Objectives The objective of the report was to identify and analyze the data mainly pursuing the following

issues related to the changes in International Business.

The changing world order over the last 50 years Emergence of USA as a dominating nation in an increasingly open world The factors influencing he miraculous recovery of Japan and Europe following World War 2 USAs strategic policies and alliance with Europe and Japan to combat Eurasian Communism in the Cold War The changing patterns of Foreign Direct Investment The changes in consumers preferences over time as a sign of development The survival strategy for declining western economies through development of strategic alliance The strategic importance of large population base for India and China and evolution of BRICS as a new allied community

Overview The world is living through a remarkable time in History. The recent development in Middle East has essentially pointed out that even the map of the region could be altered. The countries with large populations and mineral resources are enjoying increasing dominant position in the field of international politics and business. The world order which reached a status quo after the WWII is being rapidly restructured. Therefore it is only safe to state change is the only constant and continuous process. The presentation which focuses on the changing nature of International business can be arranged in a chronological order as follows

1945-1960

Disastrous Economic Situation in Europe and East Emergence of USA Miraculous Recovery of Japan Establishment of European MNCs USAs political balance with Middle-East Discovery of Oil Rigs Breakdown of Soviet Union Emergence of China Emergence of India and Brazil Declining supremacy of the west

1960-1970

1970-1980

1980-2000

2000-

PostWorld War II economic expansion The WWII has implemented lasting effects in many parts of the world and changed the nature of International Trade. The aftermath of WWII IN USA, Japan And Europe could be briefly summarized as:

 70% of the industrial infrastructure destroyed Heavy Borrowings from USA Very little to spend savings on Hyper Inflation

Severe destruction of infrastructural facilities Overwhelming Inflation Unemployment and Shortages Military rule and communism prevention- The Main Agenda

Only superpower to reap benefits of WWII GNP has surged 50% during the war Never faced the war at its own soil Expansion at Military &Automobile sector

EUROPE

JAPAN

USA

The international economy as it came to be ordered after World War Two had a number of striking featu res. The first was that its broad outlines were, unique among all international economic orders past or p resent, planned and implemented by government decree The United states have spearheaded the adoption of the Breton Woods System after the WWII thus leading to the formation of IMF and IBRD This is because the US policymakers have ideal identified the necessity of open market, currency convertibility during the war period .This was particularly important for USA for the following reasons. Economic:After the second war, most of the countrys potential competitors were in shambles w hile the economy was booming. The worlds thirst for American goods seemed endss, andno ot her countrys industries seemed capable of contending with American industry for global market s. American manufacturers who had previously worried about imports, and had little concern fo r markets abroad, were now increasingly interested in exports and little troubled by foreign com petitors.

Political:After 1947, the world divided into two camps, one capitalist and oneCommunistAmeric an leadership of the Western camp was, at least at the outset, primarily military and diplomatic, in cementing an antiSoviet alliance. But it was difficult to separate military from economic matt ers. It hardly seemed reasonable for the United States to spend billions of dollars to help rebuild the economies of Western Europe and Japan, and at the same time to abandon these countries to their own economic devices. It made much more sense for the Western capitalist coalition to o cooperate on economic matters as they did on military and political ones. Indeed, inasmuch as American security was now closely tied to the strength and stability of ITS supporters, the Unite d States had a powerful incentive to promote their prosperity

United States Policies The motivations that influenced this change in foreign policy were found in the U.S.s intentions to control the international system by seeking to build a hegemonic economic, social, and political empire in the years during and after World War II..The goals of the United States Authorities were achieve full employment, full production, and stable price in accordance to the expansion of the American target market The CEA made five technical advances in policy making:. The replacement of a "cyclical model" of the economy by a "growth model," The setting of quantitative targets for the economy, Use of the theories of fiscal drag and full-employment budget, Recognition of the need for greater flexibility in taxation, and Replacement of the notion of unemployment as a structural problem by a realization of a low aggregate demand.

The Dominance of United States Extraordinary expansion aircraft and ship building: The advent of the war transformed the US into a military superpower, with a corresponding growth in its aircraft and ship industry. For instance in the aircraft sector, from its small pre-war base the US grew to be the worlds largest aircraft manufacturer by far, accounting for close to 40% of the aircraft produced from 1939 to 1945. This is particularly because all of the major producers other than the US, aircraft production was impacted directly or indirectly by enemy action. Industries directly related to war good manufacturing undergone remarkable expansion.US capacity of producing aircraft reached fifty thousand planes in one year, an occurrence that resulted in a catapult of job opportunities in dozens of aircraft manufacturing plants. To avoid concentration of economic growth in one or few regions of the U.S., cities of all scales throughout the fifty states belonging to the U.S. were called forth to contribute to the increase in production of these materials.). Similar to the aircraft industry, the shipbuilding industry drastically felt the effects of an increasing demand for materials to be used in the war. Boom in Automobile, Electronic Housing Sector: Many of the industries scheduled for production of military products during the war was shifted back to regular production. This created a large supply of consumer durables and with the employment rate soaring up the demand for these products were also more than substantial. The Housing Industries undergone rapid boom due to the easy mortgage facilities availed to the returning US citizens from war Increase in export: The dependence on U.S. exports by European countries after World War II proved to be significant. The U.S., having given aid to the eighteen European countries, was in a unique position to better their economic status between 1947 and 1953. The reconstruction and development of foreign markets necessitated the purchase of U.S. goods by international buyers. In the six years that the Marshall Plan was in effect, the majority of the funds that the European

countries had received from the U.S. was, in fact, spent on the purchasing of U.S.-produced food and manufactured goods). This cycle of monetary actions ultimately created a wealth of job opportunities in the U.S. Expansion throughout the Value-Chain: The extraordinary expansion of the shipbuilding and aircraft industries triggered expansion in many auxiliary manufacturers throughout the west. It also resulted in the establishment of new western industries, such as aluminum, magnesium, and steel production, and in the advance of the petroleum production industry. In the time immediately before the start of the war, large and small businesses alike prepared for maximum production. The preparations led to a stimulation of the service industries, and ultimately allowed U.S. businesses to significantly diversify the countrys economy

The Reasons Behind success Marshal Plan Aids: Economic aid flowed to war-ravaged European countries under the Marshall Plan were devised with inbound conditions that these aids can be used to buy back US products only. This increased the size of the market and the volume of sales. And therefore the result was of greater economies of scale leading to increase in profit margin Transformation from Labor to Capital Intensive Industries: As the economy continues to grow, the standards of living of US individuals were risings. Wages were going up and more and more people were shifting from blue to white collared jobs. Outsourcing: Once the labor cost within the country was high, the American entrepreneurs began to outsource the production to regions where a more a efficient deployment of the factors of production were possible. This led to the scenario that American began to buy back imported goods produced at American firms abroad at comparatively lower prices. . In General terms .the economy shifted its focus from export to import

Change in Socio-economic Pattern The American work force also changed significantly. During the 1950s, the number of workers providing services grew until it equaled and then surpassed the number who produced goods. And by 1956, a majority of U.S. workers held white-collar rather than blue-collar jobs. At the same time, labor unions won long-term employment contracts and other benefits for their members. Farmers, on the other hand, faced tough times. Gains in productivity led to agricultural overproduction, as farming became a big business. Small family farms found it increasingly difficult to compete, and more and more farmers left the land. As a result, the number of people employed in the farm sector, which in 1947 stood at 7.9 million, began a continuing decline.

Other Americans moved, too. Growing demand for single-family homes and the widespread ownership of cars led many Americans to migrate from central cities to suburbs. Coupled with technological innovations such as the invention of air conditioning, the migration spurred the development of cities such as Houston, Atlanta, Miami, and Phoenix in the southern and southwestern states. As new, federally sponsored highways created better access to the suburbs, business patterns began to change as well. Shopping centers multiplied, rising from eight at the end of World War II to 3,840 in 1960. Many industries soon followed, leaving cities for less crowded sites. Japans Route to Recovery

The Japans road to recovery is also referred as Postwar Japanese Economic Miracle mainly due to the staggering Economic Growth that followed the Second World War. Three major players were particularly important in Japans Transformation: - Government of USA, Ministry of International Trade and Industry and Japanese Government led by Prime Minister Ikeda (former minister of MITI). The activities of these three players are summarized below US Government The main objective for USA was to stimulate growth in Japan and to look for opportunities for Foreign Direct Investment over there. Under the logic of building military alliances to contain Eurasian Communism, the United States brought Japan under its "nuclear umbrella" with a bilateral security treaty. Some of the activities undertook were:1. Asymmetric Trade Relationship Allowing Japan to export to USA while protecting its domestic market enabling the formation of cartels and non-market driven factors in Japanese economy 2. Prescribing Deflationary measures and ensuring democracy in Japan Mainly done to counter the high inflation and unemployment that was engulfing Japan post WW2 Preventing return of Militarism and Communism in Japan as a strategy for Cold War 3. Allowing Japans admission in GATT, OECD and IMF-By joining these International Cooperation Organization Japan enjoyed : An international market of low tariffs Low Prices of oil and other raw materials needed for Industrial Development Ministry of International Trade and Industry MITI is particularly important because of 1. Establishment of Japans Development Bank that provided low cost capital for long term growth.

2. Formalizing cooperation between the Japanese government and private industry through "Policy Concerning Industrial Rationalization" (1950)that served up towards the intersection of national production goals and private economic interests. Japanese Government Japans government also took major steps in leading to development of the economy: Stimulating Private Sector Growth through instituting regulation and promoting trade expansion Lowering tax and interest to private players in order to motivate spending Allowing Over-Loaning to Industrial Conglomerates for their long term business growth Heavy investment in Infrastructure and Communication to attract FDI Increased Liberalization of Trade Establishment of numerous allied foreign aid distribution agencies to demonstrate their openness

European Recovery The strength of the economic recovery following the war varied throughout Europe, though in general it was quite robust. West Germany experienced a remarkable recovery and had by the end of the 1950s doubled production from its pre-war levels. Italy came out of the war in poor economic condition, but by 1950s, the Italian economy was marked by stability and high growth. France re bounded quickly and

enjoyed rapid economic growth and modernization under the Monnet Plan. The UK, by contrast, was in a state of economic ruin after the war and continued to experience relative economic decline for decades to follow. The rapid growth in some of the major European countries was fostered by the following measures.

 Redeploying men from wartime task of destroying output to creating them thereby shifting labor force from military to manufacturing sector. Utilizing the backlog of new technologies developed between two world wars Implementing Assembly-line production techniques thus mass production Adopting American personnel-management practices in organization 1960-1970 Rise of European Multinationals After 1960 countries like Germany, France and Italy took their own technological and economic strengths to great heights. This was resembled through establishment of many European MNCs. Although these companies started investing in neighboring European Countries they quickly looked for opportunities in other parts of the world.

Figure-The Major Markets for European Multinationals

The growth in number of subsidiaries per annum was rapid. While in 1962 the growth was around 73 new subsidiaries per annum, by 1969 it was around 343. Some of the major European MNCs that started overseas operation included Daimler, BMW in car manufacturing, Total, Shell and BP in Oil Explorations, Siemens in Technology and numerous other companies focused on Fast Moving Consumer Goods. USA and USSR in the Cold War:

The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World, namely USSR, and the Western World, namely USA. The most significant events during this time period includes: Forming allegiance with like-minded countries

Both USSR and USA looked to extend their influence across the border to other countries. USA funded the Marshall Plan to speed up the Post-War recovery of Europe and formed NATO. USSR assisted and foster communist revolutions in Latin America and Southeast Asia. Conflict through military coalitions

Both the power countries, USA and USSR, tried to show their military dominance that resulted in moments of high tension. The tensest events include the Berlin Blockade (19481949), the Korean War (19501953), the Berlin Crisis of 1961, the Vietnam War (19591975), the Cuban Missile Crisis (1962) and the Soviet war in Afghanistan (19791989). Technological Competition

Another important competition during the Cold War era is the technological dominance that both USA and USSR looked for. This mainly includes developing long-range weapons as a means of striking each others territories and the Space Race, which resulted from the launching of the 1st Earth satellite, Sputnik, and culminated in the Apollo Moon Landings. 1970-1980 Rise in Japanese Multinationals:

After the 1973 Oil Crisis, more focus was given on using alternative sources of energy as well as using fuel-efficient technologies. During that period, USA was heavily dependent on imported oil and the rise in oil price put a significant dent on their economic activity. Japanese multinational companies took the opportunity to improve their standing on the technology market. Automobile manufacturing industry began to be dominated by Japan, as they produced cheap, fuel-efficient cars contrary to American automobiles. By the end of the 1970s, the Japanese had replaced American firms as the dominant firms in the U.S. consumer electronics market. Japans investment continued beyond the 70s period and they became the worlds largest source of foreign direct investment.

Japanese Companies employed specific strategies to penetrate the world market. These include:

U.S. Market: More export of Japanese consumer electronic equipments and automobiles as the increased price of oil meant that the consumers looked to cut their spending. European Market: A significant number of subsidiary companies are set up in the European region to counter the trade restrictions imposed on Japanese products. Asian Market: The Asian market soon became a hot spot as a large untapped market began to emerge. Also the production process is slowly shifted to South-East Asia due to lower cost of production.

The US goals at the Middle East

To counter the effect of the rising oil prices, as well as the growing power of the Middle East countries, USA introduced specific foreign policies to maintain their dominance. These include: Guaranteeing access to the oil resources of the Arabian Gulf Securing the free flow of oil supplies to the West at reasonable prices Defending the Gulf States, against internal and external forces of instability Preventing the emergence of a regional power capable of dominating the region. Protecting the status quo and legitimizing the current regional balance of power, especially between Israel and its neighboring Arab states

1980-1990 Breakdown of Soviet Union

The breakdown of the Soviet Union was the most significant event during 1980-90. A lot of factors significantly contributed to the breakdown. Stagnant economic growth

A controlled economy caused the Soviet economy to almost stop growing in the 1980s. The Soviet economy could not meet the demand for consumer goods from the rising urban middle class people. The Soviet economy was significantly overstretched with maintaining large military forces, subsidizing the Eastern economies, cost of curbing unrest in Eastern Europe and the financial support provided to third world economies. Failed systemic and economic reform policies

To overcome the obstacles of rising demand of consumer goods and external pressures on the economy, reform policies perestroika and glasnost was introduced to work more efficiently to meet the needs of

Soviet consumers. Instead this exacerbated already lingering political, economic and social tension within the Soviet Union Discredit of the Soviet Army due to Afghan War.

The losses suffered by the Soviet Army during the Afghan War played a role in the ultimate demise of the Soviet Union. Since the Soviet army was the glue that held the diverse Soviet Republics together, its defeat in Afghanistan had profound implications. This war played a role in discrediting the Soviet Army, thereby providing a confidence boost for the non-Russian republics. Soviet Socialist Republics began resisting, leading to weakening of central government

The Soviet Socialist Republics, namely Lithuania, Tajikistan, Uzbekistan etc, began resisting and demanded independence, resulting in weakening of the central government. The government, already corrupt and ill-equipped, could not handle the pressure. USSRs trade gap with USA, leading to eventual bankruptcy

Several decades of Cold War against the USA and the maintaining the Communist regime had a significant toll on the economy of USSR, which eventually led to the region becoming nearly bankrupt. Contrary to the free market economy that was practiced in most of the countries, maintaining the controlled economy proved to be nearly impossible, and the focus on building a large military force to fight against the USA did not contribute either. Economic shrinking at Europe and USA

Beginning in late 2007 with the collapse of the construction, real estate, and housing booms in Ireland and Spain, from mid-2008 until now one European country after another experienced the most severe economic contraction since the 1930s. What made the contraction especially acute, of course, was the fact that it was synchronized and continent-wide in scope; at one point in the late winter of 2008-09, all but one or two of the 27 member states of the European Union were in a recession at the same time. After three years of steadily declining unemployment, Europe is seeing the impact of the economic crisis on its labor market. In both the Euro area and the EU, the number of unemployed has increased every month since its low in March 2008. Since then, the number of unemployed people in the euro area went up by 3.7 million to a total of 15.0 million in May 2009

