1. International Institutions
Chapter 03
International Institutions
from an International
Business Perspective
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. What are Institutions and Why are They Useful?
LO1
Organizations of groups, societies, or cultures to achieve a common goal: “to provide stability and meaning to social life”
A collection of norms that “regulate the relations of individuals to each other”
Institutions are socially constructed, limit behavior, and set the rules of the game!

3. Institutions Influence Behavior
LO1
Formal Institutions
Influence behavior through laws and regulations
New Institutional Theory
Social Constructs – norms that structure relations between people
Informal Institutions
Influence behavior through norms, values, customs regulations

4. Institutions Influence Behavior
Examples
Institutions Influence Behavior
LO1
Formal Institutions:
City, State, and National Governments, EU
Operate through Laws & Rules
New Institutional Theory:
Societal Expectations: basic rules & social expectations of groups or organizations – written and unwritten
Informal Institutions:
Normative – set Standards: NGOs & Professional Organizations
Cognitive – shared conceptual ideals

5. Institutions Influence Behavior
Examples
Institutions Influence Behavior
Formal Institutions
Tax Laws, Speed Limits
Membership Rules
Informal Institutions
Normative
Organizational standards & Principles
Cognitive:
Function as frameworks for behavior
China – guanxi
Japan – “supplier game”

6. The United Nations (UN)
LO2
192 member countries dedicated to world peace and stability
Fosters global business relationships
Helps write international law
Helps stabilize global economy
Headquartered in New York City

7. The UN Impacts IB
LO2
UN Center for Trade Facilitation and Electronic Business (UN/CEFACT)
Sets technical standards and norms
Standardized trade documents
Standards for E-data exchange
UN Educational, Scientific and Cultural Organization (UNESCO)
Investment in emerging economies
Development in health, education, governance & political stability

8. The UN Impacts IB UN Agencies a deal with downsides to globalization:
Terrorism
Crime
Drugs
Arms Traffic
UN Environmental Programme (UNEP)
Climate control Convention
Kyoto Protocol
Sustainable Business Practices

9. The UN Impacts IB UN Addresses Global Education & Health
The Global Compact
Education and health
issues w/ private
industry/developing
nation partnerships
UN Economic and Social Council promotes:
Social Justice
Human Rights
Labor Rights

10. The UN and the Conduct of Global Business
Ships sail protected across international waters.
Commercial airlines fly across borders and land in emergencies – International Civil Aviation Organization.
WHO sets quality standards for drug names and quality.
Universal Postal Union protects mail and allows cross-border mailing.
International Telecommunications Union keeps airwaves unclogged and avoids radio interference.
World Meteorological Organization shares global weather data.
UN Sales Convention and UN Convention on Carriage of Goods by Sea set rights and obligations of international buyers/sellers.

11. International Monetary Institutions
LO3
IMF – coordinates and enforces international monetary rules
World Bank – lends money for development projects
Established in 1944 at Bretton Woods by treasury and central bank representatives from the Allied Nations of WWII

12. These funds are called “quotas.”
IMF
LO3
Basic Premise:
all nations seek a workable international monetary system which transcends their conflicting national interests
IMF Promotes
International monetary cooperation
Orderly exchange and payment systems
Available funds for BOP corrections
Each of the 186 members contribute funds based on the country’s relative size
in the world economy.
These funds are called “quotas.”

13. A World Education Bank to set up primary schools and train teachers
The World Bank
LO3
2 Major Institutions:
International Bank for Reconstruction and Development (IBRD)
International Development Association (IDA)
3 Minor Institutions:
International Finance Corporation (IFC)
Multilateral Investment Guarantee Agency (MIGA)
International Center for the Settlement of Investment Disputes (ICSID)
A World Education Bank to set up primary schools and train teachers
was called for in 2008

14. WTO Deals with rules of trade between nations: WTO Principles:
LO4
Deals with rules of trade between nations:
Established in 1995
153 members set and implement trade rules between nations
Goal: Reduce or eliminate trade barriers and restrictions
Minimize government action against trade
WTO Principles:
Trade without discrimination (MFN Principle)
Freer trade through negotiation
Predictability through binding and transparency
Promoting fair competition
Encouraging development and economic reform

15. Economics Integration Agreements
LO5
The details are on pages 53 to 55 in the text.
Free Trade Area (FTA) – tariffs among members eliminated but external tariffs remain
Customs Union – collaboration that adds common external tariffs to an FTA

16. Economics Integration Agreements
LO5
The details are on pages 53 to 55 in the text.
Common Market – customs union that includes mobility of services, people, and capital within a union
Complete Economic Integration – integration on economic and political levels

17. The European Union EU Development 3 Areas of Integration:
27 European countries committed to economic and political integration
Established in 1993 by the EC in the Maastricht Treaty
3 Areas of Integration:
Economic Community
Foreign Policy
Domestic Affairs
EU Profile Today:
27 member countries
500+ million people
7.3%+ of World population
20% of global imports & exports
Supranational body with regional government

18. EU Impact on IB The Changes: The Results:
LO6
The Changes:
Harmonized national standards, labeling laws, testing procedures & consumer protection issues
Eliminated shared border taxes and customs laws of member nations
Common currency – the €
The Results:
The World’s largest trading economy
FDI outflow = 26% of World output
Cost of Doing Business in EU is reduced
EU regs set new global standards
EU market access means firms play by ER rules globally AND within the EU!