As discussed in the chapter, institutions are organizations constructed to create jobs for government employment initiatives.
New institutional theory suggests that institutions be understood as collections of rules and codes of conduct that limit behavior.
One of the significant differences between formal and informal institutions is how they gain compliance.
Informal cognitive institutions are not important to international managers because such managers localize their hiring, and so they can draw on local talent.
International institutions provide nations the opportunity to build multilateral solutions, and thus make significant contributions to international stability.
The United Nations operates with voluntary agreements, so it is essentially an informal institution.
The UN Environment Programme laid the groundwork for the Climate Change Convention, which led to the Kyoto Protocol.
Permanent members of the UN Security Council vote on Security Council measures, and only the secretary-general of the UN, Ban Ki-Moon, has veto power.
The UN International Court of Justice hears cases that involve disputes between national governments.
By and large, the UN record of facilitating business transactions has been minor.
The Bretton Woods Conference established the European Union currency, the euro.
The World Bank funds infrastructure projects in developed countries.
Some think that renewed focus on exchange rates would be a good path forward for the IMF, which is struggling with core issues related to its purpose.
The World Bank is made up of one large institution, IBRD.
The International Finance Corporation (IFC) acts as an investment banker, arranging private risk ventures in developing countries.
The WTO supports trade with discrimination as a basic right of trading nations
The Doha Development Agenda is an extended development plan for Doha, Qatar.
Although India is a member of the WTO and has benefited greatly from increased trade as a result of WTO agreements, China is not yet a member.
The WTO has negotiated a TRIPS agreement whereby property rights do not take precedence over public health.
Recently, regional trade agreements have grown, a trend that may be seen to strengthen the WTO, according to the text.
Economic cooperation often begins with a common market, as in the case of the EU.
In a customs union, common external tariffs are added to an existing FTA, as found in the Southern African Customs Union and Mercosur.
Among trading blocs, the EU has the largest GDP per capita.
Trading blocs always bring cost savings to international firms.
ASEAN, whose initial goal was political, to foster peaceful relations among members, includes China as its core member.
The EU is a supranational body that has become, essentially, a regional government.
The EU is administered by the European Commission, a group composed of 27 commissioners elected at the EU level.
The EU has been unsuccessful at harmonizing customs and tax formalities within member nations' borders.
Although the EU can influence the practices of businesses located in non-EU-member countries, Microsoft has been able to maintain business in the EU much as it conducts business in the United States.
All EU members use the euro and thus have given up part of their national sovereignty to the EU.
Institutions are constructed to provide meaning and stability to social life, regulate the relations of individuals to each other, and limit behavior of individuals and firms
Formal institutions operate through laws and regulations. They require members to make a written commitment.
Cognitive institutions are important to the international manager because these institutions help the manager understand the schema operating in their international environments and are easily missed or misunderstood by the non-native, so schemas can easily lead to misunderstandings
Examples of informal, normative institutions would include local town/city governments and the U.S. government.
An example of an informal, cognitive institution would be the celebration of Halloween.
The following is an area in which the UN plays a significant role for international business: loaning seed money for entrepreneurial start-ups in developed nations.
The UN General Assembly is the main staff organization responsible for the UN administration.
As Kofi Annan, former secretary-general of the UN, observed, the UN exists to help us master the challenges of our common, global destiny, which we can do only if we face them together.
Only national governments bring cases. Of course, national governments can bring up claims made by businesses, but the government brings the complaint.
An important assumption that the IMF makes is that a strong organization with rules and penalties for their violation is necessary to support trade.
IMF quotas are determined by the relative size of a nation in the global economy and:
A. determine the weight of the nation's voting in the IMF.
B. determine how much a nation can borrow from the IMF.
C. are the nation's "dues" to the IMF.
The IMF initially played a central role in:
C. setting fixed exchange rates among nations' currencies with an established par value based on gold.
The major function of the World Bank is to serve as a:
A. nonprofit banking cooperative for its members to meet development needs.
The IBRD is a major institution of the World Bank whose function is to loan to:
D. middle-income and creditworthy poor nations.
The WTO exists to:
A. establish and help implement rules of trade among nations in order to increase trade flows.
Is the WTO's idea of "fair competition" really a code phrase for free trade?
B. Not really. Trade relationships among nations can be exceedingly complex, and the WTO supports fair competition, which may mean freer trade rather than free trade.
