INTERNATIONAL BUSINESS ENVIRONMENT Implication of environment Differences Module

INTERNATIONAL BUSINESS ENVIRONMENT: Implication of environment Differences Module III: Prof srikanth venkataswamy

Environment Prof srikanth venkataswamy 2

Global Environment Internal Micro Environment EXternal macro Prof srikanth venkataswamy 3

The International Business Environment Foreign environment (uncontrollable) Political/legal forces Economic forces Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Competitive structure Forces Product Promotion Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Prof srikanth venkataswamy ll Environmental uncontrollables country market B Environmental uncontrollables country market C 4

The. The International Business Marketing Environment Task Foreign environment (uncontrollable) The international marketer Political/legal Economic must deal with two levels of forces uncontrollable uncertainty Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Competitive structure Forces Product Promotion Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Prof srikanth venkataswamy ll Environmental uncontrollables country market B Environmental uncontrollables country market C 5

The International Business Environment Foreign environment (uncontrollable) The international marketer Political/legal Economic must deal with two levels of forces uncontrollable uncertainty Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Product Promotion Each foreign country in which a company operates Competitive structure adds. Forces its own unique set of uncontrollables Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Prof srikanth venkataswamy ll Environmental uncontrollables country market B Environmental uncontrollables country market C 6

The International Business Environment Foreign environment (uncontrollable) Political/legal forces Economic forces Domestic environment (uncontrollable) Marketing controllable Cultural forces Political/ legal forces Price Promotion Geography and Infrastructure Competitive structure Forces Product Channels of Channels distribution of Distribution Economic climate Level of Technology Structure of distribution Prof srikanth venkataswamy Environmental uncontrollables country market A Environmental uncontrollables country market B Environmental uncontrollables country market C 7

The International Business Environment Foreign environment (uncontrollable) Political/legal forces Economic forces Domestic uncontrollables Political/ legal Political/legal Cultural forces Marketing (controllable) Price Product Promotion Competitive structure Forces Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Prof srikanth venkataswamy Environmental uncontrollables country market B Environmental uncontrollables country market C 8

The International Business Environment Foreign environment Foreign uncontrollable (uncontrollable) Political/legal forces Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Competitive structure Forces forces Product Promotion Geography and Infrastructure Economic forces Channels of distribution Environmental uncontrollables country market A Economic climate Level of Technology Structure ofof distribution Prof srikanth venkataswamy Environmental uncontrollables country market B Environmental uncontrollables country market C 9

Ecological & Physical o o Air and water pollution, solid waste disposal, Conserving natural resources Water, power. Skilled manpower, low-cost labour, transportation Prof srikanth venkataswamy 10

Internal Environment Strength & Weakness analysis Company location, R &D Facilities, production facilities, HR, Financial resources, Marketing effectiveness, reputation Or Image of company Prof srikanth venkataswamy 11

External Environment 1. 2. Micro Environment Macro Environment Prof srikanth venkataswamy 12

Micro Environment 1. 2. Customers and competitors Suppliers Prof srikanth venkataswamy 13

Macro Environment 1. 2. 3. 4. 5. Economic Demographic Technological POLITICAL/Government/Legal Cultural & Social Prof srikanth venkataswamy 14

External Influences on Consumers Culture Subculture Social class Reference groups Situations Prof srikanth venkataswamy 15

Demography o o The term demographics as a noun is often used erroneously in place of demography, the study of human population, its structure and change. Demography focuses on population structure, processes and dynamics. Prof srikanth venkataswamy 16

social scientists often group populations into categories based on demographic variables. Some frequently used demographic variables are: o o o Age Sex / Gender ace/ Ethnicity Location of residence Socioeconomic status (SES) Religion Marital status Ownership (home, car, pet, etc. ) Language Mobility Life cycles (fertility, mortality, migration) Prof srikanth venkataswamy 17

Demography o o The term demographics as a noun is often used erroneously in place of demography, the study of human population, its structure and change. Demography focuses on population structure, processes and dynamics. Prof srikanth venkataswamy 18

social scientists often group populations into categories based on demographic variables. Some frequently used demographic variables are: o o o Age Sex / Gender ace/ Ethnicity Location of residence Socioeconomic status (SES) Religion Marital status Ownership (home, car, pet, etc. ) Language Mobility Life cycles (fertility, mortality, migration) Prof srikanth venkataswamy 19

