
Thus the above mentioned economic variables are key in International Marketing.
Ques 3:- What are the barriers / constraints on International Market?OR
Write notes on (i) Tariffs
(ii) Non-Tariff Barriers
Ans: One of the most important features of International trading environment is the existence of trade
barriers, The main objective of imposing trade barriers are to protect domestic industries from foreign
competition, to promote indigenous research and development, to consence foreign exchange resources
of the country, to make balance of position favorable, to curt over-consumption, to mobilize revenue for
the govt. and to discriminate against certain countries.
There are basically two types of trade barriers:1.
Tariff:- Tariffs in International trade refer to the duties/ taxes imposed on internationally
traded goods when they cross the national borders.
2.
Non-Tariff Barriers:- NTB’s have grown considerably where the countries describe thus
as new protectionist measures the export growth of many countries has been. Seriously affected
by NTB’s.
Types of NTB’s: There are two types of NTB’s:1.
The first type include which are generally used by developing countries to prove for ex
outflows or result from their import licensing, import quotas, for ex regulation and canalization of
import.
2.
The second category of NTB’s are those which are mostly used by developed countries
to protect domestic industries which have lost international competitiveness & which are politically
sensitive for the govt.
A brief account of Quotas an important tool of NTB is given as under:Quotas:- Quantitative restriction which take the form of quotas is an important traditional means of
restricting imports and exports. The impact of Quotas is quiet to restrict the quantity of imports, in
order to protect the interests of the domestic producers on to conserve for ex. Resources.
Page: 2/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
Ques 4:- Discuss the Composition and Direction of India’s World Trade?
th
ANs:- Foreign Trade in India dates back to the 16 century. With East India Company, the trade got
strengthened and India became one of the newly industrialized nations.
th
During the 16 World war India was exporter of Manu pictured goods to Asia & Africa.
Where as it imported primary goods from Europe. At Independence India had a comfortable for ex.
position valued at 1736 cr. Pound sterling left by Brithshers. However during initial years of planning
India laid emphasis in the fall of our foreign exchange reserves. Thus the need to promote exports
was felt. The main points included in the foreign trade during the planned period are 8:a.
Both exports and imports have grown considerably.
b.
India has adopt an Import substitution approach.
c.
Liberal Import of capital goods through helped the development of heavy and
basic industries but demand out for ex reserves
d.
Devaluation of rupee.
e.
Imports were larger than exports after 1951 except during 1972-73 & 76-77
f.
Protectionist measures introduced by developed nations adversely affected
India’s exports of carpets, iron, leather etc.
g.
India’s credit rating deteriorated.
h.
India experienced negative trends in the external sector in 1990’s due to fall of
USSR.
Post Reform Period (1991 onwards)
1.
Liberalization in economic and trade policy from change in economic and trade policy
from inward oriented to market-oriented policy.
2.
Indian economy got info grated with the liberalization, privatization & globalization policy
with world economy.
3.
Policy initiatives aimed at liberalization deal with creating an operating environment of
substantial freedom for the business enterprises from permits/ quotas/ licensing.
4.
Impact of reforms has lev. Encouraging as the share of India’s external sector in global
commodity exports has went up from 4% to 8% in 2003.
5.
India’s exports as % of GDP has risen to 8.24% in 2000.
6.
India has emerged as a leading exporter of services especially software in the world.
7.
A significant change has also taken place in the direction of foreign trade i.e. source of
imports and distinction of exports.
8.
The govt. is committed to achieve a target of at least 1 % share in the global exports in
enhancing its current exports from USD 52 bn. To USD 80 bn. By the end of 2007 through
reforms in trade policy and various promotion measures.
Direction of Trade:- The top 10 countries which together account for more than 50% of India’s total
exports include USA, UAE, UK, Germany, China, Japan, Belgium, Singapore and Italy. USA accounts for
20%, UAE at 69% of total exports. China over the years has emerged as a major export destination.
As regards Import the top ten supplier nations include USA, Belgium, China, Germany, Switzerland,
South Africa, Japan. South Korea & Malaysia. The following tables show the quantum of India’s foreign
trade:Ques 5:- Enumerate the important export promotion organizations in India & their main functions?
Ans:- The main institutions set up by the govt. with a view to provide guidance and assistance to the
exports may be categorized as:
1.
Ministry of Commerce and Industry:- A govt. agency responsible for evolving and
directing foreign trade policy and programmes including commercial relations with other
countries, state trading various trade promotional measures and development. Its divisions are:(a) Trade Policy Division
(b) Foreign Trade Division
(c ) Export Products Division
(d) Export Industries Division
(e) Export Service Division
(f) Economic Division
The Directorate General of Foreign trade is an attached office of Ministry of Commerce looking after
import policies.
2.
Board of Trade:- It is the highest forum for Govt. industry interface on trade policy
issues. It deliberates on the policy and major hurdles faced by the trade and industry in
Page: 3/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
international business and makes re-commendations for the govt.’s consideration and
implementation Export
3.
Promotion Council:- Advise the govt. about current developments in the export sector
and measures necessary to facilitate future growth in exports, assist manufactures and exporters
to overcome various constraints and extend to them full range of service for the development of
market overseas.
4.
Commodity Boards:- deal with the entire range of problems of production, development
and marketing.
5.
Service Institutions:(a)
Indian Institute of Foreign Trade:i.
provides short term and long term training on International business for various
levels of executives.
ii. Conducts research on various problems of international business.
iii. All foreign trade information is assimilated IIFT journal (Foreign Trade Review)
(b)
India’s Trade Promotion Org. (ITPO) promote exports and imports by the medium of fairs
and exhibitions held in India and abroad, to undertake publicity, through print & electron9ic
media., to organize buyer/ seller meet. ITPO also provides information & business intelligence to
business community in India. It organizes visits of buyers & trade delegations.
