International Law Manual

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UNIVERSIDAD AUTONOMA DE COAHUILA

FACULTAD DE CONTADURIA Y ADMINISTRACIN
TORREON
MAAD OSCAR GONZALEZ FLORES
Textbook
Applicable for the subjects: -INTERNATIONAL LAW

AND FINANCIAL ENGLISH
This book was made from several sources from the Web
This book can be printed with the previous permission of
the owner
FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

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Getting started
In this unit, we will learn about the largest and most important
organization of International Trade. The World Trade Organization.
Before we start, briefly think about the following questions.
What is the role of International Organizations in Foreign Trade?

Are they necessary? Why?
What are the advantages and disadvantages of having

International Organizations in Foreign Trade?
Discuss the questions with the class. Write your ideas in the space
below.

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Getting started
Now read this brief definition of what the World Trade Organization
(WTO) is
The WTO is better understood as negotiating forum and a set

of rules that regulate International Trade. It also helps to settle
disputes between trading nations.
As you read the texts that follow, bear these ideas in mind.
The first text dealing with this topic provides an overview of the WTO. However, the
headings that identify each section have been deleted. Without reading the text in detail,
try to match these headings with the blanks in the text.
A little bit of History
Principles of the International Trading System
The Organization
What is the WTO?
As you quickly skim the text, write the headings in the space provided.
Now read the complete article. Was your matching correct? Make the necessary changes.
The World Trade Organization

1 _____________________________
The WTO is a negotiating forum Born out of negotiations, where member

governments try and sort out the trade problems they face with each other. The WTOs
current work comes from the 198694 negotiations called the Uruguay Round and earlier
negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is the host
to new negotiations, under the Doha Development Agenda launched in 2001.
Its a set of rules At its heart are the WTO agreements, negotiated and signed by
the worlds trading nations. These documents provide the legal ground-rules for international
commerce. They are essentially contracts, binding governments to keep their trade policies
within agreed limits. The goal is to help producers of goods and services, exporters, and

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importers conduct their business, while allowing governments to meet social and
environmental objectives.
The systems purpose is to help trade flow as freely as possible. It also means
ensuring that individuals, companies and governments know what the trade rules are around
the world. In other words, the rules have to be transparent and predictable.
And it helps to settle disputes Trade relations often involve conflicting interests.
Agreements, including those negotiated in the WTO system, often need interpreting. The
most harmonious way to settle these differences is through some neutral procedure based on
an agreed legal foundation.
The World Trade Organization (WTO) deals with the rules of trade between nations at
a global or near-global level. There are a number of ways to look at the WTO.
Its an organization for liberalizing trade
a forum for governments to negotiate trade agreements.
a place to settle trade disputes and
a system of trade rules.
2 _____________________________
The WTO agreements are lengthy and complex because they are legal texts covering a
wide range of activities. They deal with: agriculture, textiles and clothing, banking,
telecommunications, government purchases, industrial standards and product safety, food
sanitation regulations, intellectual property, and much more. These principles are the
foundation of the multilateral trading system.
Trade without discrimination
Most-favoured-nation (MFN): treating other people equally
Under the WTO agreements, countries cannot normally discriminate between their
trading partners. This principle is known as most-favoured-nation (MFN) treatment. It is so
important that it is the first article of the General Agreement on Tariffs and Trade (GATT),
which governs trade in goods.
National treatment: Treating foreigners and locals equally
Imported and locally produced goods should be treated equally at least after the
foreign goods have entered the market. The same should apply to foreign and domestic

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services, and to foreign and local trademarks, copyrights and patents. This principle of
national treatment is also found in all the three main WTO agreements (GATT, GATS and
TRIPS).
Freer trade: gradually, through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. The
barriers concerned include customs duties (or tariffs) and measures such as import bans or
quotas that restrict quantities selectively. By the 1980s, the negotiations had expanded to
cover non-tariff barriers on goods, and to the new areas such as services and intellectual
property.
Predictability: through binding and transparency
Sometimes, promising not to raise a trade barrier can be as important as lowering

one, because the promise gives businesses a clearer view of their future opportunities. The
multilateral trading system is an attempt by governments to make the business environment
stable and predictable. The system tries to improve predictability and stability in other ways
as well. One-way is to discourage the use of quotas and other measures used to set limits on
quantities of imports. Another is to make countries trade rules as clear and public
(transparent) as possible.
Promoting fair competition
The WTO is sometimes described as a free trade institution, but that is not entirely
accurate. The system does allow tariffs and, in limited circumstances, other forms of
protection. More accurately, it is a system of rules dedicated to open, fair and undistorted
competition. The rules on non-discrimination MFN and national treatment are designed
to secure fair conditions of trade. So too are those on dumping (exporting at below cost to
gain market share) and subsidies. Many of the other WTO agreements aim to support fair
competition: in agriculture, intellectual property, services, for example.
Encouraging development and economic reform
The WTO system contributes to development. On the other hand, developing

countries need flexibility in the time they take to implement the systems agreements. They
inherit the earlier provisions of GATT that allow for special assistance and trade concessions
for developing countries.
More recently, developed countries have started to allow duty-free and quota-free
imports for almost all products from least-developed countries. On all of this, the WTO and
its members are still going through a learning process. The current Doha Development

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Agenda includes developing countries concerns about the difficulties they face in
implementing the Uruguay Round agreements.
3 _____________________________
The WTO began life on 1 January 1995, but its trading system is half a century
older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the
rules for the system. The GATT gave birth to an unofficial, de facto international
organization. Over the years GATT evolved through several rounds of negotiations. The last
and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and led to
the WTOs creation. Whereas GATT had mainly dealt with trade in goods, the WTO and its
agreements now cover trade in services, and in traded inventions, creations and designs
(intellectual property).
The GATT years: from Havana to Marrakesh
The WTOs creation on 1 January 1995 marked the biggest reform of international
trade since after the Second World War. It also brought to reality in an updated form
the failed attempt in 1948 to create an International Trade Organization. Much of the
history of those 47 years was written in Geneva. But it also traces a journey across
continents, from that uncertain start in 1948 in Havana (Cuba), via Annecy (France), Torquay
(UK), Tokyo (Japan), Punta del Este (Uruguay), Montreal (Canada), Brussels (Belgium) and
finally to Marrakesh (Morocco) in 1994. GATT helped establish a strong and prosperous
multilateral trading system that became more and more liberal through rounds of trade
negotiations. By the 1980s the system needed a thorough overhaul. This led to the Uruguay
Round, and ultimately to the WTO.
GATT: provisional for almost half a century
From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the
rules for much of world trade and presided over periods that saw some of the highest growth
rates in international commerce. It seemed well-established, but throughout those 47 years,
it was a provisional agreement and organization. The original intention was to create a third
institution to handle the trade side of international economic cooperation, joining the two
Bretton Woods institutions, the World Bank and the International Monetary Fund.
Over 50 countries participated in negotiations to create an International Trade

Organization (ITO) as a specialized agency of the United Nations. With the Second World War
recently ended, they wanted to give an early boost to trade liberalization, and to begin to
correct the legacy of protectionist measures which remained in place from the early 1930s
The combined package of trade rules and tariff concessions became known as the
General Agreement on Tariffs and Trade. It entered into force in January 1948, while the

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ITO Charter was still being negotiated. Even though it was provisional, the GATT remained
the only multilateral instrument governing international trade from 1948 until the WTO was
established in 1995.
For almost half a century, the GATTs basic legal principles remained much as they
were in 1948. There were additions in the form of a section on development added in the
1960s and plurilateral agreements in the 1970s, and efforts to reduce tariffs further
continued. This was achieved through a series of multilateral negotiations known as trade
rounds the biggest leaps forward in international trade liberalization have come through
these rounds which were held under GATTs auspices.
In the early years, the GATT trade rounds concentrated on further reducing tariffs.
Then, the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement
and a section on development. The Tokyo Round during the seventies was the first major
attempt to deal with trade barriers that do not take the form of tariffs, and to improve the
system. The eighth, the Uruguay Round of 198694, was the last and most extensive of all. It
led to the WTO and a new set of agreements.
The Uruguay Round
It took seven and a half years, almost twice the original schedule. By the end, 123
countries were taking part. It covered almost all trade, from toothbrushes to pleasure boats,
from banking to telecommunications, from the genes of wild rice to AIDS treatments. It was
quite simply the largest trade negotiation ever, and most probably the largest negotiation of
any kind in history. The Uruguay Round brought about the biggest reform of the worlds
trading system since GATT was created at the end of the Second World War despite its
troubled progress, the Uruguay Round did see some early results. They called for regular
reports on GATT members trade policies, a move considered important for making trade
regimes transparent around the world.
The seeds of the Uruguay Round were sown in November 1982 at a ministerial
meeting of GATT members in Geneva. In fact, the work programme that the ministers agreed
formed the basis for what was to become the Uruguay Round negotiating agenda. However,
it took four more years of exploring, clarifying issues and careful consensus-building, before
ministers agreed to launch the new round. They did so in September 1986, in Punta del Este,
Uruguay. It was the biggest negotiating mandate on trade ever agreed, and the ministers
gave themselves four years to complete it. The Uruguay Round agreements contain
timetables for new negotiations on a number of topics.
By 1996, some countries were openly calling for a new round early in the next
century. The response was mixed; but the Marrakesh agreement did already include
commitments to reopen negotiations on agriculture and services at the turn of the century.

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These began in early 2000 and were incorporated into the Doha Development Agenda in late
2001.
The Doha Development Agenda
At the Fourth Ministerial Conference in Doha, Qatar, in November 2001, WTO member
governments agreed to launch new negotiations. They also agreed to work on other issues, in
particular the implementation of the present agreements. The entire package is called the
Doha Development Agenda (DDA).
The WTO replaced GATT as an international organization, but the General agreement
still exists as the WTOs umbrella treaty for trade in goods, updated as a result of the
Uruguay Round negotiations.
4 _____________________________
The WTO is member-driven, with decisions taken by consensus among all member
governments. The WTO is run by its member governments. All major decisions are made by the
membership as a whole, either by ministers (who meet at least once every two years) or by their
ambassadors or delegates (who meet regularly in Geneva). Decisions are normally taken by consensus.
Highest authority: the Ministerial Conference
The WTO belongs to its members. The countries make their decisions through various
councils and committees, whose membership consists of all WTO members. Topmost is the
ministerial conference which has to meet at least once every two years. The Ministerial
Conference can take decisions on all matters under any of the multilateral trade
agreements.
Second level: General Council in three guises
Day-to-day work in between the ministerial conferences is handled by three bodies:
The General Council

The Dispute Settlement Body
The Trade Policy Review Body
All three are in fact the same the Agreement Establishing the WTO states they are
all the General Council, although they meet under different terms of reference. Again, all
three consist of all WTO members. They report to the Ministerial Conference.
The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It
meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee
procedures for settling disputes between members and to analyze members trade policies.

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Third level: councils for each broad area of trade, and more
Three more councils, each handling a different broad area of trade, report to the
General Council:
The Council for Trade in Goods (Goods Council)

The Council for Trade in Services (Services Council)
The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS
Council)
As their names indicate, the three are responsible for the workings of the WTO
agreements dealing with their respective areas of trade. Again they consist of all WTO members.
The three also have subsidiary bodies (see below).
Fourth level: down to the fundamentals
Each of the higher level councils has subsidiary bodies. The Goods Council has 11
committees dealing with specific subjects (such as agriculture, market access, subsidies,
anti-dumping measures and so on). Again, these consist of all member countries. Also
reporting to the Goods Council is the Textiles Monitoring Body, which consists of a chairman
and 10 members acting in their personal capacities, and groups dealing with notifications
(governments informing the WTO about current and new policies or measures) and state
trading enterprises. The Services Councils subsidiary bodies deal with financial services,
domestic regulations, GATS rules and specific commitments.
The Secretariat
The WTO Secretariat is located in Geneva and is headed by a director-general. Pascal

Lamy is the fifth Director-General of the WTO. His appointment took effect on
1 September 2005. Divisions come directly under the director-general or one of his deputies.
The Office of the director-general is the administrative support for (disputes) Appellate
Body, Textiles Monitoring Body. The Secretariats responsibilities include:
Administrative and technical support for WTO delegate bodies (councils, committees,
working parties, negotiating groups) for negotiations and the implementation of
agreements.
Technical support for developing countries, and especially the least-developed.
Trade performance and trade policy analysis by WTO economists and statisticians.
Assistance from legal staff in the resolution of trade disputes involving the
interpretation of WTO rules and precedents.

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Dealing with accession negotiations for new members and providing advice to
governments considering membership.
The WTOs main functions are to do with trade negotiations and the enforcement of
negotiated multilateral trade rules, including dispute settlement.

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WTO structure
Key
Reporting to General Council (or a subsidiary)
Reporting to Dispute Settlement Body
Plurilateral committees inform the General Council or Goods Council of their

activities, although these agreements are not signed by all WTO members
Trade Negotiations Committee reports to General Council

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Checking your understanding of the text.
Answer these questions in your own words taking into account what you have read.
1.- What is the WTO?
2.- Explain the principles of the trading system
3.- What is the GATT? When did it start?
4.- Why is the Uruguay round important for international trade?
5.- How is the WTO organized?
6.- What are the main functions of the International Trade Centre?

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Rhetorical functions: Chronological Order

When a writer organizes information by time, he/she is using chronological
order. This rhetorical function is common when the purpose of the text is to describe
the development of an idea, the life of an individual or to provide a historical account
about an event or organization. The writer usually states the events in the same order in
which they occurred but sometimes, he may flash back (jump to a point in the past)
to describe past events which affect the present or flash forward (jump to a point in
the future) to show the results of present events.
For example, in the text you have just read, the section A little bit of History
was organized by chronological order. Notice that the first sub-section provides a very
broad summary of the history. Then, the following subsections are organized from the
earlier years to the latest. In this way we now that the first form of Organization
occurred under the GATT a few years after the end of World War II. The first GATT took
place in Havana, later in other cities until the famous Uruguay Round which preceded
the creation of the WTO in 1995. The most recent Ministerial Conference took place in
Doha in 2001.Lets take a look at some words that indicate chronology and are taken
from the text.
by (specific time / year or By the 1980s, the negotiations had expanded to

decade) cover non-tariff barriers on goods, and to the new areas
such as services and intellectual property.
The Tokyo Round during the seventies was the first

during (period of time) major attempt to deal with trade barriers that do not
take the form of tariffs, and to improve the system.
from (specific point in The last and largest GATT round, was the Uruguay
time) Round which lasted from 1986 to 1994 and led to the
to (specific point in time) WTOs creation.
The first GATT took place in Havana, later in other

until (specific time/
cities until the famous Uruguay Round which preceded
event)
the creation of the WTO in 1995.
in (year, month, season, For almost half a century, the GATTs basic legal
decade) principles remained much as they were in 1948.
on (day, date) The WTOs creation on 1 January 1995 marked the

biggest reform of international trade

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Since (specific time or period

Since 1948, the General Agreement on Tariffs and
marking the beginning of a
state or action Trade (GATT) had provided the rules for the system.
Other common connectors include Before, after, ago, later, afterwards. Can
you find an example of any of these in the text about the WTO?
A good way to understand texts organized by chronological order is by creating a

Timeline. A Timeline is a graphic representation of events in chronological order. It is
usually represented as a horizontal line from which dates stem out sequentially. Under
each date brief notes on the events occurred are written. Others models display a chart
in which dates are organized vertically (from the earliest dates to the most recent ones)
on the left column and brief notes on the event that happened in each date are
displayed on the right column.
Lets say you want to create a timeline of the WTO. You would use a model like
this. From the text we know the WTO was created in 1995, yet we cannot start from
1995 because we would be leaving out all the events that preceded that year. The right
date to start would be 1947, the year GATT was created.
1947 23 countries sign the General Agreement on Tariffs

and Trade (GATT) in Geneva, Switzerland,
1948
1995 The WTO was created
2001
Read the section on the history of the WTO and complete the timeline.