Demographic profiles in marketing o o o Marketers typically combine several variables to define a demographic profile. A demographic profile (often shortened to "a demographic") provides enough information about the typical member of this group to create a mental picture of this hypothetical aggregate. For example, a marketer might speak of the single, female, middle-class, age 18 to 24 demographic. Prof srikanth venkataswamy 20

Demographic profiles: o o o Marketers typically combine several variables to define a demographic profile. A demographic profile (often shortened to "a demographic") provides enough information about the typical member of this group to create a mental picture of this hypothetical aggregate. For example, a marketer might speak of the single, female, middle-class, age 18 to 24 demographic. Prof srikanth venkataswamy 21

o o o Marketing researchers typically have two objectives in this regard: first to determine what segments or subgroups exist in the overall population; and secondly to create a clear and complete picture of the characteristics of a typical member of each of these segments. Once these profiles are constructed, they can be used to develop a marketing strategy and marketing plan. Prof srikanth venkataswamy 22

o o o Marketing researchers typically have two objectives in this regard: first to determine what segments or subgroups exist in the overall population; and secondly to create a clear and complete picture of the characteristics of a typical member of each of these segments. Once these profiles are constructed, they can be used to develop a marketing strategy and marketing plan. Prof srikanth venkataswamy 23

ENVIRONMENTAL EFFECTS o o o Culture: system of values, norms that are shared among a group of people and that taken together constitute a design for living. (or) Complex whole which includes knowledge, belief, art, law, custom & other capabilities acquired by man as a member of society. Values-abstract ideas about what a group believes to be good, right, desirable/shared assumptions about how things ought to be. Norms-social rules & guidelines that prescribe appropriate behavior in particular situations. Society-group of people who share a common set of values & norms. Prof srikanth venkataswamy

Values & norms Values-* form the bedrock of culture *Provide context with in which a society’s norms are established & justified *include a society’s attitudes toward such concepts as individual freedom, justice, democracy, truth, honesty, loyalty, love, social obligations, collective responsibility, role of woman, sex & marriage. o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Norms-social rules that govern people’s actions towards one another. o 2 major categories-1. folkways-routine conventions of every day life, actions of little moral significance. Ex-dress code, social manners, eating with correct utensils, neighbor behavior, attitude towards time. o Mores-norms that are seen as central to the functioning of society & to its social life. Ex-act against thefts, adultery. o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Determinants of culture Social structure Religion Political Culture Norms & Value systems Language Education http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy Economic

1. Social structure Refers to basic social organization o 2 important dimensions *degree to which the basic unit of social organization is individual as opposed to group *degree to which a society is stratified into classes/castes. o Individuals & groups-group is an association of 2/more individuals who have a shared sense of identity & who interact with each other in structured ways on the basis of common set of expectations about each other behavior. *individuals are the basic building blocks of social organization. o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Social stratification (categories) Social strata-typically defined on the basis of characteristics such as family income, background, occupation. o Social mobility-refers to the extent to which individuals can move out of the strata into which they are born. -varies from society to society -the most rigid system of stratification is caste system. o Class system-less rigid form of social stratification in which social mobility is possible. -is a form of open stratification in which the position a person has by birth can be changed through his/her own achievements o Significance-class consciousness-refers to a condition where people tend to perceive themselves in terms of their class background & this shapes their relationships with members of other classes. o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