(c)
NCT:- provides latest trade/ business and economic information to keep Indian & Foreign
enterprises in promotion of trade from & to India.
(d)
Indian Institute of Packaging:- The main aims of Indian Institute for Packaging are to
undertake research on raw materials for packaging industry to keep India in step with
international developments in field of packaging to organize trading programs on packaging
technology, to organize consultancy services for the industry.
(e)
ECGC:- for minimizing the risk element in import business and to facilitate the flow of the
finance from the banks to exporters. ECGC was established in addition to the normal risk policies,
it assists. The export through special schemes as packing credit guarantee, post shipment credit
guarantee and export production finance guarantee
(f)
EXIM Bank:- extends Finance to exporters of capital and manufactured goods, exporters
of S/W. and consultancy services to over seas joint venture sand construction projects abroad.
(g)
Indian Council of Arbitration:- promotes and encourages.
(h)
Amicable settlement of trade disputes with a view to generating goodwill in the field of
foreign trade. The council conducts training courses course on commercial laws. It also conducts
regular meetings of businessmen. Representatives of export promotion councils, public sector
undertaking, chambers of commerce & trade partners meet to discuss Problems of self lucent of
disputes.
(i)
Federation of Indian Export Organization:- Coordinating platform for the various export
organizations including commodity organizations and service institutions.
Besides these the govt. of India and the state govt. have set up no. of govt. trading corporations at the
national and at state levels.
Ques 6:- Discuss various strategies while identification of markets at International Level.
OR
What are the different factors to be considered while Identifying at International Level?
Ans:- International Companies need to determine the type of presence they expect to maintain in the
markets they compete.
COMMITMENT TO INTERNATIONAL MARKETING
ANALYSE
Internal Factors
- Product
- Resources
External Factors
- Marker environment
- Competition
DECIDE (Target Market)
Page: 4/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
o
o
o
market Segment
Entry Method
Market Strategy
- Product
- Price
- Promotion
- Place
The International Companies may adopt:Mass Marketing:- Mass Production, promotion and Mass distribution of goods & services.
Product differentiated Marketing:- Two or more products with different features, styles &
qualities.
Target Marketing:- Distinct Market segments
* develop products acc to segment.
The companies may divide the market according to various basis:1.
Geographical Segmentation
2.
Demographic:- Age, Family Size, Family, Education, Income, Occupation etc.
3.
Psychographic:- Social Class, lifestyle, personality etc.
4.
Behavioral & Occasions:- Benefit sought, users etc.
Requirement to be kept in mind for effective segmentation:1.
Measurability:Size of Market should be known
Size of Market segment decides whether a co. should enter a market.
2.
Accessibility:- Accessibility of segment should be known.
3.
Sustainability:- Market segment should be able to give enough sales/ revenue over a long
period of time.
4.
Action ability:- The market segment should be capable of taking action.
Before entering a foreign market, a firm must study the same factors and then develop an appropriate
marketing plan and suitable strategy to achieve the goals of marketing plan.
st
Thus to be successful the 1 step is to choose the right place, the initial venture where returns may be
quicker and certain and risk is minimum. Most companies prefer a strategy concentrated on limited key
markets (Market Segmentation) After having established itself in one market the firm can always expand
to another market.
CRITERIA FOR SELECTING TARGET MARKET (S)
a.
Size of Market:- Big enough for good revenue.
b.
Growth of Market:- Market should be growth oriented, demand pattern of atleast 3 years
should be studies.
c.
Logistics:- easily reachable.
d.
Distances:- freight plays a major role in international marketing. So freight factor should
be an important consideration.
e.
Competition:- Imp. Factor in market segment.
f.
Distribution System:- A good distribution system helps a company to establish and settle
in a foreign market.
On deciding to go abroad a company needs to define its international marketing objectives and
policies:
what proportion of foreign to total sales will it seek?
Whether to enter a few countries or many?
To summarize decisions regarding which markets to enter a company must consider the
following:1.
Market entry and market control costs.
2.
Population and Income Size and potential growth of the market.
3.
Competition level.
Ques 7:- Discuss the various modes of entering in the International Market?
Page: 5/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
Ans:- Once a company decides to target a particular country it has to decide about the best mode of
entry. There are broadly 5 market entry strategies:Indirect
Exporting
Direct
Exporting
Licensing
Joint
Ventures
Direct
Invetments
Commitment , risk, control & profit
1. Indirect Export:- It includes occasional exporting, that is companies work through independent
agencies to export their products. These intermediaries may be:a. Domestic Export Merchants:- Buys manufacturers products and sells them abroad.
b. Domestic Export Agent:- Seeks and negotiates foreign purchases and is paid a commission e.g.
trading companies.
c. Cooperative Organizations:- Carries on exporting activities on behalf of several producers and is partly
under their administrative control. Often used by producers of primary products – fruits, nuts.
d. Export Management Co.:i. It involves less investment since the company does not have to establish an export department or an
overseas sales force of a set of foreign contacts.
ii. It involves less risk as international marketing intermediaries bring know-how and services to the seller,
he will make fever mistakes.