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Getting started
Now you are given another text on the history of the WTO. Read the
text and...
Find all the indicators of chronology, the words that show

you the passage of time. Underline them.
Make your own timeline of the events here described
The multilateral trading systempast, present and

future
The World Trade Organization came into being in 1995. One of the youngest of the
international organizations, the WTO is the successor to the General Agreement on
Tariffs and Trade (GATT) established in the wake of the Second World War. So while the
WTO is still young, the multilateral trading system that was originally set up under GATT
is well over 50 years old.
50 years of exceptional trade growth The past 50 years have seen an exceptional
growth in world trade. Merchandise exports grew on average by 6% annually. Total trade
in 2000 was 22-times the level of 1950. GATT and the WTO have helped to create a
strong and prosperous trading system contributing to unprecedented growth.
The system was developed through a series of trade negotiations, or rounds, held
under GATT. The first rounds dealt mainly with tariff reductions but later negotiations
included other areas such as anti-dumping and non-tariff measures. The last round the
1986-94 Uruguay Round led to the WTOs creation.
The negotiations did not end there. Some continued after the end of the Uruguay
Round. In February 1997 agreement was reached on telecommunications services, with
69 governments agreeing to wide-ranging liberalization measures that went beyond
those agreed in the Uruguay Round. In the same year 40 governments successfully
concluded negotiations for tariff-free trade in information technology products, and 70
members concluded a financial services deal covering more than 95% of trade in
banking, insurance, securities and financial information.
In 2000, new talks started on agriculture and services. These have now been
incorporated into a broader agenda launched at the fourth WTO Ministerial Conference
in Doha, Qatar, in November 2001. The work programme, the Doha Development
Agenda (DDA), adds negotiations and other work on non-agricultural tariffs, trade and
environment, WTO rules such as anti-dumping and subsidies, investment, competition
policy, trade facilitation, transparency in government procurement, intellectual
property, and a range of issues raised by developing countries as difficulties they face in

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implementing the present WTO agreements.The deadline for the negotiations is 1

January 2005. Taken from: http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr01_e.htm
GRAMMAR
Take a look at these sentences from the text The World Trade Organization
a. By the 1980s, the negotiations had expanded to cover non-tariff barriers on

goods, and to the new areas such as services and intellectual property.
b. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided
the rules for the system.
c. Whereas GATT had mainly dealt with trade in goods, the WTO and its
agreements now cover trade in services, and in traded inventions, creations and
designs (intellectual property).
The highlighted expressions refer to...
...an action, state or event that started in the past and continues to the present.
...an action that happened at a specific point in the past.
...an action, state or event that happened before a specific time in the past.
The grammatical structure highlighted in these sentences is called past perfect, and it is
made up of subject followed by ____________________ followed by
___________________________. When an adverb (never, mainly, mostly, insistently) is
used it is usually placed __________________ the auxiliary and the main verb.
Take a look at these graphic representations...
GATT negotiations
expand to new areas
1947 1980 1995 2010
Creation of the GATT Creation of the WTO

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The expansion of negotiations to cover new areas had occurred before the 1980s
GATT provides rules for International Trading
1947 1995 2010
Creation of the GATT Creation of the WTO
GATT had provided the rules for International Trading before the WTO was created.
Notice that we often use the Past Perfect together with the Simple Past. The action
which was completed before the other action began is put into Past Perfect.
GATT had established the rules of International Trade before the WTO was created
Simple past
Past perfect
Action completed in a specific
Action that took place before
point in the past
another action
Complete the following sentences by selecting the correct alternative from the
alternatives in brackets.
1. When the GATT came in force, World War II [had ended/ ended].
2. In November 1947, the 23 GATT delegates [had met/ met] with almost 30
Representatives from other countries in Havana, Cuba
3. Before the Uruguay round, there [had been/ were] other GATT rounds in
different cities of the world including Habana, Annecy, Torquay and Tokyo.
4. In 2003, a 54-year-old Korean farming leader [had killed/ killed] himself in

protest over WTO policies. Prior to this date, protests against the WTO policies
[had never been/ never had been] so violent.
5. In 2004, members of the WTO agreed in Geneva to a framework to revive the

Doha Round of trade talks which [had stalled/ stalled] since 2002.

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Getting started
Against The World Trade Organization

So far, you have learnt about the principles, structure and history of
the WTO. However, you should know that many countries,
organizations and individuals oppose the idea of the WTO. In this
section, you will learn about these criticisms.
Before you read the texts for this section, go to the two previous
texts on the WTO.
Discuss with the class what you have learnt so far
about the definition and principles of the WTO.
Working with a classmates, try to predict some of the
possible criticism you find in the texts. Write them in a piece of
paper.
Now read the two following texts. Which of your predicted criticism can you find in
them?
The WTO and Free Trade

by Anup Shah, July 02, 2007
The World Trade Organization, (WTO), is the primary international body to help
promote free trade, by drawing up the rules of international trade. However, it has been
mired in controversy and seen to be hijacked by rich country interests, thus worsening
the lot of the poor, and inviting protest and intense criticism.
Founded in 1995 after the 8-year Uruguay Round of talks, it succeeded the
General Agreement on Tariffs and Trade (GATT), which was created in 1948 to lower
trade barriers. The scope of the WTO is greater, however, including services,
agriculture, and intellectual property, not just trade in goods. The main principles of
the WTO boil down to the following:
Non discrimination
Reciprocity
Transparency
Special and differential treatment
As principles, many of these sound good. Certainly the vast majority of the
worlds nations believe so for they have signed up to the WTO. However, in reality,
these principles seem to be empty proclamation and power and politics seem to really
rule the organization. Thus, the WTO has been criticized by various groups and third
world countries for numerous reasons, including:

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1. Being very opaque and not allowing enough public participation, while being very
welcoming to large corporations. (That doesnt help the claims of free, open and
democratic!)
2. Some national laws and decisions for safety and protection of peoples health,
environment and national economies have been deemed as barriers to free trade.
Take the following examples: Countries cannot say no to genetically engineered
food or products that contain genetically engineered growth hormones known to
cause health problems
3. Instead of respecting the reasons why there has been special and differential
treatment for developing countries, rich countries want to push poor countries to
stick to equality, in what would actually be an unequal result (as it would
maintain the unequal terms of trade.)
A number of countries have also spoken out against the WTO saying that there
needs to be more co-operation
between the North and South (a
general term to refer to the Rich
and Developing countries,
respectively) with regards to
international trade.
Another area that causes
international tension is the TRIPS
agreement that defines how
products can be protected from
piracy. While just reward for ones efforts is reasonable, politics and power influences
have affected how patent processes work and what can or cannot get patented. A major
criticism then has been that in its current form, intellectual property rights regimes like
TRIPS serve to stifle competition and protect rich nations investments and profits from
piracy in that way. For poor nations it makes developing their own industries
independently more costly, if at all possible.
As Noam Chomsky points out, The World Trade Organization regime insists
instead on product patents, so you cant figure out a smarter process.... that impedes
growth, and development... Its intended to cut back innovation, growth, and
development and to maintain extremely high profits for the big corporations.
At the end of November 1999, Seattle saw major governments meet at a WTO
ministerial meeting to discuss various trading rules. Seattle also saw free speech cracked
down on for the sake of free trade. Enormous public protests ensued. There were many
differences in the perspectives of developing and industrialized nation on the reality of
free trade by then and how it affected them. It resulted in a WTO failure to agree on
many issues. Developing countries were sidelined and one delegate even physically
barred from a meeting. How about that for equality and democracy?

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The ones above is nothing but a brief list. But these simple examples show that
the WTO has not lived up to the principles it promotes. Taken and adapted from
http://www.globalissues.org/article/42/the-wto-and-free-trade
A. Summarize in your own words the main criticisms of the WTO the author of the
text expressed.
Criticism of the World Trade Organization

The stated aim of the World Trade Organization (WTO) is to promote free trade
and stimulate economic growth. The actions and methods of the World Trade
Organization evokes strong antipathies. Among other things, the WTO is accused of
widening the sociological gap between rich and poor it claims to be fixing.
Critics contend that smaller countries in the WTO wield little influence, and
despite the WTO aim of helping the developing countries, the politicians representing
the most influential nations in the WTO (and within those countries or between them,
influential private business interests) focus on the commercial interests of profit-making
companies rather than the interests of all. Martin Khor argues that the WTO does not
manage the global economy impartially, but in its operation has a systematic bias
toward rich countries and multinational corporations, harming smaller countries which
have less negotiation power. Some examples of this bias are:
Rich countries are able to maintain high import duties and quotas in certain
products, blocking imports from developing countries (e.g. clothing);
The maintenance of high protection of agriculture in developed countries while
developing ones are pressed to open their markets;
Many developing countries do not have the capacity to follow the negotiations
and participate actively; and
The TRIPs agreement which limits developing countries from utilizing some
technology that originates from abroad in their local systems (including
medicines and agricultural products).
Khor argues that developing
countries have not benefited from
the WTO Agreements of the Uruguay
Round, and, therefore, the credibility
of the WTO trade system could be
eroded. According to Khor, "one of
the major categories of 'problems of
implementation of the Uruguay
Round' is the way the Northern
countries have not lived up to the
spirit of their commitments in
implementing (or not implementing)
their obligations agreed to in the

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various Agreements." Khor also believes that the Doha Round negotiations "have veered
from their proclaimed direction oriented to a development-friendly outcome, towards a
'market access' direction in which developing countries are pressurised to open up their
agricultural, industrial and services sectors."
Other critics claim that the issues of labor and environment are steadfastly
ignored. Steve Charnovitz, former Director of the Global Environment and Trade Study
(GETS), believes that the WTO "should begin to address the link between trade and labor
and environmental concerns." He also argues that "in the absence of proper
environmental regulation and resource management, increased trade might cause so
much adverse damage that the gains from trade would be less than the environmental
costs." Furthermore, labor unions condemn the labor rights record of developing
countries, arguing that the more the WTO succeeds at promoting globalization, the more
environment and labor rights suffer.
Other critics have characterized the decision making in the WTO as over-
simplified, ineffective, unrepresentative and non-inclusive; more active participants,
representing more diverse interests and objectives, have complicated WTO decision-
making, and the process of "consensus-building" has broken down. They argue that the
GATT decision making worked in the past because there were fewer countries actively
engaged and there was no compulsion for all countries to adhere to the results. They
have thus proposed the establishment of a small, informal steering committee (a
"consultative board") that can be delegated responsibility for developing consensus on
trade issues among the member countries.The Third World Network has called the WTO
"the most non-transparent of international organisations", because "the vast majority of
developing countries have very little real say in the WTO system".
Many non-governmental organizations, such as the World Federalist Movement,
are calling for the creation of a WTO parliamentary assembly to allow for more
democratic participation in WTO decision making. Dr Caroline Lucas recommended that
such an assembly "have a more prominent role to play in the form of parliamentary
scrutiny, and also in the wider efforts to reform the WTO processes, and its rules
Taken and adapted from http://en.wikipedia.org/wiki/Criticism_of_the_World_Trade_Organization

23
B. Complete this diagram with the main areas criticized about the WTO in each
text. If some criticisms are common in both texts write them in the area where
the two spheres overlap.
WRITING
In this last activity you will write your own text about the WTO integrating what you
have learnt from the different readings in the unit.
Pre-writing
Below, you are given a possible outline for the text you are going to write. Start by
completing the outline writing brief notes, facts, dates or relevant details around each
circle.

24
Paragraph 1:
Definition,
principles,
purpose
Paragraph 5:
Paragraph 2:
Your own
History
opinion
WTO
Paragraph 4: Paragraph 3:
Criticism Structure
Writing.
Start writing your text. Remember to start each paragraph with a topic sentence, that
is, a sentence that states what the paragraph is going to be about. Then your following
sentences must be related to that topic sentence.

25
Editing
Review your text considering the following questions:
My sentences are complete, i.e there is a subject, verb and complement.
Each sentence begins with a capital letter and ends with a full stop or period.
Each verb in my sentence agrees with its subject.
All of the verb forms are correct and consistent.
Each pronoun I use refers back to the correct noun it replaces.
The adjectives and adverbs I use are in the correct position in the sentence.
The words I use in my sentences are appropriate and effective.
I use the new words I have learnt in my text.
I check the correct meaning of the words I want to use in the dictionary.
I check the spelling of the words Ive learnt.
I use capital letters for proper nouns, i.e the names of people and places.
After that, post your documents in our online space devoted to the purpose. Remember
that version will not be definite. Your classmates and/or teacher will give you other
feedback and you will probably have to make a second and maybe even a third version.

26
Introduction to International trade
In ID-1123, we will look at International trade and discuss

some of the issues involved. Take a look at the list below.
These are some of the questions we will attempt to answer
in this first course:
What is International trade?

Why should nations trade with each other? What benefits are to be gained by trading?
What do we mean by a pattern of trade?
Who does the trading?
What types of trading exist?
What is the World Trade Organization? What benefits are to be gained by being a
member?
What is the effect of globalization on world trade and on the nations that trade?
Lets begin by considering the character and evolution of trade. It is important to keep in
mind, first, that although we frequently talk about trade "between nations," the great
majority of international transactions today actually take place between private individuals
and private enterprises based in different countries. Governments sometimes sell things to
each other, or to individuals or corporations in other countries, but these comprise only a
small percentage of world trade.
Trade is not a modern invention. International trade today is not qualitatively different from
the exchange of goods and services that people have been conducting for thousands of years.
Before the widespread adoption of currency, people exchanged goods and some services
through barteringtrading a certain quantity of one good or service for another good or
service with the same estimated value. With the emergence of money, the exchange of
goods and services became more efficient.

27
Developments in transportation and communication revolutionized economic exchange, not

only increasing its volume but also widening its geographical range. As trade expanded in
geographic scope, diversity, and quantity, the channels of trade also became more complex.
The earliest transactions were conducted by individuals in face-to-face encounters. Many
domestic transactions, and some international ones, still follow that pattern. But over time,
the producers and the buyers of goods and services became more remote from each other. A
wide variety of market actorsindividuals and firmsemerged to play supportive roles in
commercial transactions. These "middlemen"wholesalers, providers of transportation
services, providers of market information, and othersfacilitate transactions that would be
too complex, distant, time-consuming, or large for individuals to conduct face-to-face in an
efficient manner.
International trade today differs from economic exchange conducted centuries ago in its
speed, volume, geographic reach, complexity, and diversity. However, it has been going on
for centuries, and its fundamental characterthe exchange of goods and services for other
goods and services or for moneyremains unchanged.
1
http://www.globalization101.org/uploads/File/Trade/tradeall2010.pdf

28

29
Getting started
Lets begin by looking at International trade. Take a few minutes to

think about these questions:
1. What is domestic trade?

2. What is International trade?
3. Can you think of examples of both types of trade?
4. What factors play a role in both types of trade?
5. Why do people need to trade?
6. How are the people who are involved in trade?
Scenario
Consider the following scenario. Rodriguez e Hijos C.A. buys coffee beans from farmers,
grinds, packages and then sells coffee under the brand name of Sabor de Los Andes to
businesses in Venezuela. When their brand becomes popular, the company decides to export
coffee to countries in the English and French speaking Caribbean, as well as Aruba and
Curacao.
With your classmates discuss the following:
1. What kind of trade does Rodriguez e Hijos engage in when the company is first
formed?
2. What kind of trade does the company engage in when it begins to export to other
countries?
3. What differences exist between these two types of trade? Think of what the
company had to do to trade in the country and outside of the country? What factors
did they have to take into consideration? Make a list of these factors.
In the following sessions, we will find the answers to the questions asked above. At the end
of What is International Trade?, come back and compare your initial ideas with what you
have learnt.

30
International trade
Lets look at an overview of International trade. The definitions found below are taken from
a number of different online sources.
Take a look at this text segment on International trade taken from Wisegeek2.
....As its name implies, international trade is the exchange of products, services, and
money across national borders; essentially trade between countries. When consumers
in the U.S. purchase Swiss-made watches, Guatemalan-grown fruits, Chinese-made
toys and electronics, and Japanese-manufactured automobiles, they experience the
end result of international trade.
Domestic trade is the purchase and sale of products and services within a particular nations
borders, and is inherently limiting to a modern national economy. International trade,
conversely, raises national gross domestic product (GDP) by providing vastly expanded
economic opportunity. It is, therefore, incumbent upon the global economic community to
promote fair trade between nations. In addition, the ability of nations to trade freely with
all others is also vital for profits. Free trade, fair trade, and profits are the cornerstones of
global economic well-being. International trade is most commonly recognized in the
exchange of goods or products. However, trading services, such as expertise in a particular
field, or the ability to facilitate the trade of goods, is another common form of foreign
trade.
Trading capital on the foreign exchange market (FOREX) represents a third facet of
international trade. Capital, or currency, held for foreign trade fluctuates in value hourly
due to political, business, weather and other conditions and factors from nation to nation.
Trading currency in the international market attempts to profit from the rising value of one
nations currency through selling the lower value of another nations capital. Trading capital
is also the amount of money designated by a trader to pay the costs of foreign trade, such as
tariffs, subsidies, transportation, etc....
Another online source3 notes that ..Foreign trade is nothing but trade between the different
countries of the world. It is also called International trade, External trade or Inter-Regional
trade. It consists of imports, exports and entrepot. The inflow of goods in a country is
called import trade whereas outflow of goods from a country is called export trade. Many
times goods are imported for the purpose of re-export after some processing operations.
This is called entrepot trade. Foreign trade basically takes places for mutual satisfaction of
wants and utilities of resources.
2
http://www.wisegeek.com/what-is-international-trade.htm
3
http://kalyan-city.blogspot.com/2011/03/what-is-foreign-trade-types-and.html

31
Internal trade is also known as Home trade and is conducted within the political and
geopolitical boundaries of a country. It can be at local, regional or national level. Internal
trade can be further sub-divided into two groups:
A. Wholesale trade which involves buying in large quantities from producers or

manufacturers and selling in lots to retailers for resale to consumers and
B. Retail trade which involves buying in smaller lots from the wholesalers and selling in
very small quantities to the consumers for personal use.
The graphic below illustrates the different types of trade.
Source: http://kalyan-city.blogspot.com/2011/03/what-is-foreign-trade-types-and.html
Checking your understanding of the text
Discuss the following questions with your classmates.
1. What is the difference between national/local and international trade?

2. What are the three forms of international trade mentioned in the text?
3. Why does the author of the Wisegeek article segment believe that national trade
limits the national economy?
4. Under what circumstances would Entrepot trade occur?
Making the connection.

In small groups find examples of :
national companies that engage in international and home trade.
o Name the companies and the goods they produce.
wholesale and retail trade.
o Name companies that engage in this type of trade.