The Doha Development Agenda is:
D. an extended conference of the WTO initially convened in Doha.
The WTO has made progress on trade-related intellectual property rights (TRIPS). An example of this progress is:
A. an agreement that property rights should not take precedence over public health.
Regional trade agreements such as NAFTA can be seen to impact the WTO:
A. negatively, because they undercut the nondiscrimination principle of the WTO.
In a free trade area, members drop internal tariffs. External tariffs:
C. are maintained independently by each member.
Economic integration often progresses:
A. in stages, from free trade area to customs union to common market.
Most African nations have their main trade relationships:
C. with developed nations, often built on former colonial ties.
ASEAN began as a defensive alliance of 10 Asian nations concerned about:
C. the spread of communism in their region.
NAFTA maintains restrictions on the movement of labor, a limitation that suggests it is:
A. a free trade area.
The EU began as a common market for:
D. the coal and steel industries.
The Treaty of Rome, signed in 1957, established a common market for coal and steel for:
A. West Germany, Belgium, the Netherlands, France, Luxembourg, and Italy.
The EMU (European Monetary Union or Economic and Monetary Union) has established the euro, a currency that is used in:
C. 16 of the EU member-countries.
The Council of European Union, the primary policy-setting institution of the EU, is composed of:
the member-states' ministers who represent the specific area being discussed.
The impact of the EU on the WTO could be said to be negative, since:
B. the favored trade relationships among EU members are not extended to nonmember countries, so the EU undercuts the WTO.
The EU's impact on international business is:
C. substantial, since EU standards, especially in the areas of ecology and sustainability, impact any firm that wants to do business in the EU.
Under new institutional theory, institutions can be categorized as formal and informal, and the informal institutions can be further categorized as:
A. normative and cognitive.
In developing economies, informal institutions tend to play a greater role than in developed economies, possibly because
A. the developing economies have more ambiguity and lack formal institutions by definition, so informal institutions step into the breach. C. informal institutions emerge to give order to the unstructured, chaotic environment.
This type of institution operates through laws and regulations, with coercion as the regulative mechanism.
Informal institutions are composed of sets of:
D. voluntary agreements.
The Chinese concept of guanxi is an example of:
A. an informal, cognitive institution.
The United Nations is probably the best known among:
C. international organizations.
All UN member-countries belong to the UN's:
B. General Assembly.
The UN's International Court of Justice (ICJ) is also known as:
D. the World Court.
At the end of World War II, the UN called for the conference that set up the World Bank and the IMF. This conference was:
D. held at Bretton Woods, New Hampshire.
That the common interest of all nations in a workable international exchange rate system transcends their conflicting international interests is the premise of:
A. the International Monetary Fund (IMF).
The World Bank's two major institutions are the International Development Association and the:
B. International Bank for Reconstruction and Development (IBRD).
The geographical area that receives the most International Development Association (IDA) credits and grants is:
IDA's purpose is to loan to:
A. the poorest nations.
The purpose of the International Financial Corporation (IFC) is to invest in companies and financial institutions in developing countries in order to build:
D. domestic capital markets
The WTO is the only international organization designed to establish and help implement:
B. rules of trade among nations.
The first principle of the WTO's five basic principles is trade without:
The idea that WTO members treat all members equally is known as:
D. the MFN (most-favored-nation) principle.
The Doha Development Agenda is:
A. a WTO conference on trade.
The results of liberalized trade so far have been:
D. uneven for developing and developed economies.
The main difference between a free trade area (FTA) and a customs union is that in a customs union, there is:
D. a common external tariff.
ASEAN began as a:
C. security and military alliance among Southeast Asian nations.
The Organization for Economic Cooperation and Development provides information on:
B. economic and other activities within its member-nations.
The following country is not a member of ASEAN
How many countries in the EU use the euro as their currency?
"Trade without discrimination" in the WTO means that
B. all trading partners must be treated the same.
The UN is important to international business for many reasons, including that it
A. develops standards and norms in technical areas.
International institutions are important to international business managers because, in general, they:
C. limit choices, thereby providing ways to settle disagreements and resolve conflicts.
International institutions offer graduating international business majors:
A. interesting career development and internship opportunities.
B. affect all businesses within the EU and those that trade within the EU.
The OECD is called the "rich man's club" because its members:
B. are 34 of the world's wealthiest nations.
The main purpose of the OECD is to
A. provide economic research and a discussion forum.
The OECD has encouraged members to:
B. eliminate bribery in all commercial transactions.
Two good places to begin country-level research are the websites of the:
C. BIAC and CIA.
Which country does not belong to the OECD?
The most serious recent challenge to the EU has been: