ANAND ENGINNERING COLLEGE,AGRA

BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

INTRODUCTION One of the most dramatic and significant world trends in the past two decades has been the rapid, sustained growth of international business. Markets have become truly global for most goods, many services, and especially for financial instruments of all types. World product trade has expanded by more than 6 percent a year since 1950, which is more than 50 percent faster than growth of output the most dramatic increase in globalization, has occurred in financial markets. In the global forex markets, billions of dollars are transacted each day, of which more than 90 percent represent financial transactions unrelated to trade or investment. Much of this activity takes place in the so-called Euromarkets, markets outside the country whose currency is used. This pervasive growth in market interpenetration makes it increasingly difficult for any country to avoid substantial external impacts on its economy. In particular massive capital flows can push exchange rates away from levels that accurately reflect competitive relationships among nations if national economic policies or performances diverse in short run. The rapid dissemination rate of new technologies speeds the pace at which countries must adjust to external events. Smaller, more open countries, long ago gave up illusion of domestic policy autonomy. But even the largest and most apparently self-contained economies, including the US, are now significantly affected by the global economy. Global integration in trade, investment, and factor flows, technology, and communication has been tying economies together. Why then are these changes coming about, and what exactly are they? It is in practice, easier to identify the former than interpret the latter. The reason is that during the past few decades, the emergence of corporate empires in the world economy, based on the contemporary scientific and technological developments, has led to globalization of production. As a result of international production, cooperation among global productive units, the large-scale capital exports, the export of production or production abroad has come into prominence as against commodity export in world economy in recent years. Global corporations consider the whole of the world their production place, as well as their market and move factors of production to wherever they can optimally be combined. They avail fully of the revolution that has brought about instant worldwide communication, and near instant-transformation. Their ownership is transnational; their management is transnational. Their freely mobile management, technology and capital, the modern agent for stepped-up economic growth, transcend individual national boundaries. They are domestic in every place, foreign in none-a true corporate citizen of the world. The greater interdependence among nations has already reduced economic insularity of the peoples of the world, as well as their social and political insularity. DEFINITION OF INTERNATIONAL BUSINESS: International business includes any type of business activity that crosses national borders. Though a number of definitions in the business literature can be found but no simple or universally accepted definition exists for the term international business. At one end of the definitional spectrum, international business is defined as organization that buys and/or sells goods and services across two or more national boundaries, even if management is located in a single country. At the other end of the spectrum, international business is equated only with those big enterprises, which have operating units outside their own country. In the middle are institutional arrangements that provide for some managerial direction of economic activity taking

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place abroad but stop short of controlling ownership of the business carrying on the activity, for example joint ventures with locally owned business or with foreign governments.

International Business Management Orientations

The form and substance of a companys response to global business opportunities depend greatly on managements assumptions or beliefs both conscious and unconscious about the nature of the world. The worldview of a companys personnel can be described as ethnocentric, polycentric, regiocentric, and geocentric. Management at a company with a prevailing ethnocentric orientation may consciously make a decision to move in the direction of geocentricism. Ethnocentric A person who assumes his or her home country is superior compared to the rest of the world is said to have an ethnocentric orientation. The ethnocentric orientation means company personnel see only similarities in markets and assume the products and practices that succeed in the home country will, due to their demonstrated superiority, be successful anywhere. At some companies, the ethnocentric orientation means the opportunities outside the home country are ignored. Such companies are sometimes called domestic companies. Ethnocentric companies that do conduct business outside the home country can be described as international companies; they adhere to the notion that the products that succeed in the home country are superior and, therefore, can be sold everywhere without adaptation. In the ethnocentric, international company, foreign operations are viewed as being secondary or subordinate to domestic ones. An ethnocentric company operates under the assumption that "tried and true" headquarters knowledge and organisational capabilities can be applied in other parts of the world. Although this can sometimes work to a companys advantage. For a manufacturing firm, ethnocentrism means foreign markets are viewed as a means of disposing of surplus domestic production. Plans for overseas markets are developed, utilizing policies are procedures identical to those employed at home. No systematic marketing research is conducted outside the home country, and no major modifications are made to products. Even if consumer need or wants in international markets differ from those in the home country, those differences are ignored at headquarters. Nissans ethnocentric orientation was quite apparent during its first few years of exporting cars and trucks to the United States. Designed for mild Japanese winters, the vehicles were difficult to start in many parts of the United States during the cold winter months. In northern Japan, many car owners would put blankets over the hoods of their cars. Tokyos assumption was that Americans would do the same thing. Until the 1980s, Eli Lilly and Company operated as an ethnocentric company in which activity outside the United States was tightly controlled by headquarters and focused on selling products originally developed for the U.S. market.