32
Rhetorical functions: Definitions

A definition is the formal statement of the meaning of a term or a concept and describes its
important characteristics. A simple sentence definition includes the concept, that is, the
item being defined, the class to which it belongs and the characteristics which separates it
from other similar items.
Simple definitions can be written in the following way.
Term + Verb + General class word + Special characteristics
Look at the examples below:
A multinational is a large company

that sets up production facilities in
several different countries.
Term verb general class special characteristics
International trade is the exchange

of goods and services in the world
or on the global market.
Term verb general class special characteristics
These definitions can also be written in the following manner:
1. This exchange of goods and services in the world, or global market is known as
international trade.
2. International trade can be defined as the exchange of goods and services in the world
or on a global market.
3. A large company that sets up production facilities in several different countries is
referred to as a multinational.
4. A large company that sets up production facilities in several different countries is
called a multinational.
Quickly go over the text and find at least three (3) definitions. Underline them and then re-
write them in the space provided using the examples above as a guide.
1. ___________________________________________________________________
___
2. ______________________________________________________________________
3. ______________________________________________________________________

33
Getting started
Read the quote by Morris Ng and think about the questions that follow.
"Exports are the key to the economic survival of a nation. Exports

not only help a country earn money, they help create jobs, peace,
prosperity, and the power to influence."
Do you agree with him? Why? Should the government of an importing

country protect local industry? If so, how can they do this?
Think about these questions as we read the following text...
...GATEWAYS TO GLOBAL MARKETS

World markets have changed enormously in the past decade. New markets have been
opened with the end of the cold war. New economic blocks have been formed. New trading
alliances are shaping. Inevitably, a new way of thinking and an approach to doing business is
necessary in order to survive in the fast changing economy.
Most countries realise the advantages of international trade. Countries have developed
their economies, increased production of goods, and met market demands through the
increase of international trade. A nation that exports more will grow stronger. The stronger a
nation is, the more recognition and respect it will earn.
With the end of cold war, more resources worldwide are geared towards exporting.
Exporting becomes more challenging with continued population growth and the addition of
new exporters.
"Exports are the key to the economic survival of a nation. Exports not
only help a country earn money, they help create jobs, peace,
prosperity, and the power to influence."
Morris Ng
Exporting can provide growth and profit. It is a complex and demanding field, which may
enhance every nations productivity.
In order to export and import products, there needs

to be a system of international monetary exchange. Most
products must be paid with the legal tender of the
producing country. International trade involves the
exchange of one currency for another. Most currencies are
now exchanged on a floating rate basis. The rates fluctuate
according to market forces. The exchange rate may vary

34
greatly due to demand and therefore the price of currency is either rising or falling.
The comparative advantage which exporting countries enjoy sometimes changes. If

transportation costs increase or currency exchange rates change, it may become cheaper to
produce the product in the market country, especially if large amounts of exports are
involved.
Trade surplus, favourable balance of trade, is an excess of exports over imports. Trade
deficit, unfavourable balance of trade, is an excess of imports over exports. A country with
a record trade surplus is often threatened with sanctions and trade barriers from a deficit
importing country. A country with a record trade deficit is usually faced with the internal
social disorders.
There are several reasons why governments try to control the imports and exports of a
country. One reason is that a country enjoys an advantage if it exports more than it imports.
Wealth accrues to the exporting country. Some countries have special programs to encourage
exports. They may be programs that provide marketing information, establish trade missions,
subsidise exports and provide tax benefits or incentives. Government subsidies, or money
given to local producers to encourage exports, allow companies to sell products cheaply.
Sometimes these subsidised companies export their products and sell them cheaply overseas.
This practise is known as dumping; it is selling on a foreign market at a price below the cost
of production.
Sometimes governments want to protect a domestic industry because that industry

provides employment for the population. Not only the industries, but also the labour unions
encourage the government to establish protectionist controls. The governments impose
taxes, in the form of duties which eliminates the comparative advantage and, or quotas that
restrict the import of the product altogether, to control imports.
A tariff is any tax or fee that the government collects. Tariffs are important in
International trade because of trade liberalization, or the reduction on tariffs on imported
goods. If goods enter the country with a low tariff, the cost of these items will be low and
the cost of trade would be more profitable. Moreover, if there is an elimination of tariffs
and other barriers to trade, there would be free trade. On the other hand, if there is an
increase in the tariff, there will be a raise in the cost of importing the goods, which in turn
will make them more expensive on the local market. Increases in tariffs are a form of
protectionism.
There are two forms of import tariffs: specific and ad valorem. A specific tariff is a certain
amount of tax for each unit of the product. An ad valorem tariff is based on the value of the
product, for example 5% of its value. The imposition of the ad valorem tax depends upon
first determining the value of the product. A tariff increases the price of the item, raises
revenue for the government and controls consumption through market forces.

35
A quota is the limit on the number of an item that can be imported into a country. By
putting a quota on a good, a shortage is created which can cause the price of this item to
increase and also allow the local producers to raise their price and to expand production.
Quotas have a different effect on the market for while under a quota there may be a higher
price because of a limited supply, under a tariff, a tax that creates a higher price, the supply
is not limited.
There are two other ways in which governments can control trade. These are by the
use of licenses and standards. Licenses are sometimes required by local importers before
they can import goods. Governments can control the amount of foreign goods entering the
country by reducing the number of import licenses the issue. Governments can also use
standards, which are laws and regulations established by a health or safety body, to restrict
trade by requiring that imported goods meet standards that are higher than locally produced
items.
Finally, the imposition of trade barriers, such as import quotas and higher duties, is
not the only solution to meeting the international challenge. The remedy to beat the trade
imbalance is to understand foreign cultures and business practices, and to provide
competitive products and services.

36
Getting started
When discussing the economy of a country, we often hear terms such as
balance of payment,
balance of trade,
gross domestic product of the country. But what do they mean?
Write what you know about these concepts.
Vocabulary
Some of these special terms will appear in todays text. Use the Internet to find the
definition of each one. Write the information in the space provided.
Term Definition
levy __________________________________________________________
Special drawing __________________________________________________________

Rights
__________________________________________________________
royalty __________________________________________________________
stocks __________________________________________________________
patent __________________________________________________________
bond ___________________________________________________________
asset ___________________________________________________________
debt forgiveness ___________________________________________________________
Underline these words when you meet them in the text. Use the space below to write any
other two terms you consider important.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

37
Balance of Payment, Balance of Trade & Gross

National Product.
The following text contains several terms of importance to your understanding of
International trade. While reading, underline the terms you find.
The balance of payments (BOP) is the method countries use to monitor all
international monetary transactions at a specific period of time. Usually, the BOP is
calculated every quarter and every calendar year. All trades conducted by both the private
and public sectors are accounted for in the BOP in order to determine how much money is
going in and out of a country. If a country has received money, this is known as a credit, and,
if a country has paid or given money, the transaction is counted as a debit. Theoretically,
the BOP should be zero, meaning that assets or credits and liabilities or debits, should
balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a
country has a deficit or a surplus and from which part of the economy the discrepancies are
stemming.
The BOP is divided into sub-accounts but the most important are the current account
and the financial account. Within these categories are sub-divisions, each of which accounts
for a different type of international monetary transaction.
Balance of Payments Accounts Summary
Record of all international transactions for goods and services, income

Current Account payments and receipts, and unilateral transfers. The current account is
used in the national income identity for GNP.
Merchandise Record of all international transactions for goods only. Goods include
Trade Account physical items like autos, steel, food, clothes, appliances, furniture, etc.
Record of all international transactions for services only. Services include
Services Account
transportation, insurance, hotel, restaurant, legal, consulting, etc.
Record of all international transactions for goods and services only. The
Goods and
goods and services account is used in the national income identity for
Services Account
GDP.
Financial Record of all international transactions for assets. Assets include bonds,
Account Treasury bills, bank deposits, stocks, currency, real estate, etc.
Source: Suranovic, S. ( 2010 ) International Finance: Theory and Policy.

38
The Current Account

The current account is used to mark the inflow and outflow of goods and services into
a country. Earnings on investments, both public and private, are also put into the current
account. Within the current account are credits and debits on the trade of merchandise,
which includes goods such as raw materials and manufactured goods that are bought, sold or
given away (possibly in the form of aid). Services refer to receipts from tourism,
transportation (like the levy that must be paid in Egypt when a ship passes through the Suez
Canal), engineering, business service fees (from lawyers or management consulting, for
example), and royalties from patents and copyrights. When combined, goods and services
together make up a country's balance of trade (BOT). The BOT is typically the biggest bulk of
a country's balance of payments as it makes up total imports and exports. If a country has a
balance of trade deficit, it imports more than it exports, and if it has a balance of trade
surplus, it exports more than it imports.
Receipts from income-generating assets such as stocks (in the form of dividends) are
also recorded in the current account. The last component of the current account is unilateral
transfers. These are credits that are mostly worker's remittances, which are salaries sent
back into the home country of a national working abroad, as well as foreign aid that is
directly received.
The Capital or Financial Account

The capital account is where all international capital transfers are recorded. This
refers to the acquisition or disposal of non-financial assets (for example, a physical asset
such as land) and non-produced assets, which are needed for production but have not been
produced, like a mine used for the extraction of diamonds.
The capital account is broken down into the monetary flows branching from debt
forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a
country, the transfer of ownership on fixed assets (assets such as equipment used in the
production process to generate income), the transfer of funds received to the sale or
acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured
damage to fixed assets.
The Financial Account

In the financial account, international monetary flows related to investment in
business, real estate, bonds and stocks are documented. Also included are government-
owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the
International Monetary Fund, private assets held abroad, and direct foreign investment.
Assets owned by foreigners, private and official, are also recorded in the financial account.

39
The Balancing Act

The current account should be balanced against the combined-capital and financial
accounts. However, as mentioned above, this rarely happens. We should also note that, with
fluctuating exchange rates, the change in the value of money can add to BOP discrepancies.
When there is a deficit in the current account, which is a balance of trade deficit, the
difference can be borrowed or funded by the capital account. If a country has a fixed asset
abroad, this borrowed amount is marked as a capital account outflow. However, the sale of
that fixed asset would be considered a current account inflow (earnings from investments).
The current account deficit would thus be funded.
When a country has a current account deficit that is financed by the capital account,
the country is actually foregoing capital assets for more goods and services. If a country is
borrowing money to fund its current account deficit, this would appear as an inflow of
foreign capital in the BOP.
Gross Domestic Product vs Gross National Product

There are two ways or measuring the national income of a country: its GDP (Gross Domestic
Product) and its GNP (Gross National Product). The gross domestic product represents the
value of all goods and services produced within a country while the gross national product
represents the value of all goods and services produced by domestic factors of production.
For example, a Colombian-owned company produces goods in Venezuela and this production
is counted as part of Venezuelas GDP because the productive activity occurred in the
country. However, the income generated by the Colombian company will be part of that
countrys GNP.
Scenario:
You have been given a number of items to record in the corresponding accounts. Where
would you put each?
Inheritance taxes.
Income from direct foreign investments.
3,000 kilos of rice imported from India.
Royalties from the sale of records and books.
Income from national companies abroad.
Income from the purchase of land.

40
: Getting started
1. Discuss with your classmates your understanding of the following terms
and how they relate to trade:
a. Supply
b. Demand
2. What is the difference between goods and services? Give local examples.
Terms
Here are a few terms that will appear in todays text. Discuss with your classmates your
understanding of these.
import export specialization free trade protectionism
_______________ _____________ _____________ ______________ _____________
As you read the text, What is International trade? written by Reem Heakal4, underline
additional terms that you meet. Write those you consider important in the space provided in
the table above.
What Is International Trade?

International trade is the exchange of goods and services between countries. This
type of trade gives rise to a world economy, in which prices, or supply and demand, affect
and are affected by global events. Political change in Asia, for example, could result in an
increase in the cost of labour, thereby increasing the manufacturing costs for an American
sneaker company based in Malaysia, which would then result in an increase in the price that
you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labour,
on the other hand, would result in you having to pay less for your new shoes.
Trading globally gives consumers and countries the opportunity to be exposed to

goods and services not available in their own countries. Almost every kind of product can be
found on the international market: food, clothes, spare parts, oil, jewellery, wine, stocks,
currencies and water. Services are also traded: tourism, banking, consulting and
4
http://www.investopedia.com/articles/03/112503.asp

41
transportation. A product that is sold to the global market is an export, and a product that is
bought from the global market is an import. Imports and exports are accounted for in a
country's current account in the balance of payments.
Increased Efficiency of Trading Globally

Global trade allows wealthy countries to use their resources - whether labour,
technology or capital - more efficiently. Because countries are endowed with different assets
and natural resources (land, labour, capital and technology), some countries may produce
the same good more efficiently and therefore sell it more cheaply than other countries. If a
country cannot efficiently produce an item, it can obtain the item by trading with another
country that can. This is known as specialization in international trade.
Let's take a simple example. Country A and Country B both produce cotton sweaters
and wine. Country A produces 10 sweaters and six bottles of wine a year while Country B
produces six sweaters and 10 bottles of wine a year. Both can produce a total of 16 units.
Country A, however, takes three hours to produce the 10 sweaters and two hours to produce
the six bottles of wine (total of five hours). Country B, on the other hand, takes one hour to
produce 10 sweaters and three hours to produce six bottles of wine (total of four hours).
But these two countries realize that they could produce more by focusing on those
products with which they have a comparative advantage. Country A then begins to produce
only wine and Country B produces only cotton sweaters. Each country can now create a
specialized output of 20 units per year and trade equal proportions of both products. As
such, each country now has access to 20 units of both products.
We can see then that for both countries, the opportunity cost of producing both
products is greater than the cost of specializing. More specifically, for each country, the
opportunity cost of producing 16 units of both sweaters and wine is 20 units of both products
(after trading). Specialization reduces their opportunity cost and therefore maximizes their
efficiency in acquiring the goods they need. With the greater supply, the price of each
product would decrease, thus giving an advantage to the end consumer as well.
Note that, in the example above, Country B could produce both wine and cotton more
efficiently than Country A (less time). This is called an absolute advantage, and Country B
may have it because of a higher level of technology. However, according to international
trade theory, even if a country has an absolute advantage over another, it can still benefit
from specialization.
Other Possible Benefits of Trading Globally

International trade not only results in increased efficiency but also allows countries to
participate in a global economy, encouraging the opportunity of foreign direct investment
(FDI), which is the amount of money that individuals invest into foreign companies and other

42
assets. In theory, economies can therefore grow more efficiently and can more easily
become competitive economic participants.
For the receiving government, FDI is a means by which foreign currency and expertise
can enter the country. These raise employment levels and, theoretically, lead to a growth in
the gross domestic product. For the investor, FDI offers company expansion and growth,
which means higher revenues.
Free Trade vs. Protectionism

As with other theories, there are opposing views. International trade has two
contrasting views regarding the level of control placed on trade: free trade and
protectionism. Free trade is the simpler of the two theories: a laissez-faire approach, with
no restrictions on trade. The main idea is that supply and demand factors, operating on a
global scale, will ensure that production happens efficiently. Therefore, nothing needs to be
done to protect or promote trade and growth because market forces will do so
automatically.
In contrast, protectionism holds that regulation of international trade is important to

ensure that markets function properly. Advocates of this theory believe that market
inefficiencies may hamper the benefits of international trade and they aim to guide the
market accordingly. Protectionism exists in many different forms, but the most common are
tariffs, subsidies and quotas. These strategies attempt to correct any inefficiency in the
international market.
Conclusion
As it opens up the opportunity for specialization and therefore more efficient use of
resources, international trade has potential to maximize a country's capacity to produce and
acquire goods. Opponents of global free trade have argued, however, that international
trade still allows for inefficiencies that leave developing nations compromised. What is
certain is that the global economy is in a state of continual change and, as it develops, so
too must all of its participants.

43
Rhetorical functions: Cause and Effect

Many events that occur around us have an effect on others. The reason something
happens (the cause) results in another action occurring (the effect). One event can have
various effects. One effect, can then in turn, become the cause of another event. We see
many examples of cause and effect in the texts read in International trade. Lets look at the
example in paragraph 1.
Political change in Asia, for example, could result in an increase in the cost of
labour, thereby increasing the manufacturing costs for an American sneaker company based
in Malaysia, which would then result in an increase in the price that you have to pay to buy
the tennis shoes at your local mall. A decrease in the cost of labour, on the other hand,
would result in you having to pay less for your new shoes.
Cause Effect
Political change in Asia an increase in the cost of labour
an increase in the cost of labour increase in manufacturing cost
increase in manufacturing cost increase in the price you have to pay

for tennis shoes at your local mall.
There are several connectives (words that connect two grammatical units together) or
indictors, that we can use to show cause and effect.
These words indicate that the information that follows is the cause of the event.
Due to political change in Asia, there was an increase in the cost of labour.
Owing to an increase in the cost of labour, there was an increase in manufacturing cost.
As a result of an increase in manufacturing cost, the price of the tennis shoes rose.
An increase in the labour costs was caused by political change in Asia.
Because of political change in Asia, there was an increase in labour cost.

44
You can also find words that indicate that what follows is the result of an action.
An increase in manufacturing costs lead to an increase in the cost of the tennis shoes.
An increase in the cost of labour causes an increase in manufacturing costs.
So ,
There was political unrest in Asia. Consequently, there was an increase in labour costs.
For this reason,
Exercise A.
The following sentences show a cause and effect relationship. Circle the indicators and
indicate by writing C (Cause) and/or E (Effect) above the examples of this relationship in the
sentence.
1. The rates fluctuate according to market forces. The exchange rate may vary greatly
due to demand and therefore the price of currency is either rising or falling.
2. If transportation costs increase or currency exchange rates change, it may become
cheaper to produce the product in the market country, especially if large amounts of
exports are involved.
3. Countries have developed their economies, increased production of goods, and met
market demands through the increase of international trade.
Exercise B.
1. Scan the text What is International Trade for indicators of cause and effect. Circle
the indicators and indicate by writing C (cause) and/or E (effect) above the examples
of this relationship in the sentence.
2. Then represent this relationship graphically using arrows.
3. Use the information in the graphic organizer and write sentences showing the cause
and effect relationship. Use as many different indicators as possible.

