International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
Bonus A-1
Module A: International Institutions from a Business
Perspective
YOUR CONTENT
Summary
ENGAGEMENT & APPLICATION
Boxed Text Discussion Questions with Suggested Answers
IB in Practice
Global Debate
Get That Job! From Backpack to Briefcase
End of Module Exercises
Critical Thinking Questions
globalEDGE Research Task
MiniCase
Bonus Activities
Video Suggestions
CONNECT TOOLS FOR ASSESSEMENT OF LEARNING
Connect Content Matrix
Connect Activities
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
YOUR CONTENT
SUMMARY
As the world becomes more closely connected, it becomes less governable at the national level.
This chapter introduces ways of thinking about institutions (institutional theory) and then
briefly describes many of the international organizations that may be useful to businesses or
whose influence businesses feel.
LEARNING OBJECTIVES
LO A-5 Discuss the resources of the Organisation for Economic Co-operation and
Development and the World Trade Organization.
KEY TERMS AND DEFINITIONS
Association of Southeast
Asian Nations (ASEAN) (p.
454)
Agreement among Southeast Asian nations that began as a
security agreement, grew to a free trade agreement, and is
continuing toward a common market, known as AFTA
Bretton Woods (p. 442)
1944 conference at which Allied nations’ treasury and central
bank representatives met to establish the International
Monetary Fund and the World Bank
common market (p. 451)
Customs union that includes mobility of services, people, and
capital within the union
Common Market of the South
(Mercosur or Mercosul) (p.
450)
Presently a South American customs union of Argentina,
Paraguay, Brazil, Uruguay, and Venezuela, with associate
members Chile, Bolivia, Colombia, Ecuador, and Peru
Council of the European Union
(p. 456)
The EU’s primary policy-setting institution
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
customs union (p. 450)
Collaboration that adds common external tariffs to an FTA
Doha Development Agenda
(p. 448)
WTO extended conference on trade, also known as the Doha
Round
Economic and Monetary
Union (EMU) (p. 455)
EU group that established use of the euro in the 18-country
euro zone
Economic and Social Council
(ECOSOC) (p. 441)
UN body concerned with economic and social issues such as
trade, development, education, and human rights
economic integration (p. 451)
Integration on economic and political levels
European Commission (p. 456)
Body responsible for the EU’s day–to-day operations
European Parliament (p. 456)
EU legislative body whose members are popularly elected
from member-nations
European Union (p. 454)
A body of 28 European countries committed to economic and
political integration
formal institutions (p. 436)
Institutions that influence behavior through laws and
regulations
free trade area (FTA) (p. 450)
Area in which tariffs among members have been eliminated,
but members keep their external tariffs
General Assembly (p. 440)
Deliberative body of the UN made up of all member-nations,
each with one vote regardless of size, wealth, or power
informal institutions (p. 436)
Institutions that influence behavior through norms, values,
customs, and ideologies
International Court of Justice
(ICJ) (p. 441)
UN body that makes legal decisions involving disputes
between national governments
International Monetary Fund
(IMF) (p. 442)
Institution that fosters global monetary cooperation, financial
stability, international trade, high employment and
sustainable economic growth, and reduction of poverty
new institutional theory (p.
436)
Understanding of institutions as social constructs, a collection
of norms that structure the relations of individuals to one
another
North American Free Trade
Agreement (NAFTA) (p. 452)
Agreement creating a free trade area among Canada, Mexico,
and the United States
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
Organisation for Economic Co-
operation and Development
(OECD) (p. 446)
Group of developed countries dedicated to promoting their
own and other nations’ economic expansion
par value (p. 442)
Stated value
Secretariat (p. 441)
The staff of the UN, headed by the secretary-general
Security Council (p. 440)
Main peacekeeping body of the UN, composed of 15 members
including 5 permanent members
special drawing rights (SDRs)
(p. 442)
An international reserve asset established by the IMF
trade-related intellectual
property rights (TRIPS) (p.
