INTERNATIONAL

BUSINESS
FACTOR MOBILITY THEORY

Meaning :
The ability of land, labour or capital to be
put to an alternative use or moved to
another location.
The degree to which a factor of production,
such as labor or capital, is able to move,
either among industries or among countries

Significance :
Economic growth of a country to be
spread evenly throughout.
Industries can be encouraged to locate
in rural areas through incentives, then
the benefits of industrial development
in a particular country can be spread
more evenly.
Enables the transfer of expertise to
areas where it is efficient and in
demand.

Conti.
Managers can contribute to the
development of aspects of the firm
lacking in managerial expertise and in
some cases they can transfer their
skills internationally.
Movement of factors of production
from surplus areas to deficit areas.
Ability to move factors of production
labor, capital, or landout of one
production process into another

Significance of FOM

Unemployment
Income distribution
Regional disparities
Flexibility in production
Utilization of the otherwise idle
resources
Incentive to investment Economic
minimization of losses while
maximizing profits/earnings.

Advantage of FOM
Immigrants

bring human capital,

thus adding to the base of a
countrys skills and enabling
competition in new areas
Inflows of capital to those same
countries can be used to develop
infrastructure
Enabling increased participation
in the international trade arena.

Types of FOM
Between

firms within an industry

Example: When one steel plant closes but

sells its production equipment to another
steel firm
Across

industries within a country

Example: When a worker leaves

employment at a textile firm and begins
work at a automobile factory.
Between countries either within
industries or across industries Example:
When a farm worker migrates to another
country or when a factory is moved abroad.

Forms of international factor

mobility
LABOR:

worker migration (from

low wage countries (developing
countries) to high wage
countries (developed countries)
CAPITAL: capital investment tend
to flow from low to high returnto-capital countries

Conti.
FDI

(foreign direct investment)

long term investment into firms with
the aim of permanently benefiting
the advantages of being present in
the foreign markets
PI (portfolio investment) short term
capital investment with the aim of
maximizing the return-to-capital
(financial investments)

EXERCISE .
Name several impediments to the free
movement of workers between two
industries.
Name several costs associated with the
movement of workers between two
industries.

WTO :
The

World Trade Organization

(WTO)

Established on 1st January 1995

Located in Geneva, Switzerland

Purpose :A global organisation

dealing with rules of trade
between nations.

The scope of the multilateral trading

system was broadened from trade in goods
(GATT) to encompass trade in services
(GATS) and trade related aspects of
intellectual property rights (TRIPS). It was a
rule-based global trading system complete
with its own dispute resolution procedures .

The Single Undertaking concept

The multilateral trade agreements under
the WTO system are treated as a single
undertaking which means that every
member state of the WTO is a party to
every one of these agreements and must
implement them accordingly.

Functions
Administers the WTO Agreements and
facilitates their operation and
implementation
Provides a forum for trade negotiations
among member states on matters covered
by the Agreements and for further
liberalisation of trade amongst members
Responsible for the settlement of
differences and disputes between members

Responsible for periodic reviews of the

trade policies of members
Also provides technical assistance and
training for developing countries
Cooperates with other international
organisations on subjects of mutual interest

Principles
Non discrimination- Most Favoured Nation
(MFN) and National Treatment obligations
Freer trade negotiations aimed at lowering
trade barriers
Predictability and transparency - binding
commitments, restrictions on the use of
barriers to trade and transparent trade
policies and regulatory frameworks (e.g.
transparency obligations in the major trade
agreements and the Trade Policy Review
Mechanism)

The promotion of fair competition- MFN,

national treatment and rules against unfair
trade practices (e.g. anti dumping)
Encouragement of development and
economic reform

Ministerial Conference- The apex body for

decision making (meets every 2 years).
Composition:-ministerial representatives.
General Council- performs the functions of
the Conference between meetings and has
specific duties assigned to it by the WTO
agreements. Composition:- governmental
representatives.
The General Council also meets as the
Dispute Settlement Body and the Trade
Policy Review Body.
Councils for Trade in Goods (oversees GATT),
Trade in Services (oversees GATS) and TRIPS
which report to and assist the General Council.

Committees on special subjects,

Committees functioning under the Councils
and Committees for the Plurilateral
Agreements.
Membership- developed, developing, least
developed countries and economies in
transition.
Decision making is by consensus. If
consensus is not possible decisions will be
taken by a majority vote.

Most Favoured Nation

Art. 1 of GATT embodies the MFN rule. At its
simplest, it requires any favourable
treatment granted to a product originating
in or destined for any other country, to be
accorded immediately and unconditionally
to the like product originating in or destined
for the territories of all other member
states.
for e.g. free trade areas/customs unions and
preferential systems.

Thanks