45
Looking at the Topic and the Main Idea

The topic of an article is the general theme or idea that the writer wants to convey to
the reader while the main idea is most important point that the writer wants to make. The
writer often starts with a thesis statement and then develops this throughout the text which
is made up of a number of different paragraphs. The writer introduces his idea, develops it
in the body of the text with arguments or evidence to support his idea and then concludes,
emphasizing his main point.
Each individual paragraph has a main idea that the writer later develops through the
use of details. Sometimes the main idea can be found at the beginning of the paragraph but
this not always so. The writer can also begin with an introduction, and then state the main
idea and finish with details or the writer can give the details and finish by stating the main
idea. Sometimes the main idea is explicitly stated but sometimes it is not and the reader has
to deduce it from the text.
A. Read the following paragraphs below and underline the main idea.
1. World markets have changed enormously in the past decade. New markets have been
opened with the end of the cold war. New economic blocks have been formed. New
trading alliances are shaping. Inevitably, a new way of thinking and an approach to
doing business is necessary in order to survive in the fast changing economy.
2. With the end of cold war, more resources worldwide are geared towards exporting.
Exporting becomes more challenging with continued population growth and the
addition of new exporters.
"Exports are the key to the economic survival of a nation. Exports not only help
a country earn money, they help create jobs, peace, prosperity, and the
power to influence."
Morris Ng
Exporting can provide growth and profit. It is a complex and demanding field, which
may enhance every nations productivity.
3. Trade is not a modern invention. International trade today is not qualitatively

different from the exchange of goods and services that people have been conducting
for thousands of years. Before the widespread adoption of currency, people
exchanged goods and some services through barteringtrading a certain quantity of
one good or service for another good or service with the same estimated value. With
the emergence of money, the exchange of goods and services became more efficient.
Look at the title of the article that follows. What do you think is the topic? What do you
think the author will discuss?

46
Getting Started
1. Discuss with your classmates, and then make a list of the reasons
countries trade.
2. While reading the text, check and see if the reasons given by the
author are similar to yours.
WHY NATIONS TRADE5

Nations trade a lot, but it is not quite evident
why they do so. Put differently, why do private
individuals and firms take the trouble of conducting
business with people who live far away, speak
different languages, and operate under different
legal and economic systems, when they can trade
with fellow citizens without having to overcome any
of those obstacles?
Why Do Nations Export?

Exports are easier to explain than imports. At least since the beginning of the
industrial era almost three centuries ago, countries have tended to sell things to other
countries either because:
1. Individuals and firms have been able to produce more of certain goods and services than
can be consumed at home. This prompted a search for foreign opportunities to sell the
"excess" production;
2. Individuals and firms have been able to sell goods or services to other countries at prices
higher than the prices they can obtain domestically.
In today's global economy, exporting serves somewhat different purposes for

developing and industrial countries. Although the economies of developing countries are
typically not as economically productive as the economies of industrial countries, developing
countries nonetheless produce some goods and services in amounts they are unable to use or
consume at home, called a production surplus. For example, some developing countries
5
http://www.globalization101.org/issue_sub/Trade_and_Globalization/inttrade/why_nations_trade

47
produce vast quantities of agricultural products, like cocoa in Cote dIvoire and coffee in
Latin America, which their own populations are not large enough to consume. Other
developing countries produce quantities of industrially valuable minerals, like oil or iron ore,
that their own economies are too small or insufficiently industrialized to use.
But for many developing countries, exports also serve the purpose of earning foreign
currency with which they can buy essential importsforeign products that they are not able
to manufacture, mine, or grow at home. Developing countries, in other words, sell exports,
in part, so they can import. Exporting goods and services can also further advance developing
nations' domestic economies.
Interconnectivity through global trade can also be problematic. For example, up until
2008, Japan had a booming export business with the United States. When American
consumers became unable to buy Japanese products, Japanese companies lost that
business.1
Why Do Nations Import?

The reasons that explain why countries import products and services from other
countries are perhaps less obvious. As with exports, the purposes served by imports vary
from country to country. It is reasonable to ask why a country such as the United States, with
its massive and extraordinarily diverse economy, needs to buy anything from other countries.
In fact, there are only a handful of goods or services that the United States absolutely must
import from other countries. With a land area spanning several climatic zones, immense
natural resources, and a dynamic workforce, the United States is able to produce, mine, or
grow almost every item its citizens need to lead reasonably prosperous lives.
Yet no country today, including the United States, can be totally self sufficient at a
cost that would be tolerable to its citizens. All countries need toor choose toimport at
least some goods and services for the following reasons:
1. Goods or services that are either essential to economic well-being or that

consumers desire are simply not naturally available or cannot be produced at
home; and,
2. Goods or services that satisfy domestic needs or wants can be produced

more inexpensively or efficiently by other countries, and therefore sold at lower
prices.
It is helpful to illustrate these points by looking at the case of the United States,
precisely because it comes closer to being self-sufficient than any other country. Coal,
copper, iron, silver, and nickel are just a few of the natural resources the United States
possesses in large quantities that other countries do not possess. But there are some

48
economically essential items, such as tungsten and oil, which the United States either does
not produce at all or does not produce in sufficient quantities to serve current needs at a
reasonable price.
The United States cannot now meet its oil consumption needs exclusively through
domestically produced oil; as of 2007, the U.S. ranks third in total oil production (8,457,000
barrels/day), but also first in oil consumption (20,680,000 barrels/day).(1 ) In fact, since
Hurricanes Katrina and Rita in 2005, U.S. oil production has been on the decline.(2) As a
result, the United States today imports 59 percent of the oil it consumes.(3) Most of these
imports come from Saudi Arabia, Mexico, Canada, Nigeria, and Venezuela. In 2008, the
United States imported 3.58 billion barrels of crude oil.(4)
The United States could, in theory, abandon foreign oil imports, but it would
constitute a very costly step because it is not clear that domestic reserves of oil, both those
that are known and those that have yet to be discovered, could satisfy current domestic
demand; and even if U.S. oil reserves were adequate, generating the extra production
necessary to fill the gap now filled by imported oil would be extremely costly.
Many foreign countries are able to produce oil much more cheaply. Besides, accessing
the additional U.S. reserves would require many years of research and development; other
energy sourcesfor example, coal, nuclear power, or hydro-electric powercould
conceivably be substituted for oil imports, but complying with the associated environmental
regulations, along with the cost of producing additional energy from these sources, would be
very expensive. After all, oil currently satisfies more than 40 percent of Americas energy
needs (including more than 99 percent of the fuel for cars and trucks) precisely because
other domestic sources of energy are either not sufficiently abundant to cover demand or are
more expensive to exploit than oil.(5)
Of course, energy conservation measures could also reduce the need for oil imports
by decreasing energy consumption of the average American citizen. Energy conservation
would be prudent, regardless of which energy supply the United States favors in the future;
however, foreign producers would still be able to produce the oil more cheaply, regardless of
the level of production. In addition, the scale of energy-saving measures needed to
substantially reduce U.S. imports of oil would require costly changes in economic activity and
lifestyles and have thus far proven to be politically unsustainable.
In the end, it is clear that the United States will depend upon imports to meet its
energy needs into the foreseeable future. This is not the same as saying that the United
States has no choice but to import oil from other countries. As the preceding discussion
suggests, there are alternatives. But those alternatives are less economically and politically
feasible than simply continuing to import oil from countries endowed with generous
petroleum reserves.
The same logic applies to a number of other resources or products whose domestic
supply is limited: the United States-though not most other countries-can often find ways

49
to increase production of a commodity, reduce consumption, or identify domestic

substitutes. But these alternatives will often prove more costly than continuing to import
from other countries.
Moreover, the United States and other nations choose to import many other products
that, unlike oil, are not economically essential, but differ in quality or features from
equivalent products made at home. One prominent example is foreign-made cars, which,
starting in 2007, accounted for more than 50 percent of all cars sold in the United States.(6)
Americans do not buy imported foreign cars because foreign manufacturers produce certain
kinds of vehicles that American manufacturers do not; U.S. car makers produce an
extraordinary range of vehicles at a wide range of price levels. But many Americans have
concluded that Asian and European car manufacturers produce vehicles with a combination
of qualities or features that satisfy their preferences more so than vehicles manufactured by
U.S. car makers. The same holds true for much simpler products like wine, or cheese, or
shoes. All of these and thousands of other items that the United States imports from other
countries are still made at home, but some American consumers believe imported versions of
these items offer satisfactions that American varieties do not.
The United States has almost entirely stopped producing other goods because of
foreign competitive efficiency, in other words, firms in other countries are better able to
produce these goods. This is the case with many types of clothing because clothes can be
produced at a much lower cost in countries where labor is cheap; most clothes are produced
in developing countries.
It is worth noting that the country where a good is produced need not be the same as
the country where the corporation that manufactures and sells the good is established.
Several American clothing companies, such as Gap, manufacture most of their clothes in
developing countries.
The goods that the United States have almost ceased to produce because of foreign
competitive efficiency include not only low-tech products, but also some electronic
equipment. For example, the United States used to produce VCRs, but it completely
abandoned their production because of the superior efficiency of foreign competitors (most
notably the producers in Japan).
http://www.globalization101.org/index.php?file=issue&pass1=subs&id=8

50

Discuss with your classmates the following questions:
1. Why, according to the author, do developing nations export goods? Give two
of your own examples to illustrate this point.
2. Why, according to the author, do developed nations import goods? What
examples does he use to illustrate his point? Is this also true of developing nations? If
so, what examples can be used to illustrate this?
3. What arguments does the author use to explain the reason the U.S continues
importing oil? Do you agree with the reasons?
4. The author states that many types of clothing are produced in developing
countries? Why is this so? What countries are primary manufacturers of clothes?
What advantages or disadvantages can this bring to the country?
Summarizing the text in your own words.

Re-read the text and find the main idea of each of the paragraphs. You can
underline them if you wish.
Then find details to support each of the points the author makes.
Use this information to write a paragraph summarizing the information in the

text.
Give your summary a title.

51
Getting started
Discuss the questions below with your group and then do the exercise which
follows them.
1. What are the different types of trade discussed so far?
2. Who are the different people involved in this trade?
3. What role would they play in the process?
Vocabulary
Look at the terms below. Using what you have learnt about definitions, can you write one
for each term? Write the definitions for the following terms in your own words. Then check
your answers as you read the text. Do not use the text to find the definitions.
Term Definition
1 Export trading company ______________________________________________
______________________________________________
2 Export management
company
______________________________________________
3 Distributor ______________________________________________
______________________________________________
4 Retailer ______________________________________________
______________________________________________
5 Import export agent ______________________________________________
______________________________________________
6 Sales representative ______________________________________________

52
Export traders
Trade has existed ever
since Man recognized the
need to look for and obtain
resources to fulfill his
needs. From early man
trading skins and salt with
neighboring tribes to Marco
Polo bringing silks, spices
and technology from the
Far East to the Western world, to modern conglomerates trading millions of dollars on the
stock exchange, trade has been an essential part of our lives. Countries engage in trade for
many reasons. These include product availability, competitive prices and product image. But
for the goods to reach the customer, they must go through the import/export process and
pass through the hands of different players along the way.
The word import comes from the Medieval Latin importare which means to bring in
which, in essence, is done when goods are brought in from a foreign country, while export is
the process by which goods are shipped from one country to another. There are two main
methods of export: direct and indirect exporting. In direct exporting, the manufacturer,
assembler or processor of an exported good is in charge of the entire marketing and
distribution of the product and sells directly to companies, known as direct merchants, in the
foreign market. The direct merchant then sells these goods on their domestic market.
These merchants usually offer complementary services such as maintenance, spare parts and
technical support to their customers.
However, a cheaper and less risky export route is through indirect export where the
manufacturer hires a local agent to find and deliver its goods to buyers abroad. An example
of indirect exporting is through an Export management company (EMC) which handles trade
for a domestic company which wants to sell its product abroad. The EMC hires the dealers,
distributors and representatives, manages the advertising, marketing and promoting of the
product, oversees marking and packaging, and arranges the shipping. An Export

53
management company can specialize in one type of product, foreign market or both and is
usually paid by commission, salary or a retainer plus commission.
Another type of indirect trading agent is the Export trading company (ETC) which
looks for potential buyers by identifying the needs of the foreign market and then supplying
domestic sources willing to fill this need. It can either take title to the goods or work on a
commission basis. An Import/Export company, on the other hand, purchases goods directly
from a domestic or international client and then packs, ships and resells these goods.
There are also a number of intermediary players. For example, an import export
agent is one who rarely invests capital in inventory or deals in the merchandise, products or
services directly. Instead, this agent acts as an intermediary between manufacturers and
distributors in one country and buyers in another, finding the appropriate market for the
goods, making a solid connection and solidifying a business relationship between both
parties. They are paid a commission which is usually 10% of the transaction. Manufacturers
may also decide to have their own representative who is an expert in their particular
industry and can give technical support. This specialization may differentiate them from the
sales representative who simply promotes the product and then passes the sale to the
seller. A distributor buys the imported product and then sells it to another for further
distribution to the buying public. Finally, there is the retailer who then sells the
merchandise to the customer.
There are many different kinds of agents involved in the import and export trade and
the best type would depend on the needs, and capabilities of the manufacturer who whishes
to place his product on an international market. From export management companies to
individual sales representatives, there is a group of qualified individuals able to help in this
process.
Reference
http://www.entrepreneur.com/startingabusiness/businessideas/startupkits/article41846.html

54
1. Form three groups. Each group has to do the following:

1. Write six (6) questions based on the text. Remember to check the grammatical
structure of your question.
2. Give your questions to members of the 2nd group for them to answer.
3. Give the answers to members of the 3rd group for them to be corrected.
4. Discuss the answers with the entire class.
Scenarios:
With your classmates, discuss the following scenarios and propose a solution. Hand in your
solution to your teacher at the end of the session.
La Bella Dama, C.A., imports a large quantity of beauty care products for women.
However, they have no outlets in any of the major cities. What kind of trade, on a
national level, should they engage in? How should they get their products sold?
Rodriguez e Hijos would like to export their product Sabor de los Andes to Central
America and the Caribbean. But they have no business contacts in these regions. What
would be the best type of export for them to engage in? How should they get their
products sold?
Your company needs to hire different types of traders for your Export division. Based on the
information in the text, write the profile for two (2) traders. Consider what special
characteristics each should have for their job. Why are these characteristics important?
1. import/export agent
2. sales representative
3. manufacturers representative

55

56
Getting started
Lets now look at a type of commerce that affects almost everyone
in the world. Take a few minutes to think about the following:
What do you understand by Electronic commerce?
What inventions were necessary for E-commerce to emerge?
How has electronic commerce changed the way in which we
trade?
What aspects of E-commerce would be of concern to
customers and businesses?
Discuss these questions with your class. Write your ideas in the space
below.

57
E-commerce
...E-commerce is the most recent step in the evolution of business transactions.
Derek Slater
The availability of Internet has led to the development of E-commerce which is

becoming very popular these days. Most people think that E-Commerce is just purchasing
something on the Internet but this is a misconception. E-commerce has been a part of global
economic growth in one way or another. Even though e-commerce has been around for years,
it is a very broad term to define.
The term "electronic commerce" has evolved from its inadequate notion of electronic
shopping to mean all aspects of business and market processes enabled by the Internet and
the World Wide Web technologies.
What is E-Commerce?
Electronic Commerce (e-Commerce) is a general concept covering any

form of business transaction or information exchange executed using
information and communication technologies (ICTs). E-Commerce takes
place between companies, between companies and their customers, or
between companies and public administrations. Electronic Commerce
includes electronic trading of goods, services and electronic material.
The best definitions view EC as a strategy to support the total delivery of products
and services to the customer, rather than just another set of tools and technologies. EC
offers fundamentally new ways of doing business, rather than mere extensions of existing
practices. It is, in the end, the strategic deployment of computer-mediated business tools
and information technologies to satisfy business objectives.
Laudon and Laudon, authors of Essentials of Management Information Systems define E-

commerce as The process of buying and selling goods and services electronically involving
transactions using the Internet, networks, and other digital technologies... Electronic
commerce is a means of enabling and supporting such changes on a global scale. It enables
companies to be more efficient and flexible in their internal operations, to work more
closely with their suppliers, and to be more responsive to the needs and expectations of

58
their customers. It allows companies to select the best suppliers regardless of their
geographical location and to sell to a global market. It is the fastest growing segment of our
economy. It allows even the smallest business to reach a global audience with its product or
message with minimal cost. It includes commercial transactions on the Internet but their
scope is much wider than this. E-commerce also requires an extensive and reliable
technology infrastructure. The technology includes the hardware, software and related
technology underlying the business. So the performance of the technological infrastructure
can make or break an online business.
The scope of ecommerce
"...Ecommerce services are the silver bullet that will enable companies to take
advantage of the true business opportunities on the Web..."
Traci Gere, Analyst, The New York Times
Electronic Commerce (e-Commerce) is a term popularized by the advent of

commercial services on the Internet. Internet e- Commerce is however, only one part of the
overall sphere of e-Commerce. The commercial use of the Internet is perhaps typified by
once-off sales to consumers. Other types of transactions use other technologies. Electronic
Markets (EMs) are in use in a number of trade segments with an emphasis on search facilities
and Electronic Data Interchange (EDI) is used for regular and standardized transactions
between organizations.
An electronic market is the use of information and communications technology to present

a range of offerings available in a market segment so that the purchaser can compare the
prices (and other attributes) of the offerings and make a purchase decision. The usual
example of an electronic market is an airline booking system. An Electronic Data
Interchange (EDI) on the other hand, provides a standardized system for coding trade
transactions so that they can be communicated directly from one computer system to
another without the need for printed orders and invoices and the delays and errors implicit
in paper handling. EDI is used by organizations that make a large number of regular
transactions. One sector where EDI is extensively used is the large supermarket chains, which
use EDI for transactions with their suppliers.