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BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

Fifty years ago, most business enterprises- and especially those located in a large country like the United States - could operate quite successfully with an ethnocentric orientation. Today, however, ethnocentrism is one of the biggest internal threats a company faces. Polycentric The polycentric orientation is the opposite of ethnocentrism. The term polycentric describes managements often-unconscious belief or assumption that each country in which a company does business is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies in order to succeed; the term multinational company is often used to describe such a structure. Until recently, Citicorps executive, offered this description of the company: "We were like a medieval state. There was the kind and his court and they were in charge, right? No. It was the land barons who were in charge. The kind and his court might declare this or that, but the land barons went and did their thing." Realizing that the financial services industry is global sing; CEO John Reed is attempting to achieve a higher degree of integration between Citicorps operating units. Like Jack Welch at GE, Reed is moving to instill a geocentric orientation throughout his company. Regiocentric and Geocentric Orientations In a company with a regiocentric orientation, management views regions as unique and seeks to develop an integrated regional strategy. For example, a U.S. company that focuses on the countries included in the North American Free Trade Agreement (NAFTA) the United States, Canada, and Mexico has a regiocentric orientation. Similarly, a European company that discuses its attention on Europe is regiocentric. A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated world market strategies. A company whose management has a regiocentric or geocentric orientation is sometimes known as a global or transnational company. The geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a "worldview" that sees similarities and differences in markets and countries, and seeks to create a global strategy that is fully responsive to local needs and wants. A regiocentric manager might be said to have a worldview on a regional scale; the world outside the region of interest will be viewed with an ethnocentric or a polycentric orientation, or a combination of the two. Jack Welchs quote at the beginning of this chapter that "globalisation must be taken for granted" implies that at least some company managers must have geocentric orientation. However, recent research suggests that many companies are seeking to strengthen their regional competitiveness rather than moving directly to develop global responses to changes in the competitive environment. The ethnocentric company is centralized in its marketing management, the polycentric company is decentralized, and the regiocentric and geocentric companies are integrated on a regional and global scale, respectively. A crucial difference between the orientations is the underlying assumption for each. The ethnocentric orientation is based on a belief in home-country

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BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

superiority. The underlying assumption of the polycentric approach is that there are so many differences in cultural, economic, and marketing conditions in the world that it is impossible and futile to attempt to transfer experience across national boundaries. There is likelihood that geocentric company does not identify itself with any particular country. Therefore, it is difficult to determine the firms home country except the location of its headquartering and its corporate registration. The case of European Silicon Structures illustrates the practice of geocentric marketing. In order to attract customers around the continent, the company has decided to become a company without a country. Although incorporated in Luxembourg the firms headquarter is in Munich. The company has its research facilities in England and a factory in Southern France. With regard to Board of Directors, the eight members come from seven countries. There is evidence that geocentricity and companies international practices are related. One study by Stephen J. Kobrien, who employed the geocentric scale to measure the human resources managers mind-set concerning the impact of nationality on the selection of career managers. The index of a geocentric mind-set was found to be significantly related to the percent of scales and employees abroad as well as the number of countries with manufacturing operations. The study of ethnocentrism, polycentrism, regiocentrism and geocentrism (EPRG) framework found that firms exhibiting an ethnocentric orientation emphasize the home market and export to psychologically close markets. In addition, these firms believe that marketing adaptation is not necessary. In contrast, polycentric, regiocentric and geocentric firms export to psychologically distant markets. MEANS OF ENGAGING IN INTERNATIONAL BUSINESS Foreign Direct Investment (FDI) Definition Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting

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management interest in a company or enterprise outside the investing firms home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, in the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI. New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privitazation of many industries, has probably been been the most significant catalyst for FDIs expanded role. The most profound effect has been seen in developing countries, where yearly foreign direct investment flows have increased from an average of less than $10 billion in the 1970s to a yearly average of less than $20 billion in the 1980s, to explode in the 1990s from $26.7billion in 1990 to $179 billion in 1998 and $208 billion in 1999 and now comprise a large portion of global FDI.. Driven by mergers and acquisitions and internationalization of production in a range of industries, FDI into developed countries last year rose to $636 billion, from $481 billion in 1998 (Source: UNCTAD) Proponents of foreign investment point out that the exchange of investment flows benefits both the home country (the country from which the investment originates) and the host country (the destination of the investment). Opponents of FDI note that multinational conglomerates are able to wield great power over smaller and weaker economies and can drive out much local competition. The truth lies somewhere in the middle. For small and medium sized companies, FDI represents an opportunity to become more actively involved in international business activities. In the past 15 years, the classic definition of FDI as noted above has changed considerably. This notion of a change in the classic definition, however, must be kept in the proper context. Very clearly, over 2/3 of direct foreign investment is still made in the form of fixtures, machinery, equipment and buildings. Moreover, larger multinational corporations and conglomerates still make the overwhelming percentage of FDI. But, with the advent of the Internet, the increasing role of technology, loosening of direct investment restrictions in many markets and decreasing communication costs means that newer, non-traditional forms of investment will play an important role in the future. Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact. In the United States, the Bureau of Economic Analysis, a section of the U.S. Department of Commerce, is responsible for collecting economic data about the economy including information about foreign direct investment flows. Monitoring this data is very helpful in trying to determine the impact of such investments on the overall economy, but is especially

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helpful in evaluating industry segments. State and local governments watch closely because they want to track their foreign investment attraction programs for successful outcomes. How Has FDI Changed in the Past Decade? As mentioned above, the overwhelming majority of foreign direct investment is made in the form of fixtures, machinery, equipment and buildings. This investment is achieved or accomplished mostly via mergers & acquisitions. In the case of traditional manufacturing, this has been the primary mechanism for investment and it has been heretofore very efficient. Within the past decade, however, there has been a dramatic increase in the number of technology startups and this, together with the rise in prominence of Internet usage, has fostered increasing changes in foreign investment patterns. Many of these high tech startups are very small companies that have grown out of research & development projects often affiliated with major universities and with some government sponsorship. Unlike traditional manufacturers, many of these companies do not require huge manufacturing plants and immense warehouses to store inventory. Another factor to consider is the number of companies whose primary product is an intellectual property right such as a software program or a software-based technology or process. Companies such as these can be housed almost anywhere and therefore making a capital investment in them does not require huge outlays for fixtures, machinery and plants. In many cases, large companies still play a dominant role in investment activities in small, high tech oriented companies. However, unlike in the past, these larger companies are not necessarily acquiring smaller companies outright. There are several reasons for this, but the most important one is most likely the risk associated with such high tech ventures. In the case of mature industries, the products are well defined. The manufacturer usually wants to get closer to its foreign market or wants to circumvent some trade barrier by making a direct foreign investment. The major risk here is that you do not sell enough of the product that you manufactured. However, you have added additional capacity and in the case of multinational corporations this capacity can be used in a variety of ways. High tech ventures tend to have longer incubation periods. That is, the product tends to require significant development time. In the case of software and other intellectual property type products, the product is constantly changing even before it hits the marketplace. This makes the investment decision more complicated. When you invest in fixtures and machinery, you know what the real and book value of your investment will be. When you invest in a high tech venture, there is always an element of uncertainty. Unfortunately, the recent spate of dot.com failures is quite illustrative of this point. Therefore, the expanded role of technology and intellectual property has changed the foreign direct investment playing field. Companies are still motivated to make foreign investments, but because of the vagaries of technology investments, they are now finding new vehicles to accomplish their goals. Consider the following: Licensing and technology transfer:

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BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