2. Direct Export:- Companies eventually will decide to handle their own exports, The investment and risk
are higher. The co. may carry direct exports through:
a. Domestic based export deptt.:- An export sales manager carries on the actual selling and draws on
market assistance as needed. The deptt. Performs all activities involved in export and operates as a profit
centre.
b. Overseas sales branch or subsidiary:- An overseas sales branch allows the manufacturer t achieve
greater presence or program control in foreign market. The sales branch handles sales and distribution
and promotion.
c. Foreign based distribution or agents :- The Co. can hire foreign based distributors to sell co’s goods
who may be given exclusive or limited rights to represent the manufacturer/ Co.
3. Licensing:- Under this method Manufacture enters into an agreement with the license in the foreign
country, which gives the license a right to use the manufacturing process, patent or trade mark, technical
information or some other service. The manufacturer in return gets a fee or royalty.
It is one of the quickest ways to enter in a foreign market.
Advantages:1.
Quickest Way
2.
Little expenses and avoids all distribution cost.
3.
Many a times it is the only way to enter a foreign market where govts are hostile.
However, there are certain disadvantages also as it may not be the best way of the maximizing overseas
opportunities in long run. The royalty or fee is less than the profit earned by license.
4. Joint Ventures:- A Joint venture involves capital partnership with or without manufacturing activities/
marketing activities.
It takes place when :
(a)
A domestic investor from a foreign country buys an interest in a manufacturing unit in the
domestic country.
(b)
An investor from a foreign country buys an interest in a manufacturing units in the
domestic country.
(c)
A domestic and a foreign investor together start in new venture in the latter’s country.
Advantages of Joint Ventures:1.
Safest & easiest method of international trade. Investment risks are divided.
2.
Returns in profit form are higher than licensing.
3.
From commercial point of view it gives control over manufacturing and marketing
operation. Access to new markets can be obtained through well-set local distribution system.
4.
Foreign investor can benefit from local goodwill and contacts.
5.
Local partners can have access to technical know how, managerial skills and foreign
exchange.
Page: 6/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
However, joint ventures have disadvantages such as conflicts over decisions, instability of govt.,
conflicting cultural, social & managerial attitudes etc.
Direct Investment:- The Ultimate form of foreign involvement is direct ownership of foreign based
assembly in manufacturing facilities. The foreign co. can buy part of full interest in a local co. or build its
own facilities.
Advantages:- 1. Cost economics in form of cheaper labour or raw materials, foreign govt. investment,
foreign savings etc.
2. Better image and g/w because of certain of jobs.
3. Stronger relationship with investors/ govt./ local suppliers.
The main disadvantage of this method is that the co-exposes itself to a larger investment risk.
Thus, it may be said that all methods if entering into a foreign market have their advantages and
disadvantages. The company can choose from these modes according to its policies and objectives as
regards international marketing.
Ques 8:- Discuss the Marketing Program with reference to International Marketing.
OR
Describe the four P’s strategies a company adopts in a foreign market?
Ans:- Company’s that operate in one or more foreign markets must decide their marketing strategy mix to
adapt to local conditions. Some companies go for standardization wherein no major changes are done for
current marketing mix.
The four P’s and their strategies for International Marketing:Product
Product
Don’t Change
Straight
Extension
Comm”
adoption
Adapt Product
Develop New Product
Product Adaptation
Dual Adaptation
Product:1. Straight extension means introducing the product in the foreign market without any change. The CO.
must however determine whether the formers in the foreign country use that product or not. Such a
strategy has been successful with cameras, consumer electronics, machine tools etc. This strategy is
advantageous since it involves no additional R & D expenses or promotional modification.
2. Product Adaptation involves altering the product to meet local conditions or preferences.. There are
various levels of adaptation. A company can produce a regional version of its product such as north
Indian, South Indian or can produce a country version., retailer versions while products are frequently
adapted to local tastes and preferences, in some cases they must be adapted to local superstitious and
beliefs –Feng Shui.
3. Product invention:- Consists of creating something new. Background invention is reintroducing earlier
product forms that are well adapted to a foreign country’s needs. Forward invention is creating a new
product to meet the needs of another country. There is an enormous need in less developed countries for
less-cost, high protein and co’s as Quaker Gats Swift and Monsanto ate researching over new formulas.
PROMOTION:Companies can run the same advertising and promotion campaigns used in the home market or change
then for local markets. The main contents of a promotion or advt. campaign that can change are:1. Message:- One message can be used everywhere varying only in language, name and colors. Colors
might be change to avoid taboos.
Even names and headlines need to be modified, second may be use same theme globally but adapt a
copy to suit local market.
Thirdly a global pool of aids from which each market selects the most appropriate one.
Finally some companies allow their country managers to invest in creating country specific ads.
2. The use of media also requires international adaptation because media availability varies from country
to country. Norway & Sweden do not permit TV advt. to use women in the ads. India taxes Advt. Belgium/
France do not allow cigarettes/ Alcohols ads. Newspaper have national reach in UK but advertiser can
buy only local newspaper coverage in Spain.
PRICE:
Page: 7/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
MNC’s face a lot of problem related to pricing for their products abroad. They must deal with price
escalation, transfer prices, dumping charges and gray markets. The Co’s however can adopt different
pricing strategies such as:1. Setting a uniform price everywhere.
2. Set a market based price in each country: According to the affordability for consumers in each country.
3. Set a cost-based price-a standard mark-up of its cost everywhere.
Another problem arises when a co. sets a transfer price for goods it ships to its foreign subsidiaries.
Sometimes it mat have to face dumping charges and other times it has to pay high tariff duties.
Place (Distribution):
Seller
Seller’s Intl.
Markt. HQ
Channels
between nations
Channels within
foreign nations
Final Buyers
A seller should pay attention to how the product moves within the foreign country.