59
Seller Purchase order Customer

Payments
Computer Shipping notices Computer
Invoices
Basic transactions in EDI
Internet Commerce
Information and communications technologies can also be used to advertise and make
once-off sales of a wide range of goods and services. This type of e-Commerce is typified by
the commercial use of the Internet.
The three application types of E Commerce
The Internet can, for example, be used for the purchase of books that are then delivered by
post or the booking of tickets that can be picked up by the clients when they arrive at the
event. It is to be noted that the Internet is not the only technology used for this type of
service and this is not the only use of the Internet in e-Commerce.

60
Categories of E-commerce
Electronic commerce can be sub-divided into four distinct categories as shown in the
figure:
business-business
business-consumer
business-administration
consumer-administration
Categories of electronic commerce
The business-business category would be a company that uses a network for ordering
from its suppliers, receiving invoices and making payments. This category of electronic
commerce has been well established for several years, particularly using Electronic Data
Interchange (EDI) over private or value-added networks.
The business-consumer category largely equates to electronic retailing. This category

has expanded greatly with the advent of the World Wide Web. There are now shopping malls
all over the Internet offering all manner of consumer goods, from cakes and wine to
computers and motor cars.
The business-administration category covers all transactions between companies and

government organisations. For example, in any developed country details of forthcoming
government procurements are publicised over the Internet and companies can respond

61
electronically. However, in the wake of a growth of both the business-consumer and

business-administration categories, governments may extend electronic interaction to such
areas as welfare payments and self-assessed tax returns.
Advantages and disadvantages of E-commerce
There are a number of advantages for both the consumers or customers and
businesses of E-commerce.
Consumer Benefits Business Benefits
Easier cost due to comparative shopping Access to a larger market place

Change in traditional store hours Reduced overhead costs
Instant access to a greater number of
stores
Consumer disadvantages Business disadvantages
Increased risk of fraud Not all consumers are online

Increased costs due to shipping and Increased market barriers
handling
Cannot see/touch the merchandise before Truly rely on word of mouth to get
buying business name/site out.
Hard to return unwanted merchandise
So, considering all the publicity with e-commerce why should any business participate?
The answer is simply the future. As technology and consumer wants and needs continue to
progress businesses will have to do business via the Internet if they want to remain in
business.

62

Work in small groups to do the following:
1. Write your own definition of E-commerce. Give examples to support your

definition.
2. What are the major categories of e-commerce? Give local examples of each.
3. Make a list of the acronyms (letter of the first word of the term) found in the
text. Write the word out in full and then write an example of each.
Write the acronym for the following terms. The first one is done for you.
1. Business-to-Consumer B2C
2. Business-to-Business _______
3. Consumer-to-Consumer _______
4. Consumer-to-Business _______
Scenario
With your classmates, discuss the following scenario and propose a solution. Hand in your
solution to your teacher at the end of the session.
One of your friends has the option to either set up an online business or rent space
and trade in the traditional way. What advice can you give? Explain some of the advantages
and disadvantages for businesses that want to go online. Present your work as a dialogue.
Brainstorm ideas (what information would you need)

Think about the vocabulary and grammar you would need to use.
Write out the draft of the dialogue.

63
Getting started
The people in the photos below have made a great contribution to

ecommerce as we know it today.
Do you recognise any of them?
Do you know what their contribution has been?
Hint: One of them began the largest online shopping empire today.
Jeff Bezos Marc Andreessen

Tim Berners-Lee
Find out as we read....
...A short introduction to the history of e-commerce

Not that long ago if you wanted to buy something then
you would have to go to the local shops. If they didn't have what
you wanted then you would either have to do without or buy a
substitute. With the development of the Internet a phenomenon
known as 'electronic commerce' or 'ecommerce' for short, has
been growing to such an extent that it is starting to become the
way to shop for many people. But how did this begin?
E-commerce, or electronic commerce, consists of the buying and selling of services or

products over electronic means like the internet. Originally, electronic commerce referred
to electronic commercial transactions such as Electronic Data Interchange (EDI) and

64
Electronic Funds Transfer (EFT). Electronic Data Interchange was first introduced in the
1960s and was a set of rules that helped large businesses transfer documents or business data
from one computer system to another without the intervention of humans. However,
businesses could use different EDI formats and so it was often difficult for one organization
to interact with another. This problem was solved in 1984 when the American National
Standards Institute (ANSI) created ASCX12, a standardized protocol for computer
transactions. Electronic Data Interchange also helped Electronic Funds Transfer (EFT) where
money is exchanged or transferred from one account to another through computer based
systems. This also led to other electronic money transactions such as the use of automatic
teller machines (ATM), credit cards and telephone banking.
E-commerce and the internet
But the story of e-commerce is intrinsically linked to that of the internet. By the late
1960s, the military had developed ARPAnet to ensure communications in the event of a
nuclear attack. This system was linked to four large U.S. research universities and relied on
large computers. In 1971, researchers developed the Terminal Interface Processor (TIP) for
connecting to the ARPAnet from an individual computer and in 1982 ARPAnet switched to
Transmission control Protocol and Internet Protocol (TCP/IP) which powers todays modern
internet. In spite of this, internet use, the sending of emails and participating in listservs and
newsgroups, was still mainly in the hands of academics. This was soon to change when in
1990, Tim Berners-Lee proposed the first web browser program and the previous academic
telecommunication network was now at the disposal of the world through the World Wide
Web. Companies soon began providing networking services to the public. One such
company, CompuServe, was the first to provide internet connectivity through its e-mail,
message boards and chatrooms. In the mid 1980s, it had introduced a new service called the
Electronic Mall where users could purchase items from 110 online merchants. This, however,
had not been a success at the time.
In 1993, Marc Andreesen at the National Center for Supercomputing Applications

(NCSA) introduced the first widely distributed web browser, Mosaic which enabled users to
have a point-and-click access to the web. The following year, Mosaic was transformed into
the downloadable Netscape browser which included an important security protocol called
Secure Socket Layer (SSL). This encrypted messages on both the sending and the receiving

65
side of an online transaction thereby ensuring that personal information could be secure.
Within two years, third party services for processing online credit card sales had appeared,
with First Virtual and CyberCash being two of the most popular. In 1995, Verisign began
developing digital IDs which verified the identity of online businesses. The company later
switched its focus to certifying that the web sites servers were properly encrypted and
secure. Finally, the development of a high-speed Aysmmetrical Digital Subscriber Line
(ADSL) in 1998 allowed users of the web to access internet speeds at higher bandwidths and
to be always connected.
The start of e-commerce as we know it
In 1991, the National Science Foundation lifted a ban previously placed on

commercial businesses operating over the Internet thereby opening the doors to electronic
commerce. Four years later, two important companies came onto the scene. In July, 1995
Jeff Bezos made his first sale on Amazon.com from his garage in Seattle, Washington. Within
30 days, books had been sold in all 50 U.S states and in 45 countries around the globe.
Amazon set the standard for customer oriented e-commerce as potential buyers could search
for, and browse books by keyword, author or subject and get personalized recommendations.
Amazons patented one-click checkout system ensured a quick and secure purchase.
Amazon products now include electronics, home and garden equipment, music, DVDs, video
games, digital downloads, clothing and jewelry on seven different international websites.
Around the same time, Pierre Omidyar, a software programmer, introduced a simple
website called AuctionWeb. Omidyar wanted to know if people would be willing to bid on
each others used items and so he posted a broken laser pointer for sale on line. Within a
day it had been sold for $14.83. Omidyar put online buying and selling in the hands of the
public and in 2008, eBay, its official name as of September, 1997, had expanded worldwide
and had more than 7.7 billion dollars in revenues.
E-commerce has changed the way in which people shop, putting at their disposal a
wide variety of goods and products at competitive prices and allowing retailers to know
about customer needs. None of this would have been possible without the technological
advancements begun in the last century.

66
Do the following activities in pairs.
1. Choose two (2) of the following and explain their role in the development
of e-commerce:
a. Electronic Data Interchange
b. Netscape browser
c. Secure socket layer (SSL)
d. ADSL
2. Why do you think that the Electronic Mall from CompuServe was not successful when
it was first introduced in the 1980s? What changes do you think would have been
needed to make it successful?
3. In what way was Pierre Omidyars initiative important to e-commerce?
4. Make a list of the acronyms (letter of the first word of the term) found in the text.
Write the word out in full and then write an example of each, where possible.

67
Getting started
Shopping online for the first time? Discuss with your classmates what
you, as a customer, would need to have to engage in online shopping.
An online shopper? Discuss with your classmates any problems you or

anyone you know, have experienced when purchasing an item online.
Share your ideas with the class.
Before reading the text.

Review the different types of ecommerce by writing the acronym which corresponds to the
definition. Read each definition clearly and then determine the type of ecommerce it
describes. Then write the corresponding acronym next to it. One has been done for you.
Acronym Definition
_______ Business transactions that are carried out between

consumers.
B2C Business that sells its products or services directly to the

consumer.
_______ Consumers who present themselves as a buyer group.
_______ Business that sells its products or services directly to another

business.
Think of an example of each type of ecommerce. Write them in the space below.
1. ____________________________________________________________________
2. ____________________________________________________________________
3. ____________________________________________________________________
4. ____________________________________________________________________

68
Check your answers as you read the following text.
E-commerce: Consumer to Business Business to Consumer.
Since the creation of the first World Wide Web server and browser by Tim Berners-Lee
in 1990, ecommerce has grown and expanded throughout the world. From the first online
Pizza hut in 1991 to Amazon, many people have, at one time or another, engaged in
ecommerce either as a customer or an entrepreneur. People can engage in many different
types of ecommerce. In Business to business, companies sell products to each other, as in
the case of a wholesaler selling to a retailer. In Business to consumer, on the other hand,
the public can purchase articles placing them in virtual shopping carts and without human
interaction. In Consumer to consumer, people can place their items online for sale to others
while in consumer to business, a client places his needs on the internet and companies vie to
obtain the contract for fulfilling them.
There are certain processes that both

customers and entrepreneurs go through when
engaging in ecommerce. In order to engage in
online commerce, customers must first have
access to the Internet either through a
computer or mobile device. They must then
select the site they wish to visit and the item
they wish to purchase. Once the decision has
been made, the item is placed in a shopping
cart, or basket, which keeps a record of all
the items the customer wishes to purchase.
The customer can continue shopping or
proceed to the Check out for payment. First
visitors to the site are required to create an
account, filling in a form with personal data
and then choose a user name and password.
Subsequent visits to the site will require this
information. Once the customer has arrived
at checkout and the order is confirmed

69
payment details are required. Once payment has been confirmed via email, the order is then
processed and shipped to the customer.
If, on the other hand, an online business is to be set up, there are several things
which must be taken into consideration. One of the most important is the setting up of the
website, the domain, through which the product will be known and the client can do
business with the seller. Part of this process includes the selection of a server, whether
Linux or Windows based, which will ensure that service is always available, and most
importantly, security. Creating an attractive website, professionally designed with an
authentic look is more likely to attract online clients is the next step. Information to be
displayed may include a detailed description of the product, type and quantity, prices,
discounts, legal information, customer service information and means of payment. For
purchasing to be done, specially designed software, is needed which will allow the
transaction to be carried out. When the customer reaches the checkout, the software will
calculate the total order including taxes, freight and offer the customer different payment
options.
Security and customer privacy are essential for online commerce and so special
software that records the orders the client has placed, the processing of the order and the
cash transaction mechanisms is used. Security protocols and digital signatures are
encryption techniques used to ensure that the clients personal information is safe from
hackers and virus attacks. The Secure Socket Layer (SLL) allows websites to have a locked
padlock which tells customers that the site is secure.
However, before financial transactions can be undertaken on the web, a merchant

account must be obtained. This is a bank account which will accept the customers online
payments. This is done through a payment gateway, an online processor that connects the
credit card to the banks account verifying information, transferring requests and authorizing
the credit cards in real time. Providers like Verisign provide this service. Finally,
advertisement is important in promoting the new business. New websites should be
registered with search engine companies such as Google, Yahoo and Bing.
For those who wish to purchase or engage in ecommerce as an entrepreneur these are
a few of the basic procedures to be carried out. Security, whether it be financial

70
information or personal data is essential to ecommerce and care should be taken to ensure
that both those who buy and sell are able to do so confidently.

Go back through the text and highlight the information regarding:
Security protocol
Merchant account
Domain
Payment gateway
Now, explain these terms in your own words. Use this information to answer the following
question:
What are the most important aspects to take into consideration when starting an online
business? Why are these important?
With your classmates discuss the following scenarios and suggest a solution. Choose one (1)
of the scenarios and hand in the activity at the end of this session.
Scenario: Your grandparents would like to make an online purchase but they have never
done so before. They have found three websites: Ebay, Amazon and Mercado Libre. Help
them to decide on the best site to use. Then explain, step by step, the process to complete
their purchase.
Scenario 2: One of your friends is interested in setting up an online business. He comes to

you for advice. Explain what steps are necessary.
Read and discuss the scenario

Decide on the information you need to have to complete the task. (Find the necessary
vocabulary and grammar).
Present your scenario as a dialogue either between you and your grandparents or you
and your friend.

71

TORREON
Textbook
Applicable for the subjects: -BUDGETING - STRATEGIC

PLANNING AND INTERNATIONAL LAW
This book was made from several sources from the Web
This book can be printed with the previous permission of the owner
2015

72
UNIT 5: BUSINESS ETIQUETTE
Exercise 1. Read the following information:
Ethical behaviour is doing things that are morally right. Ethics (countable noun) are
moral beliefs about what is right or wrong. Ethics (uncountable noun) is the study of this.
Ethically responsible companies want to do the right thing in areas such as:
employment and community: they want to pay attention to things that affect all
people, not just their employees, in the areas where the company has its offices,
factories and activities.
the environment: they want to conduct business in ways that protect the
environment to ensure that the air, rivers etc. are not polluted and plant and animal
life are not endangered.
winning new business: they want to get business without engaging in corrupt
behaviour, for example offering bribes - money given to someone so that they
behave unethically.
Companies want to be seen as good corporate citizens, with activities that are
beneficial not only for their stakeholders - their employees, shareholders and so on - but
for the community and society as a whole.
Accountability and transparency
Ethical corporate behaviour includes accountability - the idea that companies are
completely responsible for what they do and that people should be able to expect them to
explain their actions. Transparency is explaining this behaviour in a way that can be
understood by outsiders, and not trying to hide anything. Companies may say that they
demand high levels of probity and integrity - complete honesty - from their employees,
and that they do not tolerate any form of misconduct.
Corporate social responsibility
Companies have long had codes of ethics and codes of conduct saying how their
managers and employees should behave. Now they are looking at these issues in more
systematic ways. They are designating executives to oversee the whole area of corporate
social responsibility (CSR).
Exercise 2. Read the article relating to the ideas in Exercise 1. Then say if the statements
below are true or false, identifying the phrase or sentence from the article that confirms
your answer:
How to become good in all areas
Few companies are clear about how to manage what can be an amorphous collection of
internal initiatives and external relationships on social, environmental and ethical issues.
Probity and responsibility must be embedded in a companys culture, strategy and
operations from the top down. But how can this be done? A new guide from Business for
Social Responsibility, a US non-profit research and advisory organization with 1,400
member companies and affiliates, attempts to answer this by taking the reader step by step
through the process of designing a corporate social responsibility management system.
Only a handful of companies have a full CSR management system in place, says the
organization, which advises its members on how to make responsible practices integral to
their strategy and operations. Its combined annual revenues of nearly $2,000 bn
(1,300bn) and employ 6m people. They include ABB, British Airways, Coca-Cola, Ikea,

73
Unilever and Wal-Mart. The scandals in the US have underlined how corporate
responsibility taskforces and codes of conduct are not enough on their own and can
sometimes be a smokescreen.
Creating and building a successful CSR management
system is a complex, long- term project for any
company, says the report. It involves a shift in the way a
company conducts business and can be likened to
implementing other large- scale change initiatives such
as total quality management.
The guide runs through basics such as who currently
has responsibility for CSR in the company, why a better
management structure might improve things and what hot-
button issues (child labour, drug pricing) face different
sectors. It encourages companies to think hard about
their stakeholders, what their concerns are, how credible
and influential they are and whether they are a potential
long-term partner or liability.
1. Most companies have clear, coherent policies on social, environmental and ethical
issues.
2. If a company behaves with probity, it has high ethical standards.
3. Business for Social Responsibility has a coherent approach to designing a
corporate social responsibility management system.
4. Its simple for a company to add a CSR management system to its day-to-day
business.
5. Codes of conduct are enough to ensure ethical behaviour.
6. The guide says that a companys stakeholders should all be kept happy so that they
are all retained by the company over the long term.
Exercise 3. Complete the sentences, with expressions from the text above:
1. The company was accused of giving ................................ to local officials in order

to allow their products into the country more quickly.
2. The company has supported several projects in the local .................................
where its factories are situated.
3. Voters demanded that there should be greater ................................ in the election
process so that they could understand it fully.
4. Following the scandals of Enron, Worldcom and others, there is greater emphasis
in business schools on the teaching of
Exercise 4. How ethical are you in your business dealings? Find out with the
questionnaire below:
1. You do a lot of travelling on business. 5. You work in the purchasing department

Your company pays your air fares and you of a large company. One of your suppliers
have collected frequent flyer miles from has sent you a Christmas present - a case of
the airlines that you can exchange for free wine. They know you shouldnt accept it

74
flights. If you use them for your own because they also sent a note promising not
personal travel, nobody will know. Will you to tell any of your colleagues about it. Will
a. use them for business trips and save your you
company money? a. send the wine back and never buy
b. use them to upgrade your seat to first anything from that supplier again?
class on business trips? b. send the wine back and explain you can
c. book that holiday in the Bahamas that only accept gifts up to a certain value?
youve always wanted? c. send the wine back and say that you
prefer fine malt whisky?
2. You are the manager of a charming pub 6. You are a financial manager. Until last
in the country a long way from the nearest year, your company had an unbroken record
town. The owner of the pub wants you to of rising earnings per share, but last years
run an all you can drink campaign where profits were down. Fortunately you have
the customers can have as much beer as received a very large order since the
they want for a fixed price. Its bound to beginning of the present financial year.
attract more customers and be very Your boss tells you to record the new order
profitable. Will you in last years accounts, so you dont spoil
a. refuse to do it, in case it encourages the companys track record. Will you
people to drink and drive? a. explain it might mislead shareholders
b. agree to do it, but put up posters warning and refuse?
against drink-driving b. refuse unless you can include a note
and start selling black coffee as well as about it in the small print in the annual
beer? report?
c. refuse to do it unless you receive a profit- c. agree and suggest some other legal
related bonus? ways of making the figures look better this
year?
3. You are the owner of a small business. 7. You are friendly with someone in the
One of your suppliers, an old friend, has strategic planning department of your
asked you to pay them cash for an order so company. One day, they give you some
they can avoid paying VAT. Theres no confidential information. They tell you
chance of you getting into trouble even if about a company they are going to target
the tax office find out because it is your for take-over. They are sure the share price
suppliers responsibility to declare it, not will rise. You could make a lot of money if
yours. Will you you buy shares now. Will you
a. refuse? a. tell your colleague they shouldnt pass on
b. warn your friend that they could get into confidential information?
trouble but agree if they insist? b. thank your colleague but do nothing?
c. agree? (After all, what are friends for?) c. tell your broker to buy as many shares as
they can?
4. You have run out of stationery at home 8. You are the owner of a small company.
and theres plenty of nice blank paper and A friend offers you a free copy of a
envelopes in your desk at work. Will you computer software program that you need at
a. resist the temptation to take any home? work. If you accept their offer, you wont
b. take a little home to keep yourself going have to pay the $700 licensing fee to the
until you can buy some software company. Will you
more? a. turn down your friends offer and buy
c. take plenty home so you dont run out your own copy?

75
again? b. accept your friends offer?

c. accept their offer and charge the
company $700 which you can pocket tax-
free?
How did you score?
Mostly as Mostly bs Mostly cs
You may not always be You like to do whats right If the people around you are
popular with your if you can, but realize the behaving dishonestly, you
colleagues but your business world is not an honest place. will do everything necessary
contacts know they can trust Youve probably noticed the to ensure they dont get your
you to play fair. If some person who tells the truth is share. As you see it, if you
people accuse you of being not always the person who cant beat them, join them.
inflexible, its because your gets on fastest so you are No doubt you will advance
strong principles make them prepared to make up the ladder of success at
feel uncomfortable. Your compromises, accepting the top speed because you are
honest approach should fact that in order to do very good at telling people
bring you success in your business you sometimes exactly what they want to
career and, although it may have to bend the rules. hear. The trouble is, it is not
be slow coming, its bound always what they should
to be long-lasting. hear, so your success will
probably be short-lived.
Exercise 5. Youll hear three conversations in which people are meeting and being
introduced to each other. Listen to what they say to each other and fill the gaps below:
1. Alex White, a new employee, meets Chris Grey.

Alex White: Id like to 1) _______________. My names Alex White and Im the
new export sales co-ordinator.
Chris Grey: Oh, yes. Ive heard of you. How 2)___________________? Im Chris
Grey. 3) ________________________ you.
2. Liz Jones, a colleague from Canada, is visiting the office in London.
Tony Harris: Ms. Smith, Id 4) ________________________ Mrs. Jones. Mrs. Jones
is from our sales office in Toronto.
Liz Jones: Hi!
Claire Smith: 5) _____________________, Mrs. Jones? Ive been 6)______________
meeting you.
Liz Jones: Oh, please 7) ________________ Liz.
Claire Smith: And Im Claire.
Liz Jones: Hi.
Claire Smith: Well, Liz, did you 8) _______________________?
Liz Jones: Yeah, not too bad
3. Miss Lucas, a visitor from Argentina, is introduced to Mr. Evans.
Mrs. Green: Mr. Evans, 9) __________________ Miss Lucas? Shes from Argentina.
Mr. Evans: Yes, I think weve met before. Its 10) _________________!
Miss Lucas: Thats right, hello again. 11) _________________?
Mr. Evans: Fine, thanks

76
Exercise 6. Read the following information about different culture manners:
Alexandra Adler is an expert in doing business across cultures. She is talking to a

group of British businesspeople.
Culture is the way we do things here. Here may be a country, an area, a social class
or an organization such as a company or school. You often talk about:
company or corporate culture: the way a particular company works, and the things
it believes are important.
canteen culture: the ways that people in an organization such as the police think
and talk, not approved by the leaders of the organization.
long-hours culture: where people are expected to work for a long time each day.
macho culture: ideas typically associated with men: physical strength,
aggressiveness, etc.
But you must be careful of stereotypes, fixed ideas that may not be true.
Distance between managers and the people who work under them varies in different
cultures. Look at these two companies.
In Country A, managers are usually easy to talk to - accessible and approachable - and
there is a tradition of employees being involved in decision-making as part of a team of
equals. This company is not very hierarchical, with only three management layers.
In Country B, managers are usually more distant and remote. Employees may feel
quite distant from their managers and have a lot of deference for them: accepting decisions
but not participating in them.
Companies in Country B tend to be more hierarchical than those in Country A, with more
management layers.
Deference and distance may be shown in language. Some languages have many forms
of address that you use to indicate how familiar you are with someone. English only has
one form, you but distance may be shown in other ways, for example, in whether first
names or surnames are used.
Exercise 7. Look at Exercise 6. Which word combination with culture describes each of
the following?
1. The men really dominate in this company, they dont make life easy for women at
all. All they talk about is football.
2. Among the management here we try to be fair to people from different minorities,
but there are still elements of racism among the workforce.
3. Of course, the quality of the work you do after youve been at it for ten hours is not
good.
4. There was a time when managers could only wear white shirts in this company -
things are a bit less formal now.
5. Here the male managers talk about the market as if it was some kind of battlefield.
6. They say that if you go home at 5.30, you cant be doing your job properly, but
Im going anyway.

77
Exercise 8. Read this information and decide whether these pieces of advice about the
English-speaking business world are true or false:
In the English-speaking business world, people use first names, even with people they
do not know very well. But if you arent sure, use Mr. and the family name for men, and
Mrs. or Miss and the family name for women, depending on whether they are married or
not. Ms. often replaces Mrs. and Miss. You dont use Mr., Mrs., Miss or Ms. with only a
first name (e.g. Mr. John) or by itself.
1. Its possible to introduce yourself by saying your family name then your first
name.
2. Its possible to use Mr., Mrs. or Miss on its own, or with a first name.
3. British people use Sr. and Jr. to refer to a father and his son.
4. Americans often show their middle name with an initial.
5. You can always use someones first name to talk to them, even if you dont know
them very well.
6. Ms. is being used more and more as a title for women.
7. You can show your qualifications after your name on your business card.
Exercise 9. Read the following text and do the exercises below:
In Alphaland, businesspeople dress quite formally. The business suit is common, but
for men, wearing non-matching jacket and trousers is also a possibility.
In Betatania, the dark business suit is obligatory for men. Some companies allow
women to wear trouser suits.
In Gammaria, the business suit is almost as necessary as in Betatania, but with more
variation in colours. Some companies require employees to wear formal clothes from
Monday to Thursday, and allow less formal ones on what they call casual Fridays or
dress-down Fridays. In some places, many banks and shops require people dealing with
customers to wear uniforms so that they all dress the same.
In Deltatonia, people dress more casually at work than in the other countries. For
men, suits and ties are less common than elsewhere. This is smart casual.
Alexandra Adler continues her seminar on cross-cultural issues.
Entertaining and hospitality vary a lot in different cultures.
In Alphaland, entertaining is important. There are long business lunches in
restaurants, where deals are discussed. Professional and private lives are separate,
and clients are never invited home.
In Betatania, evenings are spent drinking and singing in bars with colleagues and
clients.
In Gammaria, lunch can be important, but less so than in Alphaland. Important
contacts may be invited to dinner at home. Corporate hospitality is a big industry,
with clients invited to big sports events.
In Deltatonia, restaurants are rare outside the capital. Some entertainment takes
place when important clients are invited to peoples houses for dinner, or go
sailing or to country houses for the weekend, etc.
Attitudes towards time can vary enormously.
In Busyville, people start work at eight, and officially finish at six, though many
managers stay much longer. There is a culture of presenteeism: being at work when you

78
dont need to be. There is a two-hour lunch break, and a lot of business is done over
restaurant lunches. (Lunch is the main meal. The working breakfast is rare.) There are no
snacks between meals, just coffee, so eat properly at meal times.
As for punctuality, you can arrive up to 15 minutes late for meetings. If invited to
someones house (unusual in business), arrive 15-30 minutes after the time given.
Dont phone people at home about work, and dont phone them at all after 9 pm. There
are a lot of public holidays (about 15) during the year. Busyville is empty in August, as
many companies close completely for four weeks. Employees have five weeks holiday a
year and they usually take four of them in August.
Here are some other areas of potential cultural misunderstanding:
a. distance when talking to people: what is comfortable?
b. eye contact: how much of the time do people look directly at each other?
c. gesture: people make lots of facial gestures? How much do they move their arms
and hands?
d. greetings/goodbyes: do people shake hands every time? Are there fixed phrases to
say?
e. humour: is this a good way of relaxing people? Or is it out of place in some
contexts?
f. physical contact: how much do people touch each other?
g. presents: when should you give them? When should you open them? What should
you say when you receive one?
h. rules of conversation and the role of silence: how long can people be silent before
they feel uncomfortable? Is it acceptable to interrupt when others are speaking?
In which country might you hear these things:

1. How about a trip out tomorrow afternoon? We could see some horse racing and
have a glass of champagne.
2. Do come out with us this evening! I know some great bars. Hows your singing?
3. What are you doing this weekend? You could come to our summer cottage. Youll
meet my family and we can take the boat out.
4. Lets get out of the office to discuss the deal. I know a nice restaurant near here,
with some very good local dishes.
Exercise 10. Tick () the things this visitor to Busyville does right, and put a cross (X) by
her mistakes:
I phoned my contact in her office at 7.30 pm. (1) I suggested a working breakfast the
next morning. (2) She wasnt keen, so I suggested lunch. (3) We arranged to meet at
her office at 12.30. I arrived at 12.45 (4) and we went to a restaurant, where we had a
very good discussion. That evening I wanted to check something, so I found her name in
the phone book and phoned her at home. (5) She was less friendly than at lunchtime. I
said I would be back in Busyville in mid-August (6). Not a good time, she said, so I
suggested September. (7)

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Exercise 11. Which points in the text above (Exercise 9) are referred to in this story:
Sally, a student, is working for a company abroad for work experience. The company has
employees from all over the world. The head of the company, Henrik, invites Sally to a
barbecue for his employees at his home, at 3 pm on Saturday.
She is the first to arrive, at exactly 3 oclock. When the others arrive, some shake hands
with each other. Some kiss on one cheek, others on both cheeks. Others arrive and say
hello without kissing or shaking hands. (1) Some bring wine or flowers, which the host
does not open and puts to one side. Others bring nothing. (2) In conversations, some
people move their arms around a lot and seem to make signs with their hands, others keep
their hands by their sides. (3) Some people do not let others finish what they are saying,
and others say almost nothing; the people with them seem upset and move away when
they can. (4). Some people look directly at the person they are talking to. Others look
away more. (5) Some touch the arm of the other person whenever they are speaking to
them. (6) notices that some people seem to be slowly moving backwards across the
garden as the conversation goes on, while the person with them is moving forward. (7)
Later, somebody makes a joke but nobody laughs. Everyone goes quiet. (8) People start
saying goodbye and leaving.
Exercise 12. Read this article and choose one of these titles for it:
When in Rome ... Problems that business people face

Travelling abroad Good manners, good business
Doing business in Europe I didnt mean to be rude!
Nobody actually wants to cause offence but, as business becomes ever more
international, it is increasingly easy to get it wrong. There may be a single European
market but it does not mean that managers behave the same in Greece as they do in
Denmark.
In many European countries handshaking is an automatic gesture. In France good
manners require that on arriving at a business meeting a manager shakes hands with
everyone present. This can be a demanding task and, in a crowded room, may require
gymnastic ability if the
farthest hand is to be reached.
Handshaking is almost as
popular in other countries
- including Germany,
Belgium and Italy. But
Northern Europeans,
such as the British and
Scandinavians, are not quite so
fond of physical
demonstrations of friendliness.
In Europe the most
common challenge is
not the content of the food, but the way you behave as you eat. Some things are just not
done. In France it is not good manners to raise tricky questions of business over the main

80
course. Business has its place: after the cheese course. Unless you are prepared to eat in
silence you have to talk about something - something, that is, other than the business deal
which you are continually chewing over in your head.
Italians give similar importance to the whole process of business entertaining. In fact,
in Italy the biggest fear, as course after course appears, is that you entirely forget you are
there on business. If you have the energy, you can always do the polite thing when the
meal finally ends, and offer to pay. Then, after a lively discussion, you must remember the
next polite thing to do - let your host pick up the bill.
In Germany, as you walk sadly back to your hotel room, you may wonder why your
apparently friendly hosts have not invited you out for the evening. Dont worry, it is
probably nothing personal. Germans do not entertain business people with quite the same
enthusiasm as some of their European counterparts.
The Germans are also notable for the amount of formality they bring to business. As an
outsider, it is often difficult to know whether colleagues have been working together for
30 years or have just met in the lift. If you are used to calling people by their first names
this can be a little strange. To the Germans, titles are important. Forgetting that someone
should be called Herr Doktor or Frau Direktorin might cause serious offence. It is equally
offensive to call them by a title they do not possess.
In Italy the question of title is further confused by the fact that everyone with a
university degree can be called Dottore - and engineers, lawyers and architects may also
expect to be called by their professional titles.
These cultural challenges exist side by side with the problems of doing business in a
foreign language. Language, of course, is full of difficulties - disaster may be only a
syllable away. But the more you know of the culture of the country you are dealing with,
the less likely you are to get into difficulties. It is worth the effort. It might be rather hard
to explain that the reason you lost the contract was not the product or the price, but the fact
that you offended your hosts in a light-hearted comment over an aperitif. Good manners
are admired: they can also make or break the deal.
Exercise 13. Decide if these statements are true or false, according to the writer:
1. In France you are expected to shake hands with everyone you meet.
2. People in Britain shake hands just as much as people in Germany.
3. In France people prefer talking about business during meals.
4. It is not polite to insist on paying for a meal if you are in Italy.
5. Visitors to Germany never get taken out for meals.
6. German business people dont like to be called by their surnames.
7. Make sure you know what the titles of the German people you meet are.
8. Italian professionals are usually addressed by their titles.
9. A humorous remark always goes down well all over the world.
Exercise 14. Discuss these questions:
Which of the ideas in the article do you disagree with?

What would you tell a foreign visitor about good manners in your country?
How much do you think international business is improved by knowing about
foreign peoples customs?