The causes and nature of recession at various countries may vary but in general it could attributed to Global current account imbalances Excessive consumption (and overvalued USD) in US, excessive savings in China, Japan, Germany Internationalisation of production without internationalisation of regulation and oversight Falling labour share and/or increasing inequality of wage incomes Securitisation, rising debt levels Low interest rates Sharp rise in commodity prices Sharp appreciation of the euro Lagged effect of past interest-rate rises US consumer retrenchment Toxic assets held by EU banks Emerging markets and world trade hit

The Financial Crisis at USA

The late-2000s financial crisis) is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It resulted in the collapse of large financial institutio ns,

the bailout of banks by national governments, and downturns in stock markets around the world. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, and a significant decline in economic activity, leading to a severe global economic recession in 2008.Some of the effects of the crisis on USA are Substantial Decrease in output of Goods & Services Unemployment reached 10% in USA Significant Decrease in Wealth-Gap World trade fell by 40% in 2008

The reasons behind the contraction of the economy could be briefly summarized as An excessively loose monetary policy and market failure Roots of the financial crash are in the preceding seven years of low interest rates and high world growth. In retrospect, monetary policy was too lax, particularly in the United States, to keep the growth boom going. The increased credibility of central banks permitted them to maintain inflation low but monetary authorities did not recognize the systemic risks for the financial system inherent that the lax monetary

policy stand entailed

Large macroeconomic imbalances and capital flows among countries contributed to creating conditions for the occurrence of the financial crisis. The United States and other countries have been running large external current account and fiscal deficits while other countries, notably China, other Asian countries, and oil exporting countries have been running large surpluses. In effect, some countries were saving too much and they needed to find places where to invest their savings. Capital inflows from high savers countries Regulatory failure In the United States there has been a philosophy that only insured deposit-taking institutions need to be tightly regulated and supervised, so that financial innovation might thrive under a regime of market discipline. The shadow banking system-including investment banks, mortgage brokers/originators, hedge funds, securitization vehicles-has only been lightly regulated by a patchwork of agencies and generally not supervised prudentially.

Emergence of China and India

China and India jointly account for 2.4 billion people, which is roughly 40 percent of the total population of the world. In the modern day economy they are rising in an amazing rate and also they have the potential to keep this growth at least for next 50 years. They economy is mainly fueled by massive population, huge domestic market and cheap labor.

Chinas Emergence
The architect behind modern China is Deng Xiaoping. China has successfully emerged as a economic superpower by: De-collectivization of agriculture Rural Industrialization Development Growth of small scale enterprise which Development of Legal and other Infrastructural Framework

Minimization of Red Tape

Also they have received a huge amount of FDI during that era and started large manufacturing and exporting all over the world.

Indias Emergence
India has a huge domestic market and the loyalty of her own people as a consumer. So in the early days of growth, Indian enterprises enjoyed less foreign invasion in their market. Afterwards with the boom of Information Technology, India grabbed opportunities in Software and Call Centre outsourcing. Also she has a vibrant capital market and at this moment India is the producer of world class IT services.

Population Factor
The postwar era witnessed economic miracles in Japan and South Korea. But neither was populous enough to power worldwide growth or change the game in a complete spectrum of industries. China and India, by contrast, possess the weight and dynamism of population to transform the 21st-century global economy. The closest parallel to their emergence is the saga of 19th-century America, a huge continental economy with a young, driven workforce. The population helps them to Create a huge and cheap labor force Create domestic consumer market Graduate a combined half a million engineers and scientists compared to only 60,000 in the U.S.

The same huge populations that can translate into economic power for China and India also could prove to be a double-edged sword if social, political, and environmental challenges are not deftly managed

Chindia Complementary Strength:

What makes the two giants especially powerful is that they complement each other's strengths. An accelerating trend is that technical and managerial skills in both China and India are becoming more important than cheap assembly labor. China will stay dominant in mass manufacturing, and is one of the few nations building multibillion-dollar electronics and heavy industrial plants. India is a rising power in software, design, services, and precision industry.

