THE EUS LAGGING COMPETITIVENESSIn a report produced for the European Commission, published in November 1998, it was argued that the EU lags behind the USA and Japan on most measures of international competitiveness. Gross domestic product per capita, sometimes used as an indicator of international competitiveness at the country level, was 33 per cent lower in the EU as a whole than in the USA and 13 per cent lower than in Japan. The EUs poor record in creating employment was singled out for particular criticism. As this appeared to apply across the board in most industrial sectors, it suggested that the EUs poor performance related to the business environment in general and, in particular, to the inflexibility of Europes labour markets for goods and services. A shortage of risk capital for advanced technological development and high cost and inefficiency of Europes financial services were also highlighted by the report. For one reason or another, European industries generally lag behind InTechnology industries. If measured by the number of inventions patented in at least two countries, the USA is well ahead of most European countries, as well as Japan. Despite these shortcomings, the reports authors focus attention on flexible markets, market liberalisation, and the creation of a competitive business environment rather than on targeted intervention by the EU or nationalauthorities.Questions:1. Is gross domestic product per capita a useful indicator of International competitiveness in the EU?2. Is it fair to point the blame for the EUs poor international competitiveness at inflexible labourmarkets, regulated goods and services markets, and a general lack of competition? Whatalternative explanations might be suggested?

Caselet 2PERUPeru is located on the west coast of South America. It is the third largest nation of the continent (afterBrazil and Argentina), and covers almost 500,000 square miles (about 14 per cent of the size of theUnited States). The land has enormous contrasts, with a desert (drier than the Sahara), the toweringsnow-capped Andes mountains, sparkling grass-covered plateaus, and thick rain forests. Peru hasapproximately 27 million people, of which about 20 per cent live in Lima, the capital. More Indians(one half of the population) live in Peru than in any other country in the western hemisphere. Theancestors of Perus Indians were the famous Incas, who built a great empire. The rest of thepopulation is mixed and a small percentage is white. The economy depends heavily on agriculture,fishing, mining, and services. GDP is approximately $115 billion and per capita income in recentyears has been around $4,300. In recent years the economy has gained some relative strength andmultinationals are now beginning to consider investing in the country. One of these potentialinvestors is a large New York based that is considering a $25 million loan to the owner of a Peruvianfishing fleet. The owner wants to refurbish the fleet and add one more ship. During the 1970s, thePeruvian government nationalised a number of industries and factories and began running them forthe profit of the state. In most cases, these state-run ventures became disasters. In the late 1970s, thefishing fleet owner was given back his ships and are getting old and he needs an influx of capital tomake repairs and add new technology. As he explained it to the NEW YORK banker: fishing is nolonger just un art. There is a great deal of technology involved. And to keep costs low and becompetitive on the world market , you have to have the latest equipment for both locating as wellas catching and then loading and unloading the fish.Having reviewed the fleet owner operation, thelarge multinational bank believes that the loan is justified. The financial institution is concerned ,however , that the Peruvian government might step in during the next couple of years and againtake over the business . If this were to happen, it might take an additional decade, for the loan to berepaid. If the government were to allow the fleet owner to operate the fleet the way he has over thelast decade, the loan could be rapid within seven years. Right now, the bank is deciding on thespecific terms of the agreement. Once these have been worked out , either a loan officer will flydown to lima and close the deal or the owner will be asked to come to NEW YORK for the signing.Whichever approach is used, the bank realize that final adjustments in the agreement will haveto be made on the spot. Therefore, if the bank sends a representative to Lima, the individual will haveto the authority to commit the bank to specific terms. These final matters should be worked out withinthe next ten days.Questions:1. What are some current issues Facing Peru? What is the climate for doing business in Peru today?2. Would the bank be better off negotiating the loan in New York or in Lima? Why?

Imagine that you are the director of a major international lending institution supported by fundsfrom member countries. What one area in newly industrialized and developing economics wouldbe your priority for receiving development aid? Do you suspect that any member country will bepolitically opposed to aid in this area? Why or Why not?The competitive advantage of nations and the competitiveness of locations have become importanttopics in economic policy. Competitiveness is productivity; competitiveness is what the worldeconomic forum defines as the set of institutions and policies that determine the level ofproductivity. There is no single determinant of competitiveness, theres no single determinant ofproductivity.Things that matter for example are the macroeconomic stability of a country, the soundness ofinstitutions whether the judiciary for example is independent or favors particular sectors orbusinesses, whether thegovernment acts in efficient ways or in sectarian ways, other determinants ofcompetitiveness involve market efficiency, labour market flexibility, and financial market flexibility.The whole growth competitiveness index that is the index that has been used over the least five orsix years by the world economic forum captures the three bigconcepts: macroeconomic stability,government institutions and innovations.

1. What are the indicators of global competitiveness? Discuss the new tools to determine globalcompetitiveness.

Caselet 2In this new millennium, few business houses can afford a turn a blind eye to global business opportunities. According to the latest Mckinsey Global Survey, top global executives believe that the growing number of consumers in emerging markets will be the most important trend for global business during the next five years. On 15th April 1994, trade ministers of 123 countries signed the final Act of the GATT Uruguay Round of negotiations at Marrakech, bringing the WTO into being on 1st January 1995.The object of the Act is the liberalization of world trade. By it member countries undertake to applyfair trade rules covering commodities, services and intellectual property. It provides for the loweringof tariffs on industrial goods and tropical products; the abolition of import duties on a variety ofitems; the progressive abolition of quotas on garments and textiles; the gradual reduction of tradedistorting subsidies and import barriers, and agreements on intellectual property and trade inservices.

1. Discuss the provisions of world Trade Organization (WTO). What are implications of WTO,A business was started by three friends. The three partners initially brought their finished goods from China and sold them in the Sultanate of Oman. After operating the business for five years, the three partners, Rashid, Ali and Sultan was asked by the parent company in China to have an agreement under which they would have to pay a fee for producing and selling the companys products. This continued for another four years, after which the parent company decided to stop the business relationship with the three friends in Oman. Now, the company joined hands with another Oman based owned and headed by Hamad. Hamad and the Chinese company decided to jointly develop, produce and sell their goods in Oman and other GCC countries. This carried on for five years, after which the Chinese company broke the business relationship with Hamad and decided to invest on their own in Oman as the business potential in Oman and other GCC countries were increasing. The new organization, Attaya LLC recruited Aamer as the Chief Executive Officer (CEO) and asked him to define the main functions of the business along with their management responsibilities.(1)What was the different form of international business activity in the case-let? Explain with reasons.(2)Why did the Chinese company change from one form to another? Explain with specific reasons for each of them.(3)List out the advantages and disadvantages of all the forms of business.(4)If you are Aamer what would you do as the CEO of Attaya LLC? Explain each of them with details.(5)In the second form of international business activity, what was the fee called as? Why did the three partners pay that fee to the Chinese owners?