1. Seller’s international market HQ ie the export deptt. Or international division makes decisions on
channels and other marketing mix elements.
2. Channels between nations:- gets the products to borders of foreign nations (agents, trading cos.) that
are used, the type of transportation and financing and risk etc.
3. The third link, channels with foreign nations, gets the products from their foreign entry point to find
buyers. The channels vary from one to another country. These differences occur in the types and nos.
Another differences is in the size and character of retail units abroad for eg. US has malls & marts
whereas India has millions of tiny shops. Breaking bulk seminars the primary function of intermediaries
and helps penetrate the long channels of distribution.
Thus Cos’ going for international marketing mix depending upon the local needs and availability
Q. 9
What is Word Bank ( International Bank for Re construction and Development) ?
Ans.
During Word War II, in the year 1944, a decision for the establishment of two institutions
was taken in a Conference held at Bretton Woods in America. The institutions to be established were
(1) International Monetary Fund and (2) International Bank For Reconstruction and Development or
World Bank. The objective of IMF was to stabilize exchange rates by removing temporary balance of
payments deficits. On the other hand, the objective of the International Bank for Reconstruction and
Development (IBRD) or the World Bank was the reconstruction of war-ravaged economies and
provision of necessary capital for the economic development of underdeveloped countries. The bank
was established in 1945 and started its function in June 1945.
The World Bank is an inter-governmental institution and corporate in form. Its capital is
wholly owned by its member countries.
1 Objectives of the World Bank (IBRD)
The main objectives of the World Bank are:
(1) Reconstruction and Development: The main objective of the bank is to reconstruct the wardevastated economies like Britain, France, Holland etc. and to provide economic assistance to
underdeveloped countries like India, Pakistan, Sri Lanka, Burma etc.
(2) Encouragement to Capital Investment : An other important objective of the Bank is sto
encourage private investors to invest capital underdeveloped countries, by means of guarantee of
participation in loans and other investment made by private investors and when private capital is not
available on reasonable terms, to supplement private investment by providing on suitable conditions
finance for productive purposes out of its own capital, funds raised by it and its other resources.
(3) Encouragement to International Trade : The third objective of the bank is to encourage
international trade. It aims at promoting long-range growth of international trade and maintenance of
equilibrium in member’s international balance of payments, so that standard of living of the people of
member-countries is raised.
(4) Establishment of Peace Time Economy : The fourth objective of the Bank is to help the
member-countries changeover from war-time economy to peace-time economy.
(5) Environmental Protection : Global environmental protection is also an objective of Bank. To
this end, World Bank gives substantial financial assistance to those underdeveloped countries which
are engaged in the task of environmental protection.
Page: 8/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
2 Membership of the World Bank :
Any country that is member of IMF, is Ipso Facto member of the Bank. Those countries
st
who accepted the membership of the Fund on 31 December 1945 were also treated the founder
members of the World Bank. Countries becoming member of the Bank subsequent to the above date
rd
had to secure 2/3 votes of the then existing members of the Bank. At present, 184 countries are
members of the Bank. A member can withdraw at any time its membership by giving a written notice.
If a country fails to observe the rules of the Bank, its membership can be terminated.
3 Capital of the Work Bank :
At the time of establishment, the authorized capital of the Bank was $1,000 crore divided
into 1,00,000 shares of $1,00,000 each. Every member-country had to pay 20 per cent of his quota at
the time of membership. Of it, 2 per cent is in gold and remaining 18 per cent in its own currency. The
balance 80 per cent of the capital subscription can be called by the Bank as and when required. The
capital of the Word Bank has been increased from time to time with the concurrence of the membercountries. In the share of the capital of the Bank, America has the first, Japan the second and India
the eighth place. In the year, 2000, the capital of the Bank has been further increased to $18,860
crore. The authorized capital of the Bank is $ 19,081 crore.
The member countries contribute their share capital to the Bank as follows:
(i) 2% of the share in the form of the gold and US dollars. The World Bank utilizes this
amount freely for granting loans.
(ii) 18 % of the share capital in the form of own currency. The amount is also used by
Bank for granting
loans.
(iii) 80% of the share capital is payable at the request of the Bank. This amount is not
used by
Bank for granting loans. But it can use this amount in discharging its responsibilities.
4 Management of the World Bank :
Management of the World Bank vests in the following four committees :
(a)
Board of Governors : Board of Governors represents the General Council of the Bank.
Every member country appoints one governor and one alternative governor for five years. No
alternative governor can vote except in the absence of his principal. Board of Governors selects from
its members one president who presides over its annual meeting. The Board meets normally once a
year. This general meeting is convened along with the general meeting of the IMF in any member
country. Each governor has the voting power which he related to the financial contribution of the
government which he represents. Board decides the policy of the Bank. The Board enjoys the
following rights: (1) Admission of new members, (2) Termination of the membership, (3) Change in
the capital, (4) Distribution of the Bank.
(b) Board of Executive Directors : Board of Executive Directors consist of 22 members. Of
these, 5 members have the largest subscription. They are: America, Britain, Germany, France and
Japan. The remaining are elected from elected from among the other members of the Bank, for a
two-year term. Board of Executive Directors can appoint any person, who is not a member either or
Board of Governors or Board of Executive Directors, its President. He is the chief officer of the Bank.
He acts according to the directions of the Board of Directors and is responsible to it. He appoints all
other officers of the Bank. Board of Executive Directors is responsible for day to day conduct of the
Bank’s operations.