Future Growth of the Economy

For a long time China is maintaining 10% GDP growth and India is maintaining 8% growth rate. Within 2020, China will become the largest economy and India will become the third largest economy of the world
1.6 USA
Japan

Rleative Size of Economy: GDP PPP

China
Germany

1.4

India
Russia

1.2
Brazil 1.0

0.8

0.6

0.4

0.2

0.0

2009

2010

2012

2013

2015

2017

2018

2020

2022

2023

2025

2026

2011

2014

2016

2019

2021

2024

Politics and Control over Neighboring Countries:

China is constantly threatened by its neighboring Taiwan. Beijing has cooled its fiery rhetoric lately, but still vows to invade should the island declare independence. Any war in the Taiwan Strait would likely involve the U.S. and possibly Japan -- China's two biggest trade partners -- and paralyze shipping in and out of China's southern ports. It also would likely result in long-term Sino-U.S. tensions that would spill into trade. India and neighboring Pakistan have fought three times since their independence in 1947 -- and have had many border skirmishes over Kashmir. Now, both nations possess nuclear weapons, so a war could be catastrophic. New Delhi and Islamabad have recently eased tensions and begun peace talks. But the rise to power of a radical Islamic regime in Pakistan, or election of a stridently Hindu nationalist government in India, could easily reignite tensions.

2027

Both of the countries have some tendency to assert control over neighboring countries. Any policy decision must of neighboring countries serve up to these two countries interest. So the balance of power is changed and the pressure is being felt worldwide.

Changing Patters of Consumer Preference

With the change in economic condition comes change in peoples living patterns. Whereas only a few years back China and India were far behind in terms of technology and traditional in their clothing over the past few years the trend has completely changed. The impact of electronic media has been significantly crucial to this changing pattern of peoples life style. Some of the changes are:-

China has now become fastest growing market for Apples iPhone. In its second quarter, Apple saw 250% y-o-y increase in iPhone sales from China compared to 155% growth in the U.S. There are now 45 million cars in China - up from 15 million in 2000. There has also been a marked increase in fuel efficient cars. People today are far more conscious regarding environment and prefer green technology. Large global consumer brands like Tissot, Gucci, Nike and Adidas sales are experiencing double digit growth double digit annually in China and India which demonstrate the increasing trend of using branded products by people of this region.. The growth of real time service delivery has accelerated over the years facilitating the ease of consumption for people. The impact of mass media has enabled businesses to create advertisements casting globally recognized celebrities like Lionel Messi, Christiano Ronaldo etc. Previously these kinds of advertisements were only created on regional basis. Starbucks is looking to triple its stores in India and China. In 2010, KFC is expected to make 36 percent of an estimated $2 billion operating profit from 3,700 restaurants in China.

Indo-American Co-operation Modern China is the Germany of a century ago a rising, expanding, have-not power seeking its place in the sun. The story of the first half of the 20th century was Europes attempt to manage Germanys rise. We know how that turned out. The story of the next half-century will be how Asia accommodates and/or contains Chinas expansion.

Chinas aggressive territorial claims on resource-rich waters claimed by Vietnam, Brunei, Malaysia, the Philippines, and Japan are already roiling the neighborhood. Traditionally, Japan has been the major regional counterbalance. But an aging, shrinking Japan cannot sustain that role. Symboli c of the dramatic

shift in power balance between once-poor China and once-dominant Japan was the resolution of their recent maritime crisis. That makes the traditional U.S. role as offshore balancer all the more important. Chinas neighbors, from South Korea all the way around to India, are in need of U.S. support of their own efforts at resisting Chinese dominion. And of all these countries, India, which has fought a border war with China, is the most natural anchor for such a U.S. partnership. Its not just our inherent affinities democratic, English-speaking, free-market, dedicated to the rule of law. In General the growing importance of India in Chinese perspective could be summarized as

Chinese Expansionism Russias potential resurgence as an assertive player in the Asia-Pacific Emerging strategic partnership between Russia and China The untapped Indian Market & Large labor force Indian Excellency in the ICT Sector Fading of American Technological edge

Statistics of the mutual trade between USA and India shows that the in bilateral issues is already coming to reality. FDI in India from USA was $18.6 billion in 2009. Big U.S companies are investing in India instead of the U.S .The two countries share a service trade of about 30 billion per year

US Exports Totaled $26B

Comprises mostly of Aircraft, Fertilizer, Computer Hardware, Scrap Metal and Medical Equipment

Indian Exports Totaled $34B

Information Technology Services, textiles, machinery,, iron and steel products, coffee, tea, and other edible food products