Licensing and tech transfer have been essential in promoting collaboration between the academic and business communities. Ever since legal hurdles were removed that allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces. With some help from a variety of government agencies in the form of grants for R&D as well as other financial assistance for such things as incubator programs, once timid college researchers are now stepping out and becoming cutting edge entrepreneurs. These strategic alliances have had a serious impact in several high tech industries, including but not limited to: medical and agricultural biotechnology, computer software engineering, telecommunications, advanced materials processing, ceramics, thin materials processing, photonics, digital multimedia production and publishing, optics and imaging and robotics and automation. Industry clusters are now growing up around the university labs where their derivative technologies were first discovered and nurtured. Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particular technology is fully developed and thus ready to put new products into the manufacturing pipeline. Reciprocal distribution agreements: Actually, this type of strategic alliance is more trade-based, but in a very real sense it does in fact represent a type of direct investment. Basically, two companies, usually within the same or affiliated industries, agree to act as a national distributor for each others products. The classical example is to be found in the furniture industry. A U.S.-based manufacturer of tables signs a reciprocal distribution agreement with a Spanish-based manufacturer of chairs. Both companies gain direct access to the others distribution network without having to pay distributor support payments and other related expenses found within the distribution channel and neither company can hurt the others market for its products. Without such an agreement in place, the Spanish manufacturer might very well have to invest in a national sales office to coordinate its distributor network, manage warehousing, inventory and shipping as well as to handle administrative tasks such as accounting, public relations and advertising. Joint venture and other hybrid strategic alliances: The more traditional joint venture is bi-lateral, that is it involves two parties who are within the same industry who are partnering for some strategic advantage. Typical reasons might include a need for access to proprietary technology that might tip the competitive edge in another competitors favor, desire to gain access to intellectual capital in the form of ultra-expensive human resources, access to heretofore closed channels of distribution in key regions of the world. One very good reason why many joint ventures only involve two parties is the difficulty in integrating different corporate cultures. With two domestic companies from the same country, it would still be very difficult. However, with two companies from different cultures, it is almost impossible at times. This is probably why pure joint ventures have a fairly high failure rate only five years after inception. Joint ventures involving three or more parties are usually called syndicates and are most often formed for specific projects such as large construction or public works projects that might involve a wide variety of expertise and resources for successful completion. In some cases, syndicates are actually easier to manage because the project itself

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BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

sets certain limits on each party and close cooperation is not always a prerequisite for ultimate success of the endeavor. Portfolio investment: For most of the latter part of the 20th century when FDI became an issue, a companys portfolio investments were not considered a direct investment if the amount of stock and/or capital was not enough to garner a significant voting interest amongst shareholders or owners. However, two or three companies with "soft" investments in another company could find some mutual interests and use their shareholder power effectively for management control. This is another form of strategic alliance, sometimes called "shadow alliances". So, while most company portfolio investments do not strictly qualify as a direct foreign investment, there are instances within a certain context that they are in fact a real direct investment. EXTERNAL INFLUENCES ON INTERNATIONAL BUSINESS Environment refers to all external forces that have a bearing on the functioning of a business. Jauch and Gluecke define environment thus: "The environment includes factors outside the firm which can lead to opportunities or a threat to the firm. Although there are many factors, the most important of these sectors are socio-economic, technological, supplier, competitor and the government." Business is all about reaping profits from the opportunities available in the environment. Opportunity can manifest themselves in the form of short supply, excess demand, latent need or new, better and economical sources of supply or manufacturing. The international environment consists of all factors that operate at the transnational, crosscultural level and across the border. The world is a global village today and it is getting closer and closer as far as business is concerned. For the sake of business, countries are burying their grievances and forging economic relationships. Erstwhile adversaries like America and Russia are today goods friends and China and India are coming closer. Nature of International Business Environment 1. International environment is complex: The environment consists of a number of factors, events, conditions and influences arising from different sources. All these interact with each other to create new sets of influences. 2. It is dynamic: The environment by its very nature, is a constantly changing one. The varied influences operating upon it impart a dynamism to it and cause it to continually change its shape and character.

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3. Environment is multi-faceted: The same environmental trend can have different effects on different industries. For instance, GATTS, it is an opportunity for some companies but a threat for others. 4. It has a far-reaching impact: The environment has a far-reaching impact on organizations in that the growth and profitability of an organization depends critically on the environment in which it exists. 5. Its impact on different firms with in the same industry differs: A change in environment may have different bearings on various firms operating in the same industry. For example, in the pharmaceutical industry in India, for instance, the impact of the new IPR (Intellectual Property Rights) law will different for research-based pharmacy companies such as Ranbaxy and Dr. Reddys Lab and will be different for smaller pharmacy companies. 6. It may be an opportunity as well as a threat to expansion: Developments in the general environment often provide opportunities for expansion in terms of both products and markets. For example, liberalization in 1991 opened lot of opportunities for companies and HLL took the advantage to acquire companies like Lakme, TOMCO, KISSAN etc. Changes in environment often also pose a serious threat to the entire industry. Like Liberalization does pose a threat of new entrants to Indian firms in the form of Multi National Corporation (MNCs). 7. Changes in the environment can change the competitive scenario: General environmental changes may alter the boundaries of an industry and change the nature of its competition. This has been the case with deregulation in the telecom sector in India. Since deregulation, every second year new competitors emerge, old foes become friends and M&As follow every new regulation. 8. Sometimes developments are difficult to predict with any degree of accuracy: Macroeconomic developments such as interest rate fluctuations, the rate of inflation, and exchange rate variations are extremely difficult to predict on a medium or a long term basis. On the other hand, some trends such as demographic and income levels can be easy to forecast. Importance of International Business Environment With the growing importance of international business, it is becoming important for all the businessmen who want to set up a global business, to analyse the international business scenario and then take any steps further. The businessmen, who fail to do so, are more likely to fail in their businesses. Scope of International Environment The development of the multinational enterprise and the impact of foreign direct investment as a vehicle for the increased globalisation of business activities is the current hot topic. Foreign direct investment has become the fastest increasing productive unit in the UK Economy recent