448)
The WTO agreement that protects copyrights, trademarks,
trade secrets, and other intellectual property matters
United Nations (UN) (p. 439)
193-member organization of countries dedicated to the
promotion of peace and stability of the world
World Bank (p. 442)
Institution that lends money for development projects focused
on reducing poverty
World Trade Organization
(WTO) (p. 447)
An international organization that establishes and helps
implement rules of trade between nations
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
CONTENT OUTLINE
The following section provides the flow of information using the LEARNING OBJECTIVES as a
guide, KEY TERMS learners will need to take away from the course, and LECTURE NOTES to drive
home teaching points.
LO A-1
Explain the importance of major international institutions
to business decision makers.
• What Are Institutions, and Why Are They Useful?
Key Terms:
LO A-2
Describe institutions, drawing on new institutional theory.
• Institutional Theory
o Types of Institutions
• Formal Institutions
• Informal Institutions
Key Terms:
• new institutional
theory
• formal institutions
• informal institutions
I. What Are Institutions, and Why Are They Useful?
a. Institutions provide a way to resolve conflict before it reaches open hostility.
b. Example of China and the U.S. and the role institutions play in helping them work together
constructively, despite different values and approaches.
II. Institutional Theory
A. Institutions are a collection of norms that “regulate the relations of individuals to each
other.” (See Figure A.2)
B. They limit behavior.
C. They provide managers with rules of the game.
III. Types of Institutions (See Figure A.1)
a. Operate through shared norms and values (social behavior, conventional good manners,
many social organizations).
1. Normative informal institutions include those organizations that establish
standards and propagate principles (the UN, NGOs, social groups).
2. Cognitive informal institutions are collections of shared ideas that define reality by
means of conceptual frameworks or schema.
a. Often neither explicit nor tangible.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
b. Many cultural practices are the result of cognitive institutions, and they are a
significant issue for international managers (Guanxi, what supplier
relationships should be, as understood in Japan and the U.S.).
LO A-3
Describe the United Nations as an institution and its relevance
to international managers.
• The United Nations
o General UN Support of Business
o Direct Impact on Business
o UN Organization
Key Terms:
• United Nations (UN)
• General Assembly
• Security Council
• Economic and Social
Council (ECOSOC)
• International Court of
Justice (ICJ)
• Secretariat
I. The United Nations
A. General UN Support of Business
a. Many agreements on standards.
b. Groundwork for investment, solutions to social problems, issues related to
downsides of globalization, and sustainability.
B. Direct UN Impact on Business
C. Conferences dedicated to specific trade needs—shipping methods and agreements,
use of canals, sales terms, agreements such as the Postal Union, telephone
agreements, pharmaceutical methods and standards, conference on weather data
a. General Assembly—main deliberative body. Each member has 1 vote.
b. Security Council—responsible for peace and security. 5 permanent members
d. International Court of Justice (ICJ), aka World Court. Hears disputes between
nations and offers advisory opinions.
e. Secretriat—UN’s staff. The ninth secretary-general, António Guterres of Portugal,
began his term in 2017. Staff is about 44,000, worldwide.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
• International Monetary Institutions
• International Monetary Fund
o Special Drawing Rights
o IMF and Exchange rates
o Criticisms of the IMF
o Current IMF Issues
• The World Bank
• Bretton Woods
• International Monetary
Fund (IMF)
• World Bank
• special drawing rights
(SDRs)
• par value
I. International Monetary Institutions
a. IMF and World Bank established at Bretton Woods in 1944.
II. International Monetary Fund (IMF)
A. Collaboration of nations for monetary cooperation—common interests transcend
conflicting individual interests. Quota contributions are based on nation’s size in world
economy.
B. Special Drawing Rights (SDRs)
1. Reserve asset established by IMF.
C. IMF and Exchange Rates
1. Exchange rate mechanism set fixed rates with par value based on gold and U.S. dollar;
followed until 1971.
1. Forcing free-market policies on poor countries.
2. Increasing poverty and political chaos (Bolivia, Indonesia, Thailand).
1. Aid coupled with mandatory advice to reduce budget deficits and inflation lead to
increased poverty.
2. IMF largely controlled by developed Western countries; BRIC economies have 13.5% of
IMF vote and produce 22.9% of word GDP.
3. IMF has strengthens economies of dictatorial regimes that become markets for
multinationals. The test is economic, not political.
4. IMF is making attempts to address these issues.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
A. Nonprofit cooperative to fund development. 2 major and 3 minor institutions.
1. International Bank for Reconstruction and Development (IBRD or World Bank) with
focus on middle income nations.