2. Religious & ethical systems Religion-system of shared beliefs & rituals that are concerned with the realm of sacred. o Ethical systems-refer to a set of moral principles/values that are used to guide & shape behavior & product of religions. o 4 dominant religions-Christianity, Islam, Hinduism, Buddhism o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Religions Christianity-wider practiced religion in the world. -roman catholic church (Catholicism) -orthodox church (Protestantism) o *by Weber-protestants believed in hard work & wealth creation & absence of interest in worldly pleasures. http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Islam -2 nd largest, dates back to 610 AD. Characteristics: -respect to parents -not committing adultery -being generous -respecting rights of others -avoid killing –equal dealing with other -being of pure heart & mind –being humble -safe guarding possessions of orphans o Islamic fundamentalism -modernization in Islam in rich urban societies -impoverished urban & rural societies Ex-killing of foreign tourist, WTO, Pentagon attacks o Economic implications of Islam-free enterprise & earning of profits -interest was a sin http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Hinduism -believes in dharma, reincarnation, rebirth, karma, nirvana o Economic implications of Hinduism - Weber -individuals should not be judge by material achievements but by spiritual achievements -supports caste system http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Buddhism -6 th century by Siddhartha Gauthama -nirvana, spiritual enlightment -life is comprised of suffering -eight fold path: right seeing, thinking, speech, action, living, effort, meditation, mindfulness -no support for caste system -believe in after life & spiritual achievement http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Confucianism -5 th century by Confucius, china, Korea, Japan -teaches the importance of attaining personal salvation through right action o Economic implications of Confucianism -loyalty to one’s superiors is regarded as sacred duty, so it binds the employees to the heads of their organization and reduces the conflict between management & labor http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

3. Language Both spoken & unspoken means of communication o Spoken language-enable people to communicate with each other -direct the attention of its members to certain features of the world -English common in IB o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

4. Education -Formal education plays a key role in society -medium through which individuals learn many of language, conceptual & mathematical skills -high skilled individuals are an asset for country. http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

5. Culture & work place 4 dimensions -power distance: people are unequal in physical & intellectual capabilities -individualism vs. collectivism -uncertainty avoidance -masculinity vs. femininity o Cultural change-changes in value systems can be slow & painful for a society o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Implications for business 1. Cross cultural literacyethnocentrism, polycentrism, regiocentrism, geocentrism 2. Culture & competitive advantage 3. Culture & business ethics -respect for core human values -respect for local tradition -respect for freedom http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Cultural awareness 1. Problem areas that hinder managers are -subconscious reactions to circumstances -the assumption that all societal subgroups are similar 2. A company’s need for cultural knowledge increases as -its number of foreign functions increases -the number of countries of operations increases -its moves from external to internal Prof srikanth venkataswamy handling of operations http: //www. facebook. com/mr. fortyseven

Identification & dynamics of culture The nation as a point of reference o Cultural formation & dynamics * choice/imposition * contact with other cultures o Language as a cultural stabilizer o Religion as a cultural stabilizer o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Social & cultural o o o o Culture facilitates communication Cultural attitude & IB Culture & thinking process Cross cultural communication process & negotiations Cultural universals Communication through languages Time & culture (appointment) Space & culture http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Social & cultural Culture & agreement o Culture of friendship o Culture & superstition o Culture & color o Culture & gifts o Culture prescriptive-the kinds of behavior considered acceptable in the society EX-consumption of wine -US acceptable -India socially not acceptable -Saudi socially & legally unacceptable o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Behavioral practices affecting business 1. Social stratification systems -group affiliation *Performance orientation *Gender based groups *Age based groups *Family based groups *Occupation • 2. Motivation *Materialism & leisure *Expectation of success & reward *Assertiveness *Need hierarchy (recognition, attention, appreciation, maslow’s hierarchy) o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Behavioral practices affecting business 3. Relationship preferences *Power distance *Individualism vs. collectivism o 4. Risk taking behavior *Uncertainty avoidance *Trust *Future orientation *Fatalism o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Behavioral practices affecting business 5. Information & task processing *Perception of cues, obtaining information *Information processing -monochromic: people like to finish work one after one -polychromic: people concentrate on all tasks at one time o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Strategies for dealing with cultural differences Making little/no adjustment o Communication o Silent language o Culture shock (expatriate) o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Company & Management orientations Polycentrism-control is decentralized o Ethnocentrism-superiority o Geocentrism Strategies for instituting change Value system -the more a change upsets important values, the more resistance it will encounter Cost benefit of change o Economic cost o Psychic cost o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Strategies for instituting change Resistance to too much change o Participation o Reward sharing o Opinion leaders o Timing o Learning abroad o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Political environment Political process functions include *interest articulation-politicians, individuals, businesses, interest groups *policy making *interest aggregation *policy implementation & adjudication o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Political environment a. Basic political ideologies b. Impact of ideological differences on national boundaries *a political spectrum *political rights & civil liberties *stability in democracy c. Impact of political system on management decisions *political risk http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Political environment Types & causes of political risk *Opinions of political leadership *Civil disorder *External relations *Micro&macro political risks d. Government intervention in the economy *individualistic paradigm-minimal government intervention, democratic & economically free *communitarian paradigm-authoritative & prestigious government, defines needs & priorities http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Formulating & implementing political strategies o o o o Identify the issue Define the political aspect of the issue Assess the potential political action of other companies & special interest groups Identify important institutions & key individuals Formulate strategies Determine the impact of implementation Select the most appropriate strategy & implement it Prof srikanth venkataswamy http: //www. facebook. com/mr. fortyseven