(c) Advisory Council : It consists of minimum 7 members. Their appointment is made by Board
of Executive Directors. Members of this Council are expert on different subjects like banking, foreign
trade, industry, labour, agriculture etc. It meets once a year. The council tenders its advice on
different issues to the Bank.
(d) Loan Committees : Whenever the member-countries apply for loans, the Board of Executive
Directors appoints a Loan Committee. This Committee scrutinizes loan applicat5ion and gives its
report on the propriety of the loan.
ACTIVITIES OF THE BANK
The fundamental aims underlying the World Bank’s activities are :
(1) The Bank is not intended ‘to provide the external financing required for all meritorious projects
of
Reconstruction and development (but) to provide a catalyst by which production may be
generally
Stimulated and private investment encouraged;
Page: 9/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
(2) The Bank should encourage necessary action by the member governments to ensure that the
Bank’s loans will actually prove productive. The promotion of sound financial programmes,
the of unnecessary barrier, and the regional integration of production loans, where appropriate,
are some of the fields in which the Bank may be able to exert a helpful influence; and
(3) Bank must play an active rather than passive role (and take advantage of its international
cooperative character ) to initiate and develop plans to the end that the Bank’s resources are
used not only prudently from the standpoint of its investors but wisely from the standpoint of
the world.
The World Bank is primarily concerned to ensure that its loans make the greatest possible
contribution
to increase the production, raising the living standards of people in the borrowing member country and
opening opportunities for further investment in the borrowing member country.
5
Funding Strategy of the Bank
There are four basic objectives of the World Bank’s funding strategy:
(a) To make sure availability of funds in the market.
(b) To provide the funds at the lowest possible cost to the borrowers through appropriate
currency mix when interest rates are expected to rise.
(c) To control volatility in net income and overall loan changes.
(d) To provide an appropriate degree of maturity transformations between its lending and the
borrowing. Maturity Transformation depicts the Bank’s capacity to lend for longer period than
to borrow.
5.1 Bank’s Borrowings
Bank’s main functions to lend the money to the needy members. For lending activities, it needs
money and therefore it has to borrow.
Sources : The Bank borrows from the following sources :
(i) The Bank borrows from international market both for long and short periods.
(ii) The Bank also borrows under Currency Swap Agreements (CSA).
(iii) The Bank also borrows under the Discount-Note Programme by two methods. First, it places
bonds
and notes directly with its member countries. Second, it offers issues to investors and in
public
markets.
Two new borrowing instruments were evolved by the Bank. The first one is Central Bank
Facility and US dollar dominated facility. The World Bank borrows from the Central Banks of
the member countries. The second instrument is Floating Rate Notes. The World Bank borrows
from the commercial banks and other financial institutions with the help of these instruments.
5.2 Bank’s Lending Activities
The Bank grants loans to members in any one or more of the following ways :
(i) by participating or granting direct loans out of its own funds;
(ii) by granting loans out of funds raised in the financial market of a member or otherwise
borrowed by the Bank, and
(iii) by guaranteeing in whole or part, loans made by private investors through the investment
channels.
The total outstanding amount of the total direct and indirect loans made or guaranteed by the
Bank is not to exceed 100 per cent of its total unimpaired subscribed capital, resources and
surplus. Bank imposes following conditions in granting loans:
(i) The bank its satisfied that the borrower is unable to borrow under reasonable conditions in
the prevailing market conditions.
(ii) The project for which loan is required should be recommended by the competent authority in
the form of a written report after careful examination of the project.
(iii) The loan is required for productive purposes.
(iv) The borrower or guarantor has reasonable prospects of repaying loans and interest on loans,
(v) If the project is located on the territory of the member but itself is not a borrower, then the
member or its central bank has to guarantee the repayment of loan, interest on loans and other charges
on loan.
In 1991, the Executive Board of the Bank modified the repayment terms which include extension
of repayment period from 3 to 5 years for middle income countries and review of repayment terms for
middle in come countries within 3 years.
6 Facilities
Page: 10/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
The Bank provides the following facilities to member countries :
(i) Structural Adjustment Facility (SAF) : In order to reduce their balance of payments deficit
and maintaining or regaining the economic growth of member countries, the World Bank has
introduced SAF in 1985. These funds are released in two parts and in a series of up to five SAFs to a
borrowing country. Generally, the bank imposes stiff conditions for these. These are provided to support
to programmes running from 5 to 7 years.
(ii) Enhanced Structural Adjustment Facility (ESAF): In order to increase the availability of
concessional resources to the low income member countries,ESAF was established in December 1987.
It provides new concessional resources of SDR 6 billion which will be financed by special loans and
contributions from developed and OPEC countries. The purposes for advancing the amount is same,
i.e., to reduce balance of payment deficits of borrowing member countries and encourage growth. The
interest rate charged by t6he Bank is 0.5 per cent to be repaid in ten semi-annual installments
beginning after 5½ years of disbursements.
(iii) Special Action Programme (SAP): The Special Action Programme (SAP) has been started
in 1983 to strengthen the IBRD’s ability to assist member countries in adjusting to the current economic
environment. It has four major elements :
(a) Provide lending for structural adjustment, policy changes, export-oriented production,
full utilization of existing capacity and maintenance of critical infrastructure.
(b) Provide advisory services regarding policies.
(c) Enlisting familiar efforts by other donors for fast disbursing assistance.
7 Other Activities of the Bank
In addition to lending activities, the Bank also undertakes the following activities :
(i) Training : In 1956, the Bank set up a staff college to provide training to senior officials of the
member countries. This Bank is known as Economic Development Institute (EDI). The Institute helps
the officials in improving the management of their economies and to increase the efficiency of their
investment programmes.The EDI also organizes seminars in Washington and in different regions of the
world in cooperation with regional institutes.