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investors in the UK including Toyota, Samsung and Nissan. None of these multinationals are confined to solely Japanese manufacturing companies, as the impact of new global technology and information systems is leading to a wider range of opportunities. Indeed, Numura securities in the Finance section, as well as the French car company, Peugeot, provide an example of the diverse range of Multinational Business activities in the UK alone. Further liberalisation of trade has taken place through the various round of GATT and European Union, with these trading blocs are committed towards full removal of tariff and non-tariff barriers, and allowing the free movement of labour and capital in the creation of a single market. Similar agreements are taking place within the US, Canada and Mexico, as well as Japan and the association of South East Asian Nations. All these developments highlight the importance of understanding international business in the 21st century. Managers can obviously spend all of their available time and resources becoming ever-more educated about the global business environment without knowing all that they think they should know in order to be effective decision-makers. As in all aspects of life, priorities must be established- in this case, to focus on what is arguably most important to know in order to compete successfully in the global business environment. Even a cursory consideration of what constitute potentially important considerations in the global business environment can lead to a daunting list of possibilities. For example, the list could include broadly defined attributes of the global business environment such as the macroeconomic outlook for specific countries and regions, emerging political and social developments in those countries and regions, the availability of skilled labor and other demographic attributes of specific countries and regions and so forth. It might also include more specific characteristics of countries and regions such as trade and foreign investment laws, availability of input suppliers, consumer buying behavior, existing physical infrastructure, including roads, seaports and airports, the number and competitive strength of rivals, the availability of potential strategic partners and many, many other factors. Prioritizing what one should understand about the global business environment is obviously not an easy thing to do given the many unknowns that confront international business managers. The PEST Analysis PEST is a well-known and widely applied tool when analyzing what the international market has to offer. International marketing environment. International PEST Analysis would consider: How easy will it be to move from purely domestic to international marketing? Would your business benefit from inward foreign investment?

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BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

What is the nature of competition within each individual market, and how will companies from other nations compete when you meet with them head-to-head in unfamiliar countries? Political Is there any historical relationship between countries that would benefit or hinder international marketing? What is the influence of communities or unions for trading? E.g. The European Union and its authority over European laws and regulation. What kind of international and domestic laws will your business encounter? What is the nature of politics in the country that you are targeting, and what is their view on encouraging foreign competition from overseas? Economic What is the level of new industrial growth? E.g. China is experiencing terrific industrial growth. What is the impact of currency fluctuations on exchange rates, and do your home market and your new international market share a common currency? E.g. Polish companies trading in Eire will use Euros. There are of course the usual economic indicators that one needs to be aware of such as inflation, Gross Domestic Product (GDP), levels of employment, national income, the predisposition of consumers to spend savings or to use credit, as well as many others. Socio-cultural Culture, religion and society are of huge importance. What are the cultural norms for doing business? E.g. is there a form of barter? Will cultural norms impact upon your ability to trade overseas? E.g. Putonghua is very difficult for many Western people to learn. Technology Do copyright, intellectual property laws or patents protect technology in other countries? E.g. China and Jordan do not always respect international patents.

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BBA PROGRAM IBM INTERNATIONAL BUSINESS (UNIT1)

Does your technology conform to local laws? E.g. electrical items that run on non-domestic currents could be dangerous. Are technologies at different stages in the Product Life Cycle (PLC) in various countries? E.g. versions/releases of software.