Political environment Collectivism & individualism o Socialism *Communists *Social democrats o Democracy & totalitarianism *Communist totalitarianism-dictatorship *Theocratic totalitarianism-by a party/group *Tribal totalitarianism *Rightwing totalitarianism-gives economic freedom but restricts political freedom o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Legal environment Kinds of legal systems o Common law-based on tradition, custom, usage & interpretation by courts Ex. US, UK o Civil law-codified legal system, legal codes Ex. Germany, France, Japan o Theocratic law-based on religious precepts Ex. Islamic countries http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Legal environment Consumer safeguards-product liability issues o Legal profession o Legal issues in IB *national laws affect all local business activities *national laws affect cross border activities *international treaties, cross border transactions o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Legal systems Property rights *public & private action o Protection of intellectual property *patents *copyrights *trademarks o Product safety & liability o Contract law o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment Key economic forces *general economic framework of a country *economic stability *existence & influence of capital markets *market size *availability of economic infrastructure http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment An economic description of countries o Factor/production conditions-HR, physical resources, knowledge resources, capital resources, infrastructure o Demand conditions *composition of home demand (quality of demand) *size & growth of demand (quantity of demand) *internalization of demand http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment Countries classified by income 1. Gross national income (GNI) 2. Gross national product (GDP) 3. World bank: -5 closely associated institutions *IBRD (International bank for reconstruction & development) *IDC (International development association) *IFC (International finance corporation) *MIGA (Multilateral guarantee agency) *ICSID (International center for settlement of investment disputes) http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment Countries classified by region o East Asia & pacific o Latin America & the Caribbean o The Middle east & North Africa o South Asia o Sub-Sahara Africa Importance of regional groupings of countries o Similar economic conditions o Mirrors the way companies organize their firms geographically http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment Countries classified by economic systemevery government struggles for ownership & control of economy *Ownership-who own the resources engaged in economic activity -can be public sector, private sector/both *Control-whether resources are allocated & controlled by the public/private sector http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment Factors that determine economic freedom o Trade policy o Fiscal burden of government o Government intervention in the economy o Monetary policy o Capital flows & investment o Banking & finance o Wages & prices o Property rights & regulation o Black market activity http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment State capitalism-Japan, Korea o Market economy-private sector *consumer sovereignty o Command economy-public sector o Mixed economy *Inflation-condition in which prices are going up -inflation rate is the percentage increase in the change in prices from one period to the next, usually a year -to measure inflation the following o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment *consumer price index (CPI) *surpluses & deficits *balance of payments (BOP): -current account: trade in goods & services & income from assets abroad -merchandise trade balance: net balance of exports minus imports of merchandise -deficit: imports exceed exports -surplus: exports exceed imports http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment External debt o Internal debt o Privatization o Transition to a market economyincludes liberalizing economic activity & establishing legal & institutional framework o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment Process of transition o Russian transition *includes political & economic transition at the same time *initial transition steps resulted in steep economic declines *soft budgets, subsidies & other government supporting activities have continued *hard administrative constraints have disappeared & are being replaced with connections & corruption *debts & deficits-both internal & external area real challenge http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment China’s transition *Chinese growth has been far stronger than for other countries in transition *china has maintained totalitarian political control while loosening the economy *a major challenge is privatizing state owned enterprises o http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Economic environment The future of transition *continued macro stability *maintaining economic growth *continued improvement in institutional & structural areas *the solution of social issues such as poverty, child welfare, HIV/AIDS http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Ethical issues in IB o o o o Utilize natural resources optimally & appropriately Benefit should accrue to the host country in the nature of production/export Technology transfer, employment, training of host country’s personnel, equal treatment to be done Social segment responsibility to be discharged Accounting should be transparent Do not involve in host country’s politics Avoid bribery http: //www. facebook. com/mr. fortyseven http: // Prof www. facebook. com/mr. fortyseven srikanth venkataswamy