(ii) Technical Assistance : The World Bank also provides technical assistance to its member
countries. This assistance include :
(a) Engineering-related: It includes feasibility studies, engineering design and construction
supervision;
(b) Institution-related: It includes diagnostic policy and institutional studies, management
support and training.
The primary way of providing technical assistance is through loans made for supervision,
implementation and engineering services, energy, power, transportation, water supply etc. In 1975, the
bank created Project Preparation Facility (PPF) for meeting gaps in project preparation and for
institution building. The bank also acts as executing agency for project financed by the United Nations
Development Programme (UNDP).
(iii) Inter- Organizational Co-operation:- The World Bank is also engaged in inter-organizational
cooperation. It is based on formal agreement between it and international organizations. Such as, the
cooperative programmes between it and FAO, UNESCO, WHO, GATT, UNCTAD, UNEP UNDP,
UNIDO, ILO, African Development Bank, The Asian Development Fund for Agriculture Development
etc.
(iv)Economic & Social Research:- In 1983, the bank established a Research Policy Council, it
provides leadership in the guidance, coordination and evaluation of all the bank research. The Bank’s
research staff undertakes research activities of its own and also in collaboration with outside
researchers.
(v) Operations Evaluation:- The bank has set up the Operations Evaluation Department to help
borrowers in the post evaluation of bank assisted projects. Members of borrower’s staff visit this
department for seeking help in the preparation of project completion report.
(vi) Settlement of Investment Disputes:- The bank has set up the International Center of the
Settlement of Investment Disputes between States and nationals of other states. The bank has
successfully mediated in solving many International investment disputes such as the River Water
Dispute between India & Pakistan, And the swez Canal disputes between Egypt and the UK.
Page: 11/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
Ques What is meant by World Trade Organization? Discuss its objectives and Functions?
Intro:- Sixty years have passed since the Bretton Woods agreement established a system for
managing the international monetary system and trade under the leadership of the International
Monetary Fund (IMF), the International Bank for Reconstruction and Development and a couple of
years later, the General Agreements on Tariffs and Trade. After eight years of negotiations under the
Uruguay Round, 124 nations joined together and signed the General Agreements on Tarrifs and Trade
on April 15, 1994 at Marrakesh, Morroco with a view to promoting multilateral world trade by cutting
tariffs, reducing quotas and improving free market access. They decided to set up a permanent
International organization called “WTO”, similar in status to the IMF and the World Bank, to oversee the
implementation of the provisions of the agreement by the member countries. As a result, the WTO has
become operational since January 1, 1995.
What is WTO:- As a result of Agreement signed under the auspices of the GATT, the WTO has come
into being – in a place of GATT to give a boost to international trade through increased global market
competition. WTO is a landmark in the history of multilateral trade relations. The WTO embodies an
International trade organization having set of rules and principles, mutually designed and agreed upon
to promote international trade in general and reduction of tariff barriers and removal of import restriction
in particular. It is a new world trade order or system. WTO has taken over GATT to implement the
agreement reached at the Eighth Round of GATT negotiations on December 15, 1993. The eighth
round Agreement consists of a bilateral agreement that each of the contracting parties to the GATT
signed.
In short, WTO, is a newly globally recognized trade organization with the new name succeeding
GATT on renewed agreements and having a new vision and tougher enforcement power to promote
international trade.
Difference between GATT & WTO:
GATT
WTO
(1) It is a set of rules and multilateral agree.
(1) It is a permanent institution and has legal
status.
Ment. It had no legal status.
(2) Its framework includes many important
(2) It administers a unified package of
agreements to which side agreements.
all members are committed.
(3) It had a small secretariat managed by a
(3) It has a large secretariat and a huge
organizational set up.
Director General.
(4) Its rules were applied to trade in goods only
(4) It includes not only trade in goods and
services but
also trade-related aspects of intellectual property
rights.
(5) Its disputes settlement system was dilatory
(5) Its dispute settlement mechanism is automatic,
faster and
And not bonding on parties.
Binding on the parties.
(6) It was a form where the members countries
(6) It is a properly established rule-based world trade
Met after a long period to discuss and solve
organization where decisions on agreements are time
trade problems.
bound.
Structure of WTO:- The organizational structure of the WTO is based ob 4 hierarchal levels. The
hierarchies are as follows:(1) Ministerial Conference:- It is the highest hierarchical level in the organizational structure.. It is
composed of representatives of all the members which meet at least once every two years. It is the policy
& strategy-making body. The Ministerial Conference takes decision on all matters under any of the
Multilateral Trade Agreements and thus carries out the functions of the WTO and takes any action
necessary to this effect.
(2) General Council:- It is the executive body of the WTO. The Ministerial Conference gets the policies
and strategies implemented and executed through general Council. All the members’ countries of the
WTO have their representatives in the General Council. The General Council is responsible for:
(i) The discharge of the responsibilities of the Disputes Settlement Body as given in the understanding on
Rules & Procedures governing settlement of disputes. IT is assisted by the dispute settlement panel and
appellate body.
Page: 12/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
(ii) The discharge of the responsibilities of the Trade Policy Review Body as mentioned in the Trade
Policy Review Mechanism (TPRM).
(3) Functional Councils under the General Council:- There are three functional councils under the
General Council:(i) Council fro Trade in Goods: This council undertakes the functioning of the Multilateral Trade
Agreement relating to trade in the goods.
(ii) Council for Trade in Services:- This council undertakes the functioning of the MTA relating to trade in
services.