81
Exercise 15. Listen to the people talking about customs to do with work. Which
speakers mention the customs in the chart? Put a tick () in the correct column:
Polly Mohammed
a. The working day starts about 7.30.
b. Some people go home for lunch.
c. Sunday is a day of rest for most people.
d. Men in offices do not usually wear ties.
e. Some people go for a beer after work, before they go
home.
Exercise 16. Listen to the same speakers talking about foreign visitors and decide
whether the statements below are true or false:
a. Americans in Zaire prefer to stay in big hotels.

b. Americans like to try the local food.
c. Zairean food is very spicy.
d. Zairean people are very friendly.
e. Bengali is such a difficult language that no-one expects foreigners to learn it.
f. Bengali food is too hot for foreign tastes.
g. There are so many people in Bangladesh that people should visit them instead of
looking at a few tourist sights.
Exercise 17. Read the following text and do the exercises below:
BOARDROOM CULTURE CLASH

An Unpredictable Affair
Try to put pressure on a Japanese in a negotiation and you will be met with stony
silence. Hold an informal fact-finding meeting with a German and you can expect a
battery of searching questions. Disagree with the French on even a minor point and they
will take great pleasure in engaging in spirited verbal combat. Doing business across
culture can be an unpredictable affair.
Cultural Awareness
Most of us prefer to do business with people we like. And it should come as no surprise
that the people we like tend to be like us. So whilst we may dispute the accuracy of
cultural stereotypes it is generally agreed that good business relationships are built on
cultural awareness. Across national frontiers nice guys do more business than nasty
ones. But what constitutes nice-guy behaviour in a boardroom in Miami is not necessarily
what they expect in Madrid.
The US Perspective
For instance, most Americans will insist on the hard sell. Its not enough that you want
to buy their products, you must let them sell them to you. They have to report back to
superiors who will be as interested in how the deal was struck as the result. Systems and
procedures matter to Americans.
The Spaniards Trust You

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The Spanish, on the other hand, are unimpressed by the most meticulously prepared
meeting and pay much more attention to people. In this they are more like the Arabs or the
Japanese. In the Middle and Far East business is built on trust over a long period of time.
Spaniards may come to a decision about whether they trust you a little sooner.
Animated Italians
Italians too tend to feel that the main purpose of meetings is to assess the mood of
those present and reinforce team-spirit. There may well be a lot of animated discussion at
a meeting in Italy, but the majority of decisions will be, made elsewhere and in secret.
Scandinavians want results
Strangely enough, Scandinavians are rather like Americans. They value efficiency,
novelty, systems and technology. They are firmly profit-oriented. They want results
yesterday.
Succeed with the Germans
Dont be surprised if the Germans start a meeting with all the difficult questions. They
want to be convinced you are as efficient and quality-conscious as they are. They will be
cautious about giving you too much business until you have proved yourself. They will
demand prompt delivery and expect you to keep your competitive edge in the most price-
sensitive market in Europe. Succeed and you will enjoy a long-term business relationship.
Adversarial Meetings
The French will give you their business much more readily. But they will withdraw it
just as fast if you fail to come up with the goods. Meetings in France tend to be
adversarial. Heated discussion is all part of the game. Germans will be shocked to hear
you question their carefully prepared arguments. The Spanish will offer no opinion unless
sure of themselves, for fear of losing face. But French executives prefer to meet
disagreement head on, and the British tendency to diffuse tension with humour doesnt go
down too well.
Prisoners of our culture
Ask yourself whether meetings are opportunities to network or get results. Is it more
important to stick to the agenda or generate new ideas? Is the main aim of a meeting to
transmit or pool information? It all depends on where in the world you hold your meeting
and whether you belong to an individualistic business culture like the French, Germans
and Americans or to a collective one like the British, Japanese and Greeks. Indeed, who
knows to what extent our views are our own and to what extent culturally conditioned?
For in business, as in life, all human beings are captives of their culture.
Which of the following points support the opinions expressed in the article?
1. In meetings the French tend to be more aggressive than the Germans.
2. The Arabs have nothing in common with the Japanese.
3. The French generally dont appreciate the British sense of humour.
4. The Spanish are rarely hesitant in cross-cultural meetings.
5. The Americans and Scandinavians value a methodical approach.
6. The Germans want quality at any price.
7. The British tend to be more individualistic in business than the Germans.
8. In business the Italians are more or less like the Spanish.

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Exercise 18. Complete the sentences below using words from the following list. Referring
back to the article will help you with some of them:
market price profit quality client cost technology
1. Were a firmly .-oriented company, so the bottom-line for us is not how big
our market share is but how much money were going to make.
2. Even at low prices inferior products wont sell in such a .-conscious
market.
3. The markets far too .-sensitive to stand an increase in service charges.
4. Were constantly forced to respond both to changing customer needs and to what
our main competitors are doing in a .-driven business such as this.
5. The customer always comes first. Were a very .-centred company.
6. In a .-led business, such as ours, its vital to plough profits back into R&D.
7. If the price of materials goes up any more, production will no longer be .-
effective.
Exercise 19. Obviously, in a delicate negotiation you do not always say exactly what you
think! You need to be able to express yourself diplomatically, to make your point firmly
but politely. Match what you think with what you say:
WHAT YOU THINK WHAT YOU SAY

1. We are unhappy with this offer. a. Unfortunately, we would be unable
2. We are dissatisfied. to accept that.
3. We cant accept it. b. With respect, thats not quite
4. You said there would be a discount. correct.
5. Dont forget your obligations. c. Im sure we dont need to remind
6. We want a guarantee. you of your contractual obligations.
7. We wont agree to this. d. Were rather surprised you expect
8. Were shocked you expect us to us to cover the costs.
cover the costs. e. We would find this somewhat
9. Thats wrong. difficult to agree to.
10. We want a bigger rebate. f. We were rather hoping to finalize
11. We must finalize the deal today. the deal today.
12. You obviously dont understand. g. Im sorry but were not very happy
with this offer.
h. Actually, we were hoping for a
slightly more substantial rebate.
i. Im afraid you dont seem to
understand.
j. We understood there would be a
discount.
k. We would need some sort of
guarantee.
l. Were not completely satisfied.

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UNIT 6: TYPES OF BUSINESS ORGANIZATIONS
Exercise 1. Read the following text and try to summarise the notion of the words
company and association:
A company is, in general, any group of persons (known as its members) united to
pursue a common interest. The term is thus synonymous with association, but more often
it is used specifically to identify associations formed for profit, such as the partnership,
the joint-stock company, and the for-profit corporation. A company is not necessarily a
corporation, and thus may not have a separate existence from its members.
A company might also not be able to sue or be sued in its own name, and thus would
not be considered to be a legal person. Whether a company has either of these
characteristics depend on the law of the jurisdiction.
Although associations of persons carrying on business must have existed from time
immemorial, the oldest continually-operating business in existence is Japanese firm Kongo
Gumi, which was founded in the sixth century.
A voluntary association (also sometimes called just an association) is a group of
individuals who voluntarily enter into an agreement to form a body (or organization) to
accomplish a purpose.
Strictly speaking in many jurisdictions no formalities are necessary to start an
association, although it is difficult to imagine how a one person association would operate.
In some jurisdictions, there is a minimum for the number of persons starting an
association. Some jurisdictions require that the association register with the police or other
official body to inform the public of the associations existence. This is not necessarily a
tool of political control but much more a way of protecting the economy from fraud. In
many such jurisdictions, only a registered association is a legal person whose membership
is not responsible for the financial acts of the association. Any group of persons may, of
course, work as an association but in such case, the persons making a transaction in the
name of the association are all responsible for it.
Associations that are organized for profit or financial gain are usually called
partnerships. A special kind of partnership is a co-operative which is usually founded on
one man - one vote principle and distributes its profits according to the amount of goods
produced or bought by the member. Associations may take the form of a non-profit
organization or they may be not-for-profit corporations; this does not mean that the
association cannot make benefits from its activity, but all the benefits must be reinvested.
Most associations have some kind of document or documents that regulate the way in
which the body meets and operates. Such an instrument is often called the organizations
bylaws, regulations, or agreement of association.
In some civil law systems, an association is considered a special form of contract.
In the Civil Code of Quebec this is a type of nominate contract. The association can
be a body corporate, and can thus open a bank account, make contracts (rent
premises, hire employees, take out an insurance policy), lodge a complaint etc. In
France, conventional associations are regulated by the Waldeck-Rousseau law of July
1, 1901 and are thus called Association loi 1901, except in Alsace and Moselle where the
law of April 19, 1908 applies (these countries were German in 1901). In Texas, state law
has statutes concerning unincorporated nonprofit associations that allow unincorporated
associations that meet certain criteria to operate as an entity independent of its
members, with the right to own

85
property, make contracts, sue and be sued, as well as limited liability to it officers and
members.
Exercise 2. Complete the text using the words below:
bankruptcy corporations creditors issue liability losses
partnership registered shares sole trader financial
premises capital prospectus files
The simplest form of business is the individual proprietorship or (1) ...........: for example,
a shop (US = store) or a taxi owned by a single person. If several individuals wish to go
into business together they can form a (2)...........; partners generally contribute equal
capital, have equal authority in management, and share profits or (3) ........... . In many
countries, lawyers, doctors and accountants are not allowed to form companies, but only
partnerships with unlimited (4) ........... for debts - which should make them act
responsibly.
But a partnership is not a legal entity separate from its owners; like sole traders, partners
have unlimited liability: in the case of (5) ............ a partner with a personal fortune can
lose it all. Consequently, the majority of businesses are limited companies (US = (6)
...........), in which investors are only liable for the amount of capital they have invested. If
a limited company goes bankrupt, its assets are sold (liquidated) to pay the debts; if the
assets do not cover the debts, they remain unpaid (i.e. (7) ........... do not get their money
back.)
In Britain, most smaller enterprises are private limited companies which cannot
offer (8) ........... to the public; their owners can only raise capital from friends or from
banks and other venture capital institutions. A successful, growing British business can
apply to the Stock Exchange to become a public limited company; if accepted, it can
publish a (9) ........... and offer its shares for sale on the open stock market. In America,
there is no legal distinction between private and public limited corporations, but the
equivalent of a public limited company is one (10) ........... by the Securities and Exchange
Commission.
Founders of companies have to write a Memorandum of Association (in the US, a
Certificate of Incorporation), which states the companys name, purpose, registered office
or premises and authorized share (11) ........... .
(12).......... (always with an s at the end) - is the technical term for the place in which a
company does its business: an office, a shop, a workshop, a factory, a warehouse, etc.
Authorized share capital means the maximum amount of a particular type of share the
company can (13) .......... .
Founders also write Articles of Association (US = Bylaws), which set out the rights and
duties of directors and different classes of shareholders. Companies memoranda and
articles of association, and annual (14). .......... statements are sent to the registrar of
companies, where they may be inspected by the public. (A company that (15) ........... its
financial statements late is almost certainly in trouble.) In Britain, founders can buy a
ready-made off-the-shelf company from an agent, that is, a company formed and held
specifically for later resale; the buyer then changes the name, memorandum, and so on.

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Exercise 3. Read the following text and list the steps in starting a business as well as
explain four elements involved in every business:
The Steps in Starting a Business

Nearly every person who makes the decision to start a business is an entrepreneur
because he or she is willing to take a risk. Usually people decide to start a business to gain
profits and to do something on their own or to be their own boss.
Entrepreneurs then gather the factors of production and decide on the form of business
organization that best suits their purposes. Anyone hoping to become an entrepreneur must
also learn as much as possible about the business he or she plans to start. This process
includes learning about the laws, regulations, and tax codes that will apply to the business.
Elements of Business Operation
To start a business, you must make potential customers aware that your services are
available for a price. You could have one-page fliers printed to advertise your business
and pass them out. You could also buy advertising space in the local newspaper.
Every business, regardless of size, involves four elements: expenses, advertising,
receipts and record keeping, and risk.
Expenses
If you own a painting business, you will need to purchase brushes and paint. As your
business grows, you might invest in paint sprayers so that you can complete jobs faster.
This new equipment would add to your income, but will probably take more money
capital than you have on hand.
Advertising
You will quickly find out that letting potential customers know that you are in business
is costly. Once you have customers, however, information about your business will spread
by word of mouth.
Receipts and Record Keeping
No matter how small your business is, having a system to track your expenses and
income is key to your success. All receipts should be safely filed and saved.
Risk
Every business involves risks. You must balance the risks against the advantages of
being in business for yourself - including profit versus loss.
Depending on the kinds of jobs you do, you will need equipment and replacement
parts. At first, you might buy parts as you need them for a particular job: In time, you will
find it easier to have an inventory. An inventory is a supply of whatever items are used in
a business.
Probably one of the first things you want to do, if you have not already done so, is buy
a computer. With the computer, you also should purchase the programs that will allow you
to keep track of all your expenses and all your receipts. Many such programs exist and are
relatively inexpensive. Programs write checks for you, calculate your monthly profit and
loss, tell you the difference between what you own and what you owe (called net worth),
and so on. As an entrepreneur, you are taking many risks, but the profit you expect to
make is your incentive for taking those risks. For example, if you spend part of your
savings to pay for advertising and equipment, you are taking a risk. You may not get
enough business to cover these costs.
Whenever you buy a special part for a job, you are taking a risk. Suppose you do the
work and your customer never pays you. You are even taking a risk with the time you
spend. You are using time to think about what you will do, to write ads, to set up the

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bookkeeping, and so on. This time is an opportunity cost. You could have used it to do
something else, including work for someone for a wage. If you work for someone else,
you take only the risk of not being paid, which is usually small. As an entrepreneur your
risks are great, but so are the potential rewards.
Exercise 4. After reading the text in Exercise 3, you should be able to fill in the missing
word or words:
People who want to start their own businesses are regarded as (1)__________________.
The first step in starting a new business is to
(2)_____ _____ _____ ______. Along with the desire to be one's own boss, most people
are motivated by the hope of gaining (3)_________________ from the business. The
second step involves gathering the (4)_______ _______ _______ and then choosing the
most suitable form of (5)__________ __________. New business owners must learn all
they can about the laws, regulations, and tax codes that apply to their operation.
Every business involves four elements. Through (6)__________________, owners let
others know about the business and the services offered. Once customers know a business,
information spreads by (7)________ ________ ________. As the business grows, there
will be more (8)_______________ incurred for supplies, raw materials, equipment, and so
on. In time, an owner will want to have an (9)___________________________ of
replacement parts to make the business more efficient. State and federal tax laws require
that an owner keep (10)_________________________ for every expenditure.
(11)______________ __________ will enable an owner to keep track of all transactions
related to the business. A computer and specialized software can help maintain business
files. Finally, an entrepreneur needs to be aware of the (12)______________________ of
starting a business and balance them against the potential (13)____________________.
Exercise 5. Read the following text and describe the advantages and disadvantages of a
sole proprietorship, explain how people can get help starting a small business, and list the
advantages and disadvantages of a partnership:
SOLE PROPRIETORSHIPS AND PARTNERSHIPS ARE COMMON IN THE

UNITED STATES TODAY
Business can be organized in the United States in a number of ways. The two most
common are a sole proprietorship and a partnership.
Sole Proprietorship
The most basic type of business organization is the sole proprietorship, a business
owned by one person. It is the oldest form of business organization and also the most
common. The colonies of Maryland and Pennsylvania were founded as sole
proprietorships. When we speak of a proprietor, we are always referring to the owner of a
business. The word proprietor comes from the Latin word proprietas, meaning property.
A business is a kind of property.
Today, the United States has about 14 million such businesses, and many of them are
small. For that reason, they usually are easier and less expensive to start and run. You
probably have contact with many sole proprietorships every day without realizing it -
owners of corner grocery stores, repair shops, dry cleaners, and so on. Many doctors,

88
dentists, lawyers, and accountants are sole proprietors. In farming, construction, and
contracting, sole proprietorships are the most numerous types of business organization.
The following table shows advantages and disadvantages of a sole proprietorship.
ADVANTAGES DISADVANTAGES
As sole owner, the proprietor Losses are not shared.
Profits and receives all the profits because he
losses or she takes all the risks.
Liability The proprietor has complete legal
responsibility for all debts and
damages brought upon oneself in
doing business. This is known as
unlimited liability. If the firm is
unable to pay its bills or if someone
is injured as a result of the business,
the proprietor can be forced to sell
his or her personal assets as well as
the business to pay these debts.
Assets are items of value such as
houses, cars, jewelry, and so on.
Management Decisions on starting and running A proprietor must handle all
the business can be made quickly decision making, even for unfamiliar
because the owner does not have areas of the business. For example,
to consult with other people. the owner of a manufacturing firm
Because a proprietorship is may know a great deal about product
usually small, the operation of the design, but very little about selling.
business is less complicated than This is a severe problem for many
other types of business. There are sole proprietorships.
generally fewer government
regulations than with
corporations.
Taxes A proprietor must pay personal
income taxes on profits, but these
taxes may be lower than taxes for
a corporation.
Personal The proprietor has full pride in Running a sole proprietorship is
satisfaction owning the business. The person demanding and time-consuming. If
is his or her own boss and makes the proprietor does not enjoy such
the business whatever it is. responsibility, he or she will find
ownership a burden.
Financing Because the proprietor has A sole proprietor must rely on his or
growth liability for all debts, it is her own funds plus money that can
occasionally easier for a be borrowed from others.
proprietorship to obtain credit Borrowing small amounts may be
than for a corporation of the same easier for a sole proprietorship than

89
size. Lenders are more willing to for a corporation of similar size, but
extend credit knowing that they borrowing large amounts can be
can take over not only the assets difficult.
of the business, but also the assets
of the proprietor if the loan is not
paid back.
Life of the A sole proprietorship depends on
business one individual. If that person dies,
goes bankrupt, or is unwilling or
unable to work, the business will
probably close. This uncertainty
about the future increases the risk to
both employees and creditors.
Help in starting a small business
For a person who wants to start a sole proprietorship, help is available. The federal
governments Small Business Administration often helps finance startups, which are new
small businesses. State departments of commerce and community affairs also offer
assistance. Many community college and university campuses have federally funded
small business development centres that will help a small business get started.
A small business incubator might also aid businesses. Just as incubators help hatch
chickens, there are business incubators that help hatch small businesses. They are often
operated with state and federal funds. A small business incubator might provide a low-rent
building, management advice, and computers. The incubators goal is to generate job
creation and economic growth, particularly in depressed states.
Partnerships
To take the example of your repair business a little further, suppose that your business
is doing so well that your workload has increased to the point at which you have little time
for anything else. You could expand your business by hiring an employee. You also need
financial capital, but would rather not take out a loan. You may look into taking on a
partner.
You decide that the best solution is to look for someone who can keep books, handle
customers, and invest in the business. You offer to form a partnership. A partnership is a
business that two or more individuals own and operate. You may sign a partnership
agreement that is legally binding. It describes the duties of each partner, the division of
profits, and the distribution of assets should the partners end the agreement.
Many doctors, dentists, architects, and lawyers work in partnerships. Two or more
people often own small stores. The following table lists some of the major advantages and
disadvantages of partnerships.
Losses are shared. Several Because partners share the risks of
Profits and individuals can sometimes the business, they also share the
losses survive a loss that might bankrupt profits.
a sole proprietor.
Liability Partners as a group have unlimited