Regional Integrations, Trading Blocks - Prof srikanth venkataswamy

ANDEAN PACT : Prof srikanth venkataswamy

ANDEAN PACT : o o The Andean Community of Nations (Spanish: Comunidad Andina de Naciones, CAN) is a trade bloc comprising the South American countries of Bolivia, Colombia, Ecuador and Peru. The trade bloc was called the Andean Pact until 1996, and came into existence in 1969 with the signing of the Cartagena Agreement. Andean Community headquarters are located in Lima, Peru. The trading bloc encompasses a combined population of 101 million (2010). Prof srikanth venkataswamy

Facts on the Andean Pact : o o The Andean Community has 120 million inhabitants in an area of 4, 700, 000 square kilometers, and a Gross Domestic Product of US $900 billion (excluding Venezuela). The Andean Community and Mercosur comprise the two main trading blocs in South America. The Community organization includes Andean Presidential Council, Foreign Minister’s Council Commission, justice tribunal, congress and reserve Fund. With the cooperation agreement with Mercosur, the Andean Community gained five new associate members: Argentina, Brazil, Paraguay, Chile and Uruguay. Prof srikanth venkataswamy

Mercosur: Common Market of the South Prof srikanth venkataswamy 75

Mercosur: o o The "Common Market of the South, " is the largest trading bloc in South America. Mercosur's full members include Argentina, Brazil, Paraguay, and Uruguay. Venezuela's entry as a full member is still pending Mercosur's five associate members -Chile, Bolivia, Colombia, Ecuador, and Peru Mercosur's primary interest has been eliminating obstacles to regional trade, like high tariffs, income inequalities, or conflicting technical requirements for bringing products to market. Prof srikanth venkataswamy

Mercosur: o o o Yet experts say Mercosur has become somewhat paralyzed in recent years, with its members divided over the future of the organization. Some countries, like Brazil, want to keep Mercosur focused on regional trade. Other countries, like Venezuela, which has yet to attain full membership in the bloc, would like to expand the group's mandate to political affairs. The creation of a new regional organization in 2008, the Union of South American Nations (Unasur), has raised further questions about Mercosur's utility. Prof srikanth venkataswamy

MERCOSUR’S Members and Associated Members Prof srikanth venkataswamy Trading Blocs & Economic Integration in South America: MERCOSUR Prof. 78

What is Mercosur? o o The Mercosur trade bloc's purpose, as stated in the 1991 Treaty of Asunción, is to allow for free trade between member states, with the ultimate goal of full South American economic integration. The trade bloc's "grand aspiration is to unify the Southern Cone and then all of South America in an economic bloc, " "It gives them more trading security. " Mercosur's full members include Argentina, Brazil, Paraguay, and Uruguay. Venezuela's entry as a full member is still pending ratification by Brazil and Paraguay. Brazil is the region's largest economy with a gross domestic product (GDP) of over $1. 6 trillion in 2008. Prof srikanth venkataswamy

The Juridical-Institutional System of the MERCOSUR Characteristics of the Juridical-Institutional System • MERCOSUR: (Ouro Preto Agreement, 1994) – Juridical Personality in International Law since the Protocol of Ouro Preto – Intergovernmental: no sovereignty transfer by the Members – Temporary Structure Common Market Council (CMC): -Ministerial Meetings Organs with Decision. Making Powers -Permanent Representatives Commission (CRPM) (2003) President. They coordinate –Ad Hoc Group Structural Convergence Funds (GAHE -FOCEM) (2005) Common Market Group (GMC) Trade Commission of the MERCOSUR (CCM) -Technical Committees. (Common External Tariff) Prof srikanth venkataswamy Trading Blocs & Economic Integration in South America: MERCOSUR Prof. 80