(iii) Council for Trade-Related Aspects of Intellectual Property Rights:- This council undertakes the
implementations and functioning of all the agreements relating to this area.
(4) Committees and Management Bodies:- The Ministerial Conference establishes three functional
committees for discharging functions assigned to them. These committees are:(A) Committee on Trade & Development
(B) Committee on Balance of Payments
( C) Committee on Budget, Finance and Administration
Management Bodies:- Plurilateral agreements of the WTO have their management bodies. These
management bodies report to the General Council. Some of the Plurilateral agreements having
management bodies include: Civil air-craft, government procurement, dairy product, bovine-meat etc.
The Sectariate of th e WTO is headed by the Director General. The Director General is appointed by the
Ministerial Conference who sets out his powers, duties, and conditions of services and terms of office.
The term of Director General is 4 years. The Director General has four deputies from other member
countries,. He appoints the members of staff of the Secretariat and determines their duties and conditions
of service. The Director General presents the annual budget and financial statement of the WTO to the
committee on budget, finance and administration.
The decisions of the WTO are taken by consensus. In the absence of consensus, the issue is decided by
rd
th
2/3 majority and in case of wavier of the member’s obligation, the majority required is 3/4 of the
members.
Functions of WTO:
1. WTO facilitates the management of Multilateral Trade Agreements and the Plurilateral Trade
Agreements for the fulfillment of their obligations.
2. It negotiates all Multilateral Trade relations concerni9ng the above Agreements among membercountries.
3. It facilitates implementation of the results of the negotiations as decided by the Ministerial Conference.
4. It administers the understanding on Rules and Procedures governing the settlement of Disputes,
forming part of the Agreements.
5. It is responsible for administration of the Trade Policy Review Mechanism forming part of the
Agreement.
6. It is also the organ for establishing co-ordination regarding economic Policy formation with other wings
of the UNO such as IBRD and IMF.
7. It utilizes the world resources in an optimum.
Nature of Agreement:The Uruguay Round involves two thousand six hundred and thirty-one days of negotiations, more
than 120 participating nations and thousands of controversies, debates and enough heartburn to gird the
th
globe several times over. The agreement was finally signed on 15 April 1994 in Marrakesh, Morocco. On
the basis of this agreement WTO is established and has become operational since January 1, 1995.
India’s ratification of the Agreement has ensured the nations status as a founder-member of WTO. The
WTO will spell odder for the near chaotic state of the $ 5 Billion international t6rade in goods and
services. According to a recent study conducted by OECD, if the provisions of the Eighth round are fully
implemented, the global income will rise by another $2,74,000 crore by 2002 (and over $ 500 billion
annually by the year 2005 A.D. ) of this $8,600 crore will accrue to the developing countries. India’s
th
export should go up, as per Gove. Statement in parliament on 6 December 1993 by $ 150 crore to $ 200
crore annually in addition to the normal growth.
Objectives of WTO :Important objectives of WTO are as follows:
(i)
The primary aim of WTO is to implement the new world trade system as visualized in the
Agreement.
(ii) To promote World Trade in a manner that benefits every country.
Page: 13/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
(iii)
To ensure that developing countries secure a better balance in the sharing of the
advantages resulting from the expansion of international trade corresponding to their developmental
needs.
(iv) To demolish all hurdles to an open world trading system and usher in international economic
renaissance because the world trade is an effective instrument to foster economic growth.
(v)
To enhance competitiveness among all trading partners so as to benefit consumers and
help in global integration.
(vi) Extension of means to protect environment should conform to the needs and problems of
different levels of economic development.
(vii) To develop multilateral organized trade system.
(viii)
To coordinate between trade and environment related policies and sustainable
development.
(ix)
To eliminate tariff and trade restrictions and discriminatory behaviour in international trade
relation.
(x)
To increase the level of production and productivity with a view to ensuring level of
employment in the world.
(xi) To expand and utilize world resources to the best.
(xii) To improve the level of living for the global population and speedup economic development
of the member nations.
These objectives of WTO are more or less similar to the objectives of GATT. However, under
WTO these are sought to be achieved following a more rigorous and tougher enforcement of policy of
export completion, market access and free trade.
Scope of WTO :Traditionally, GATT was concerned with the trade in goods which were mainly primary
manufactured products. The General Agreement on Trade in Services (GATS) is the first multilateral
agreement on trade that has as its objective the progressive liberalization of trade in service. The
agreement covers trade in all service sectors and the supply of service in all forms. TO has a much
wider scope than GATT as new areas are included in the Agreement having implications for the
production process of goods also. Agriculture, a controversial area, has been included and other
areas having implication for the production process of goods have also been included. The other
new areas are :
1. Trade Related Intellectual Property Rights (TRIPS)
2. Trade Related Investment Measures (TRIMS)
3. General Agreement on Trade in Services (GATS)
Implications for Developing Countries:-There has been hardly any country in the world which agrees in
totality with the proposal about its gains or loses. In India, no other issue has been controversial as the
proposal for the Agreement with several confusion, debates and agitations that followed.
The special status of developing countries in the GATT will continue to receive recognition in the WTO.
The Preamble of WTO states that “there is a need for positive efforts designed to ensure that developing
countries and especially the least developed among them, secure a share in the growth of international
trade commensurate with the needs of their economic development.” Least developed countries are
singled out in the Final Act as requiring special attention. The decision on measures in favor of least
developed countries makes provision for measures of special assistance., including technical assistance.
