Influence of Institutions on Firms, Managers and Firm Behavior Formal Formal and Informal Constraints Firms Firm Behavior Informal Normative & Cognitive Constraints Managers © J. McNett, Influenced by W. R. Scott (2008) and M. W. Peng (2002, 2009) LO1

Global Level Institutions United Nations Bretton Woods Institutions International Monetary Fund World Bank World Trade Organization

Global Level Institutions The United Nations Promotes peace and global stability 192 member-nations Has many functions related to business General Assembly Deliberative body of the UN All member-nations, each with one vote Security Council Responsible for peace and security 5 permanent members with veto power(U.S., Russia, China, France, UK) 10 elected members LO3

Global Level Institutions Bretton Woods Meeting in Bretton Woods New Hampshire, U.S. at end of World War II (July 1944) 44 Allied Nations Established Monetary Institutions International Monetary Fund (IMF) World Bank Established a Monetary System LO4

Global Level Institutions International Monetary Fund Promotes international monetary cooperation Coordinates multilateral monetary rules and their enforcement 185 members who contribute funds on quota base Quota determines the country’s number of votes IMF lends out these funds to members LO4

Global Level Institutions International Monetary Fund Facilitates expansion and balanced growth of international trade Promotes exchange stability and orderly exchange arrangements among members Establishes a multilateral system of payments Makes funds available for balance of payments corrections LO4

Global Level Institutions International Monetary Fund Current Issues Convince rising economies to accept multilateral responsibilities beyond their economies Prevent protectionism in U.S. and Europe as Asian economies grow Become action-prone as financial crises become global and more complex Support the process of regionalization of currencies Help financial markets spread risk from ecological issues LO4

Global Level Institutions World Bank’s Major Institutions The World Bank funds development projects Comprised of two major and three smaller institutions International Bank for Reconstruction and Development (known as the World Bank) Funds development loans to middle income, credit-worthy countries International Development Association Funds poorer nations’ development LO4

Global Level Institutions The World Trade Organization The World Trade Organization (WTO) provides and helps implement rules of trade 151 member nations; began in 1995 Negotiates core agreements among member nations Establishes rules for trade Helps settle trade disputes Outgrowth of General Agreement on Tariffs and Trade (GATT) Induced trade liberalization from 1947 to 1995 LO4

Global Level Institutions The World Trade Organization Uruguay Round Established the WTO The last extended conference of GATT negotiations WTO Principles Trade without discrimination (MFN principle) Freer trade, gradually, through negotiation Predictability, through “binding” and transparency Fair competition Encouragement of development and economic reform LO5

Global Level Institutions The World Trade Organization Challenges WTO talks in Doha, Qatar (2001): members agreed to work on implementing present agreements Developing nations face unique constraints that limit their ability to benefit from WTO trading system Aid-for-trade initiative (2008) Major problem: Agricultural subsidies and tariffs Trade-related intellectual property rights (TRIPS): protection of copyrights, trademarks, trade secrets, other intellectual property matters LO5

Regional Institutions Cooperative Military and Security Agreements

Regional Institutions Organization For Economic Cooperation and Development Organization for Economic Cooperation and Development (OECD) Group of developed countries dedicated to promoting economic expansion in its member-nations Provides information on economic and other activities within its member nations Provides setting for discussion of shared economic policy issues LO6

Regional Institutions Other Economic Institutions Organization of Petroleum Exporting Countries (OPEC) Cartel of 12 petroleum exporting countries The Group of Eight (G8) Group of government leaders from major industrialized nations that meets regularly to discuss issues of concern LO7

The G8 Members (www.undp.org) LO7 http://atlas.nrcan.gc.ca/site/english/maps/reference/international/g8/map.jpg

Regional Economic Institutions NAFTA Established January 1, 1994 Agreement creating a free trade area among Canada, Mexico, and the United States EFTA A free trade area between Norway, Iceland, Liechtenstein, Switzerland LO8

Regional Institutions The European Union

Regional Institutions The European Union European Commission Runs day-to-day operations European Court of Justice (ECJ) Rules on policy issues European Monetary Union Established use of euro in the 15-country euro zone Three “old EU” countries do not participate: Denmark, Sweden, and the United Kingdom The single currency reduces the cost of doing business across EMU country borders LO8