International Economic Tendencies

Liberalization of International Trade Since World War II, governments have cooperated on a variety of efforts to reduce or eliminate import restrictions and export subsidies. They have been motivated by the conviction that deregulating, or liberalizing, trade would increase the volume of trade, promote economic growth, and improve living standards worldwide. Trade liberalization initiatives have been pursued at the country-to-country level (bilateral level), among groups of neighboring countries (the regional level), and in the GATT, which was established in 1947 and included eight major, multiyear rounds of negotiations among a broad cross-section of countries (the multilateral level see Figure 11). A ninth round of discussions is currently underway. Two critical principles have guided post World War II trade liberalization efforts and have contributed significantly to their success: The nondiscrimination principle stipulates that both trade restrictions and proposals to reduce trade restrictions should apply to all of a countrys trading partners equally, and that imported goods and services will not be treated differently than domestic ones. The principle of reciprocity dictates that all participating countries offer to reduce some of their own import barriers or export subsidies in exchange for comparable steps by their negotiating partners.

Agreements liberalizing trade at the bilateral, regional, and multilateral levels have been highly successful over the past five decades. The eight major rounds of multilateral trade talks since World War II have reduced average global tariffs from forty percent to five percent.29 This reduction in tariffs has helped promote economic efficiency and saved consumers billions of dollars of income through lower prices. Unfortunately, during worldwide recessions, like the one in 2009, countries are prone to increase tariffs to protect domestic industries and raise revenue. While tariffs were low, and there was no thought of recession, the attention of trade negotiators turned to a range of more complicated barriers to trade. Development became a top priority. The most recent round of global trade talks, known as the Uruguay Round, was launched in 1986. The ninth and as-of-yet uncompleted Doha Round began in 2001.

Privatization

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Privatization is the transfer of government owned assets to the private sector. As a result of changing economic policies, privatization took place at a significant pace around the world during the last decade of the 20th century. Ranging from the desire to downsize government in developed countries, to the demise of communism in Eastern and Central Europe, and to the opening of the economies of various Latin American countries, privatization has significant direct and indirect effects on international business and international law. Privatization opens unprecedented opportunities for investment throughout the world. Thus, it is a major force in the globalization of business, and it is of great interest to investors and businesses around the world. Privatization is taking place in various kinds of economies. Prior to revolutions during the late 1980s and early 1990s, private ownership of property was not allowed in the communist countries of Eastern and Central Europe. In accordance with Marxist theory, communist governments owned virtually everything. Privatization is, therefore, a necessary tool for those countries converting to market-based economies. As a result, in the 1990s, the formerly communist countries of Central and Eastern Europe have been engaged in an unprecedented number of transfers of assets to private persons and entities. WHICH COUNTRIES PRIVATIZE AND WHY? Reasons for privatization vary and depend on the history, politics, and needs of each country involved. It is helpful, however, to look at whether a country is developed or undeveloped. In addition, its history as a capitalistic, communist, or closed economy affects the decision to privatize. Although privatization is most frequently discussed with respect to developing countries, it is also taking place in developed, democratic, market-oriented countries. Privatization was conceived by Great Britain's Thatcher government, and it has many advocates in other developed countries such as the United States. In the United States, privatization is seen as a mechanism to be used to "downsize" government, cut costs for government, cut taxes for citizens, and promote balanced government budgets. Thus, in the United States, on a federal level, there is pressure on government from some parties (not including environmentalists) to sell oil drilling rights to federal lands and on offshore fields. In addition, there are proposals that the federally run air traffic control system be privatized. Pressure from international organizations has been another force leading to privatization. The International Monetary Fund (IMF) and the World Bank have required privatization of unprofitable government-owned businesses as a prerequisite to obtaining loans sought by debtridden governments. In the early 1980s the Mexican government controlled sugarcane production, milling, and selling through a state-owned company called Colima. The company, however, was supported by substantial state subsidies. In 1988 Mexico privatized Colima's sugarcane mills when the World Bank pressured it to do so as a precondition to receiving loans. Similarly, the EU requires that countries applying for membership in the EU divest themselves

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of unprofitable government-owned businesses as a means of demonstrating the economic reform and stability required. Thus, various Central and Eastern European countries including, but not limited to, Romania and the Czech Republic, are privatizing state-owned businesses as they prepare for membership in the EU.