2. International Development Association (IDA) with focus on poorest nations via interest–
free loans and grants.
LO A-5
Discuss the resources of the Organisation for Economic Co-
operation and Development (OECD) and the World Trade
Organization (WTO).
• World Development and Trade Organizations
o Organisation for Economic Co-operation and
Development (OECD)
o World Trade Organization (WTO)
• WTO Principles
• Doha Development Agenda
• WTO Going Forward
Key Terms:
• Organisation for
Economic Co-operation
and Development
(OECD)
• World Trade
Organization (WTO)
• Doha Development
Agenda
• trade-related intellectual
property rights (TRIPS)
I. World Development and Trade Organizations
II. Organisation for Economic Co-operation and Development (OECD)
A. Supports economic growth for member and non-member countries.
B. Provides research on economic and business topics.
III. World Trade Organization (WTO)
A. Purpose is to establish and implement rules of trade.
B. Five principles:
1. Trade without discrimination.
2. Freer trade.
3. Predictability through binding and transparency.
4. Promoting fair competition.
5. Encouraging development and economic reform.
C. Doha Development Agenda
1. Focused on trade between developed and developing economies.
2. Most concerns market access for developing nations, especially for their textiles,
clothing, agriculture, and fish.
3. Trade-related intellectual property rights.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
a. Acceptance of duty to enforce property rights on 20-year patents and 50-
year copyrights.
b. Many issues remain, especially in music, software, and pharmaceuticals.
D. WTO Going Forward
1. Many issues need to be addressed; rising tide must lift all boats.
2. China and India offer a sense of WTO’s possibilities, since absolute poverty has
declined as a result of trade.
3. Due to slow progress of WTO agreements, regional trade agreements have been
increasing.
LO A-6
Identify the types of trading blocs by their level of
economic integration, with examples.
• Economic Integration Agreements
• Free Trade Area
• Common Market
• Economic Integration
• Examples of Economic Integration Agreements
o NAFTA
o African Trade Groups
Key Terms:
• free trade area (FTA)
• customs union
• Common Market of
the South (Mercosur
or Mercosul)
• common market
• economic integration
• North American Free
• Economic and
Monetary Union
(EMU)
• European Parliament
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
Bonus A-10
1. Members trade with each other without tariffs or quotas, each has its own external
tariffs. Restrictions often remain on services, labor, and capital.
2. Customs union—adds shared external tariffs to a free trade area.
3. Common Market of the South (Mercosur or Mercosul)—South American customs union
of Argentina, Paraguay, Brazil, Uruguay, and Venezuela (suspended since 2016), with
associate members Chile, Bolivia, Colombia, Ecuador, and Peru).
B. Common Market
1. Customs union lifts restrictions on the movement of labor and capital.
C. Economic Integration
1. Adds political and further economic integration.
D. Examples of Economic Integration Agreements
1. North American Free Trade Agreement (NAFTA)—largest free trade zone with Mexico,
U.S., and Canada.
2. African trade groups—growth hampered because African nations tend to have their
primary trading relationships with former colonial powers.
3. Latin American trade groups—Mercosur/Mercosul, DR-CAFTA, and CAN.
4. Asian trade groups—ASEAN, ASEAN + 3.
5. The European Union (EU)
b. 28 members.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module A
Bonus A-11
ENGAGEMENT & APPLICATION
BOXED TEXT DISCUSSION QUESTIONS WITH SUGGESTED ANSWERS
IB IN PRACTICE: UN Millennial Development and Sustainable Development: Business Models
at Work, Generating Progress
The UN established the Millennium Development Goals (MDGs) at the turn of the century, with
a target date of 2015 for the world to end poverty, provide primary education for all, build
1. Should businesses participate in such efforts as the Sustainable Development Goals, or
should their focus be on the bottom line and returning dividends to shareholders?
2. How might a local business include poor people in its value chain? Think of a specific local
business and offer ways it might join the Sustainable Development Goals initiatives.
GLOBAL DEBATE: International Institutions: A Dangerous Path for a Nation-State, or a Way to
Cope with Globalization?
The global debate issue here that these institutions weaken national sovereignty, the nation’s