The Origins of the MERCOSUR 1991: Treaty of Asunción: Argentina, Brazil, Uruguay, Paraguay • Establishment of a Free Trade Area and a Customs Union during the Transition Period (1991 -1994) • Intending to establish a Common Market at the end of the Transition Period – Trade Liberalization: scheduled, lineal and automatic. Included lists of exceptions (Final Adaptation Regime) – Fixation of a Common External Tariff: included exceptions. Intention of incentivating external competitiveness – Coordination of Macroeconomic Policies: just consultations, no harmonization – Adoption of Sector Agreements – General Origin Regime Prof srikanth venkataswamy Trading Blocs & Economic Integration in South America: MERCOSUR Prof. 81

The Juridical-Institutional System of the MERCOSUR Characteristics of the Juridical-Institutional System o MERCOSUR Parliament (PM) (2005) o Economic and Social Advisory Forum (FCES) o Administrative Secretariat (SAM) o Dispute Settlement Mechanism: Permanent Court of Review (TPR) (2005) o MERCOSUR’s international Agreements o o 4+1 : MERCOSUR + USA: Trade Negotiations. Investment’s Protection Agreement. (1991) MERCOSUR-EU (1995) Cooperation Agreement Framework. Interregional Association Agreement : market access vs agriculture o Chile & Bolivia: associated members (1995 -1996) Free Trade Area o CAN-MERCOSUR (2003) Free Trade Area o South American Community of Nations (2004) UNASUR Prof srikanth venkataswamy Trading Blocs & Economic Integration in South America: MERCOSUR Prof. 82

Global sourcing and its Impact on Indian Industry. Prof srikanth venkataswamy

Global sourcing and its Impact on Indian Industry o o o India has retained its’ position as the leading global shoring destination with a 55 per cent share of global ITO and BPO market in 2010, and been able to increase its market share in spite of competitive challenges presented by emerging off shoring destinations. This has been only possible due to the development of a set of factors unique to India, that multiply India’s value proposition manifold. While the cost advantage is unparalleled, India has the world’s largest pool of employable talent, service delivery infrastructure across multiple geographically dispersed locations within the country, and a supportive policy regime. Prof srikanth venkataswamy

Global sourcing and its Impact on Indian Industry o o However, the Indian global sourcing industry is no longer hinging its value proposition on cost, talent, infrastructure and processes which are considered as basic tools to operate in the global sourcing landscape. With customers also pushing for more collaborative contracts where there is business metric performance measurement and greater risk-reward sharing, Prof srikanth venkataswamy

Global sourcing : Indian industry is increasingly being driven by the following four factors 1. o o o Transformational Business impact – Client business transformation happening through- - Verticalised solutioning – A number of organisations have restructured themselves around verticals and Centres of Excellences - so as to develop and deliver end to end services keeping in mind customer needs, creating products aimed at growing emerging markets and creating a substantial revenue impact for them. These verticalised business units act as a source of innovation and development of proof of concept solutions - Technology enablement – Development of solutions around platforms, cloud based products integrating business intelligence, and application development tools are proving to be game changers for an increasing set of customers. This is also prompting customers to move from CAPEX to OPEX based models -Process innovation/re-engineering – Coupled with automation and six sigma skills, incremental set of enhancements imbibing best in class learning and practices in established service delivery processes also have the ability to create wide ranging transformation for clients Prof srikanth venkataswamy

Global sourcing : Indian industry is increasingly being driven by the following four factors 2. o o Service Delivery maturity India is the most mature outsourcing market, with Indian service providers having developed end to end service delivery capabilities around all verticals. Further, there is increased globalisation in service delivery, cross border collaboration and partnerships to enhance service off erings, and reengineering of the talent pool for greater productivity and efficiency Prof srikanth venkataswamy

Global sourcing : Indian industry is increasingly being driven by the following four factors 3. o o o Scalability – India’s scale and fl exibility is unique- a vast labour pool, network of Tier II/III cities off ering further cost reduction and increased infrastructure spend are the cornerstones to this advantage off ered by India over other locations. The demand side has also been maturing gradually, moving away from commoditised services at lowest possible cost to demand for higher end solutions and measurable business value. There is a highly rationalised and competent provider base which is again one factor where India scores over other countries Prof srikanth venkataswamy

Global sourcing : Indian industry is increasingly being driven by the following four factors 4. Sustainability – Industry focusing on sustainable practices – including diversity, green and corporate social responsibility Prof srikanth venkataswamy