The average tariffs of all classes of industrial products bought by the industrial nation from the developing
countries would decline by round 30 n% and average tariffs after developing Asian Nations, has agreed to
slash tariffs on its purchases from the developing countries by 50%. Thus in fact, the agreement seeks to
yield real gains for traders in all countries.
The agreement will undoubtedly benefit both developing as well as developed countries. Some recent
studies forecast a quarter-trillion dollar increase in annual global income as result of WTO. Another study
by the World Bank reveals that the centre of economic gravity in the world is shifting comparative
advantage in the production of physical & human capital-Intensive goods.
WTO & INDIA
India is one of the founder members of World Trade Organisation. India has 90% of its trade with those
countries that are member of WTO. There has been a lot of debate on the issue whether India would gain
or lose by becoming member of WTO or by signing Dunkel Draft. Following arguments can be advanced
in favor of against India becoming a member of WTO.
Probable Disadvantages to India or Arguments against WTO
Page: 14/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
1. Disadvantage to Agricultural Sector:- It is apprehended that by including agriculture in GATT or
WTO, Indian farmers will become dependent on multinational companies for improved seeds and
agricultural technology. The farmer will not be able to save better seeds from their crop and will be
compelled to buy a high rates insecticides, fertilizers, agricultural machinery etc.from multinational
companies, every time. Big farmers alone will be able to take advantage of improved farm technology.
The cumulative effect of all this will be that small farmers, who are large in number, will be forced to sell
their lands. This will further aggravate the problem of unemployment in rural sector. Plants and cattle
feeds will come under the ambit of patents and so will be under the control of multinational companies.
This will harm the interests of Indian agriculture. Moreover, it will adversely after the announcement of
minimum support price of agricultural products and public distribution system.
2. Reduction in Subsidy : Critics are of the opinion that after concluding GATT or WTO Agreements,
subsidy to agricultural sector will be slashed. It will affect adversely the poor farmers.
3. Import of Food grains : It is apprehended that by entering into GATT or WHO Agreements, surplus
food grains of developed countries will be imported on a large-scale. It will adversely affect country’s
balance of payments.
4. Restrictions on the use of Brand Seeds : Under WTO, scientists and farmers will not be able to use
brand seeds for commercial purpose. Under the circumstances, big farmers alone could buy foreign
expensive seeds. It will be difficult for small and marginal farmers to make use of improved variety of
seeds. It will widen the gap of economic disparity.
5. Patent Rights of Natural Products : If foreign MNC’s took initiative and secured patent rights over
minor natural products of India, it may lead to serious consequences for Indian agriculture. For instance,
neem can be used for making soap, tooth-paste, medicines etc. Similarly, there is large demand for
Psyllium Husk (Isabgol) in foreign countries. Their foreign patent may prove very expensive for India.
6. Plant Breeding Protection : According to WTO, protection of breeding has been determined by SuiGeneris system. Indian farmers will have to spend large amount of money to get new and improved
variety of plants and their dependence on mult6inational companies will further increase.
7. Arguments against TRIMS : In terms of WTO, India could not impose any restriction on foreign
investment. Consequently, multinational companies. As a result, on the one hand, country’s production
will get discouraged and unemployment situation aggravated, and on the other, dominance of
multinational companies over country’s economy will go on extending and their profits will continue to
rise. All this will harm our economy.
8. Trade Related Intellectual Property Rights : Presently, India does not recongnise patents in the field
of medicines, food grains and chemical products. Most of the developed countries accord recognition to
product patent. With the enforcement of the provisions of the Agreement, all member countries of WTO
will be required to accord recognition to product patent. India has been given a period of ten years to
make provision for patent. According to critics, with the enforcement of new system, prices of the existing
medicines will rise steeply. Multinational companies may file a claim against copying of any patent before
World Trade Organisation. Indian researchers will have to face avoidable difficulties to prove their oninvolvement in imitation case. They will have to waste their time and money. In this context it may be
noted that a complaint will be filed by the complainant in his own country. Dispensation of justice is cheap
in India and the amount of compensation is also low. But in developed countries like America it is
launched against them in that country. Thus, justice bought in other countries will be relatively dearer than
in India. Indian pharmaceutical industry will be hard hit by patent agreements. MNCs will charge
exorbitant prices of variety of medicines.
9. Foreign Ownership of Plants and Animals : Plants and animals have also been included in the
preview of WTO and the same can be purchased by the President of Madras Development Institute.
10. Arguments against TRIPS : It is argued against TRIPS i.e. Trade Related Intellectual Property, that
it will discourage the process of research and innovation in the country. Critics are of the opinion that it is
unjust to have uniform standards for all member countries, in matters of TRIPS, because these standards
very with economic and technical development of each country. India will therefore stand to lose. Any
setback to research and innovation process will accentuate the backwardness of our agriculture and
medical services will be beyond the reach of an ordinary man. It is feared that prices of medicines may
rise by 10 to 15 times.
11. Disadvantages to Service Sector : It is feared that WTO will adversely affect our services sector
also. Our banking, insurance, transport, education and hotel services will not be able to complete with the
similar services offered by MNC’s. As a result, indigenous institutes engaged in these service sectors will
gradually wind up and our economic freedom will be endangered.
Page: 15/16
AIM COLLEGE-HISAR
(MM-410) International Marketing Contact: 92533-50008, 94164-43238
12. Disadvantage of Patentisation : Maximum apprehensions are being expressed against the provision
of patent for the period of 20 years. Such a long period will have an adverse affect on Indian economy,
especially on scientific and medical research. Consequently, prices of most of the goods are likely to
increase from six to twenty-fold.
Page: 16/16