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liability for all debts and damages

incurred in business. If a partner is
unable to pay his or her share of a
debt, the others must make up for the
difference.
Management Partnerships are usually more Decision making is often slow
efficient than proprietorships. because of the need to reach
They allow each partner to work agreement among several people.
in areas of the business that he or Disagreements can lead to problems
she knows most about or is best at in running the business.
doing.
Taxes Partners must pay personal
income taxes on their share of
profit. These taxes are sometimes
lower than those for a
corporation.
Personal Partners, like sole proprietors, If partners do not get along with
satisfaction often feel pride in owning and each other, trying to work together
operating their own company. can result in constant arguments.
Financing A partnership combines the Like sole proprietorships,
growth capital of two or more people. It partnerships can have trouble
makes more money available to obtaining large amounts of capital.
operate a larger and perhaps more The amount that partnerships can
profitable business. Because the borrow is usually limited by the
risk is shared, creditors are often combined value of the assets of the
willing to lend more money to a business and of the partners.
partnership than to a sole
proprietorship.
Life of the If one partner dies or leaves, the
business partnership must be ended and
reorganized. The others may be
unable or unwilling to continue
operating, and the business may
close. This uncertainty is a risk to
employees and creditors.
Limited Partnerships. A limited partnership is a special form of partnership in which

the partners are not equal. One partner is called the general
partner. This person (or persons) assumes all of the
management duties and has full responsibilities for the
debts of the limited partnership. The other partners are
limited because all they do is contribute money or property.
They have no voice in the partnerships management.
The advantage to the limited partners is that they have no liability for the losses beyond
what they initially invest. The disadvantage, of course, is that they have no say in how the
business is run. Limited partnerships must follow specific guidelines when they are

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formed. Two or more partners must sign a certificate of limited partnership in which they
present, at a minimum, the following information:
The company name
The nature of the business
The principal place of business
The name and place of residence of each partner
How long the partnership will last
The amount of cash or other property contributed by each partner
Joint Ventures. Sometimes individuals or companies want to do a special project
together. They do not have any desire to work together after the project is done. What they
might do is form a joint venture. A joint venture is a temporary partnership set up for a
specific purpose and for a short period of time.
Exercise 6. After reading the text in Exercise 5, you should be able to fill in the missing
word or words:
Physicians, writers, and local grocery store owners often do business as

(1) __________ _________. The owner of the business is known as a
(2) _________________ and accepts all the risks and rewards. One advantage of this form
of business is that the owner may find it easier to obtain (3) ______________________
because the business serves as (4)______________________ for loans. Pride of
ownership is balanced by the fact that running a business is very (5)
______________________. Also, borrowing (6) __________ ___________ can be
difficult, which may create a shortage of funds. If the owner dies or is unable to work, the
business may be forced to (7) _____________________. Such uncertainty increases risks
to both (8) ____________________ and ______________________. Small business
startups can be financed by the federal governments
(9) __________ ___________ ___________ or by state departments of
(10) _____ _____ _______ ____. In some cases, universities or colleges have (11)
__________ ________ _________, whose goals are to foster job creation and
(12)_________ ___________ . If a business grows rapidly, an owner may form a
partnership with two or more people. These people sign a (13) ___________
___________ that is legally binding on all parties. If one partner provides money but does
not help manage the business, the arrangement is known as a (14) ___________
__________. In other cases, a partnership known as a (15) ___________ __________ may
be formed for a specific purpose. Advantages of a partnership include the fact that losses
are (16) __________________, partnerships are generally more
(17) _____________________, the owners pay (18)_______ _______ _______ only on
their share of profits, and often more
(19) ____________are available to finance growth. Disadvantages include
(20) __________ __________ on debts and the fact that: if one partner dies, the business
must be (21) ___________ ________ ______________.

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Exercise 7. Read the following text and describe the advantages and disadvantages of a
corporation:
THE CORPORATE WORLD
Suppose your electronic repair business has grown. You now have several partners and
have turned your garage into a shop. You would like to expand and rent a store so that
your business would be more visible. You would like to buy the latest equipment, charge a
little less than your competitors, and capture a larger share of the market for electronic
repair work. You need money capital, however.
You have decided that you do not want any more partners. You would have to consult
with them about every detail of the business as you do now with your present partners.
What you want is financial backers who will let you use their money while letting you run
the business. What you are proposing is a corporation. The following table shows the
advantages and disadvantages of corporations.
Owners of the corporation
Profits and stockholders do not have to
losses devote time to the company to
make money on their investment.
Liability The corporation, and not its
stockholders, is responsible for its
debts. If a corporation goes
bankrupt or is sued, creditors
cannot normally take personal
property from stockholders to pay
debts. This is known as limited
liability, and may be the major
advantage of the corporate form
of business.
Management Responsibility for running a Decision making can be slow and
corporation is divided among complicated because so many levels
many people. Decisions are made of management are involved. Also,
at many levels by individuals the interests of those running the
trained in specific areas, such as corporation, who may not be
sales, production, and so on. This stockholders, are not always the
allows a corporation to handle same as those of the stockholders,
large and complicated operations who often seek an immediate return
and to carry on many types of on investment.
business activities at the same
time.
Taxes The federal government and some
state and local governments tax
corporate profits. The profits that
are paid to stockholders as dividends
are again taxed as income to those

93
individuals. Some states also tax

corporate property.
Personal An individual may feel Individual stockholders have little or
satisfaction satisfaction simply in owning a no say in how a corporation is run.
part of a corporation.
Financing Corporations draw on resources
growth of investors and may issue stock
at any time to raise capital.
Life of the The life of a corporation can
business continue indefinitely if it remains
profitable. Its life is not affected by
the death of stockholders.
A corporation is an organization led by many people but treated by the law as though it
were a person. It own property, pay taxes, make contracts, sue and be sued, and so on. It
has a separate and distinct existence from the stockholders who own the corporations
stock. Stock represents ownership rights to a certain portion of the profits and assets of the
company that issues the stock.
In terms of the amount of business done (measured in dollars), the corporation is the
most important type of business organization in the United States today.
In order to form a corporation, its founders must do three things. First, they must
register their company with the government of the state in which it will be headquartered.
Second, they must sell stock. Third, along with the other shareholders, they must elect a
board of directors.
Registering the Corporation. Every state has laws governing the formation of
corporations, but most state laws are similar. Suppose that you and your partners decide to
form a corporation. You will have to file articles of incorporation application with the
state in which you will run your corporation. In general, these articles include four items:
1. Name, address, and purpose of the corporation;
2. Names and addresses of the initial board of directors (these men and women will
serve until the first stockholders meeting, when a new board may be elected);
3. Number of shares of stock to be issued;
4. Amount of money capital to be raised through issuing stock.
If the articles are in agreement with state law, the state will grant you a corporate
charter - a license to operate from that state.
Selling Stock. To continue the example of your electronic repair business, you could
sell shares of either common or preferred stock in your new corporation. Common stock
gives the holder part ownership in the corporation and voting rights at the annual
stockholders meeting. It does not guarantee a dividend - money return on the money
invested in a companys stock. Preferred stock does guarantee a certain amount of
dividend each year. Preferred stock also guarantees to the stockholder first claim, after
creditors have been paid, on whatever value is left in the corporation if it goes out of
business. Holders of preferred stock usually do not have voting rights in the corporation,
although they are part owners.
If your corporation were to become large, you might find its stock traded in the local
stock market as over-the-counter stock. Over-the-counter means that individual brokerage

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firms hold quantities of shares of stocks that they buy and sell for investors. Should your
corporation continue to grow, it would be traded on a regional stock exchange. It might be
listed as an over-the-counter stock with the National Association of Securities Dealers
Automated Quotation (NASDAQ) in one of their three lists. The largest corporations are
usually listed on the New York Stock Exchange (NYSE).
Naming a Board of Directors. To become incorporated, a company must have a
board of directors. You and your partners, as founders of the corporation, would select the
first board for your corporation. After that stockholders at their annual stockholders
meetings would elect the board. The bylaws of the corporation govern this election.
Bylaws are a set of rules describing how stock will be sold and dividends paid, with a list
of the duties of the companys officers. They are written after the corporate charter has
been granted.
The board is responsible for supervising and controlling the corporation. It does not
run business operations on a day-to-day basis, however. Rather, it hires officers for the
company - president, vice-president(s) secretary, and treasurer - to run the business and
hire other employees.
Exercise 8. After reading the text in Exercise 7, fill in the missing word or words:
Although a corporation is owned by many people, it is treated by the law as if it were a

(1)____________________. A corporation can make
(2)_____________________, pay taxes, and own (3)_____________.
(4)_____________________ represents ownership in the corporation and a right to a
portion of the (5) ___________________ and ________________ of the company. To
register a corporation, the owners must file an
(6) _______ _______ _______ application. If it is approved, the state will issue a (7)
__________ __________, which is a license to do business. Stockholders who own (8)
____ ______ __________ have voting rights in the corporation. However, unlike owners
of (9) __________ __________, they are not guaranteed a dividend nor do they have first
claim on corporate assets. A corporation must also select a (10) _______ _______
_______ and establish the (11)_____________________, or set of rules, in order to
operate.
Two major advantages of a corporation are (12) _________ __________ for debts and the
fact that it can continue (13)_____________________. Disadvantages are that (14)
__________ __________ is often slow and complicated because of the levels of
management involved and that corporations often pay several kinds of (15)________ on
profits and income.
Exercise 9. Summarize the advantages and disadvantages of franchising and explain what
types of businesses are involved in it:
FRANCHISES
Many hotel, motel, gas station, and fast-food chains are franchises. A franchise is a
contract in which a franchisor (fran-chy-ZOR) sells to another business the right to use its
name and sell its products. The person or business buying these rights, called the
franchisee (fran-chy-ZEE), pays a fee that may include a percentage of all money taken in.
If a person buys a motel franchise, that person agrees to pay the motel chain a certain fee
plus a portion of the profits for as long as his or her motel stays in business. In return, the

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chain will help the franchisee set up the motel. Often, the chain will have a training
program to teach the franchisee about the business and set the standards of business
operations.
Advantages: As practiced in
retailing, franchising offers
franchisees the advantage of
starting up a new business quickly
based on a proven trademark and
formula of doing business, as
opposed to having to build a new
business and brand from
scratch (often in the face of
aggressive competition from
franchise operators).
As long as their brand and formula are carefully designed and properly executed,
franchisors are able to expand their brand very rapidly across countries and continents,
and can reap enormous profits in the process, while the franchisees do all the hard work of
dealing with customers face-to-face. Additionally, the franchisor is able to build a captive
distribution network, with no or very little financial commitment.
For some consumers, having franchises offer a consistent product or service makes life
easier. They know what to expect when entering a franchised establishment.
Disadvantages: For franchisees, the main disadvantage of franchising is a loss of
control. While they gain the use of a system, trademarks, assistance, training, and
marketing, the franchisee is required to follow the system and get approval of changes
with the franchisor.
In response to the soaring popularity of franchising, an increasing number of
communities are taking steps to limit these chain businesses and reduce displacement of
independent businesses through limits on formula businesses.
Another problem is that the franchisor/franchisee relationship can easily give rise to
litigation if either side is incompetent (or just not acting in good faith). For example, an
incompetent franchisee can easily damage the publics goodwill towards the franchisors
brand by providing inferior goods and services, and an incompetent franchisor can destroy
its franchisees by failing to promote the brand properly or by squeezing them too
aggressively for profits.
History. Franchising dates back to at least the 1850s. One early example resulted in
the characteristic look of historic hotels (bars) in New South Wales, with franchising
agreements between hotels and breweries. Early American examples include the telegraph
system which was operated by various railroad companies but controlled by Western
Union, and exclusive agreements between automobile manufacturers and operators of
local dealerships.
Modern franchising came to prominence with the rise of franchise-based restaurants.
This trend started initially in the 1930s with traditional sit-down restaurants like the early
Howard Johnsons, and then exploded in 1950s with the development of fast food chains,
of which McDonalds has been the most successful worldwide. Many retail sectors,
particularly in the United States, are now dominated by franchising to the point where
independently-run operations are the exception rather than the rule.

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Exercise 10. After reading the text in Exercise 9, fill in the missing word or words:
A franchise is a (1) __________ in which a franchiser sells the right to use its
(2)____________________ and sell its (3) ____________. A franchisee pays a fee plus a
portion of the profits to a chain. The advantages to the franchisee are that the national
chain will pay for (4) __________ campaigns that identify the franchise with the national
name. The chain may also help to choose a (5) _____________________ for the building
and arrange (6)_________for the new owner.
Exercise 11. Youll hear a recording of part of a training session for small business
people on the principles and practice of franchising. Listen to the first part of the
recording. Fill the gaps in this summary:
The franchisor usually supplies:

1. an ________________ product or service and a well-known ___________image.
2. an _____________ manual, showing how the business should be set up and how it
must be run.
3. help, advice, and training in ____________ the business.
4. continuing advice, training and support during the ______________ of the
franchise.
5. the _______________ thats required to set up and operate the business.
6. _______________ of the product, which he will be able to _______________
cheaply in ____________. This may result in savings or, depending on the
franchisors mark-up, _____________ the franchisee to buying at
______________the market price.
7. local, national and even international _________________.
Exercise 12. Listen to the second part of the recording and answer these questions
about it:
1. The questioner points out that

a. franchisees usually require varying amounts of on-going support.
b. franchisors tend to reduce their on-going support a year after start-up.
c. not all franchisors give the same quality of support.
2. She also points out that, as a franchisee, you must find out
a. what brand image and support the franchisor is providing.
b. what level of help you will be getting after a year or so.
c. what level of help you will get when you start up the franchise.
3. In the case of problems in running the franchise, you need to know:
a. Will the franchisor be able to solve all your problems?
b. Will the franchisor provide financial support in an emergency?
c. Will you be offered regular advice by the franchisor?
4. In the answer, the lecturer points out that the franchisee should find out what help
he/she will get from the franchisor
a. in recruiting staff.
b. in training his/her present staff in new skills.

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c. in training new staff.

5. You should also find out whether
a. the franchisor will continue to research and develop the product.
b. the product has been thoroughly researched and developed.
c. the franchisor will charge you a levy for R&D.
6. You need to know whether the franchisor is
a. continuing to advertise the product.
b. spending as much on advertising as the franchisees are charged.
c. spending enough money on advertising.
7. The lecturer goes on to say that a franchisee pays the franchisor
a. a substantial capital sum.
b. a monthly fee.
c. both a capital sum and a monthly fee.
8. To raise money to pay for a franchise, a franchisee
a. will probably have a lot of difficulty in getting a bank loan.
b. will probably have little difficulty in getting a bank loan.
c. must have an enormous amount of money in the bank.
9. The franchisors income from a franchise is calculated on the basis of...
a. the franchisees net profits.
b. the franchisees total sales.
c. the franchisees net monthly income from the franchise.
10. If a franchisee wants to sell the franchise to someone else
a. he/she must have the franchisors permission.
b. He/she must pay the franchisor a substantial commission.
c. He/she is not allowed to do this, he/she must sell it back to the franchisor.
Exercise 13. Writing. Answer the question below on a separate sheet of paper:
Essay 1: Some years ago you went into business for yourself as a manager of a computer
firm. Business has grown to the point where you want to obtain money for expansion.
What are the trade-offs in taking on a partner or forming a corporation?
Essay 2: What are some benefits and trade-offs of a sole proprietorship? Give examples.
Exercise 14. Use the following clues to fill in the vocabulary terms on the grid below:
Down
2. A supply of the items used in a business

4. A temporary partnership meant to carry out a single business operation (two words)
5. A contract in which the right to use the name of a business and sell its products is sold
to another business
7. The owner of a business
Across
1. Some of the owners only contribute money or property to the business, while other
owners manage the business (two words).
3. A business owned by one person (two words)

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6. A state license to operate as a corporation (two words)

8. Articles of _____ define the corporation, its board of directors, the shares of stock to be
issued, and the amount of capital to be raised through issuing stock.
9. A business owned and operated by two or more people
10.Money needed to finance a business in the beginning stage

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UNIT 7: COMPANY STRUCTURE
Exercise 1. Before you read discuss these questions:
How many different ways of organizing or structuring a company can you think
of?
If you work for a company or organization, how would you describe the company
structure?
Exercise 2. Read the text about the different ways in which companies are organized and
answer these questions:
Four main kinds of organizational structure are described in the article. What are
they?
Is one kind of organizational structure more common than the others?
When did delayering take place?
What were the reasons for delayering and what were the results?
How does Julia MacLauchlan describe Microsofts organizational structure?
DOING THE BUSINESS

Roisin Ingle hears how efficient management structures are vital for success
The need for a solid structure within all business entities is absolutely fundamental,
according to Ms. Angela Tripoli, a lecturer in Business Administration at University
College Dublin. Organizational structure concerns who reports to whom in the company
and how different elements are grouped together. A new company cannot go forward
without this and established companies must ensure their structure reflects their target
markets, goals and available technology.
Depending on their size and needs there are several organizational structures
companies can choose from. Increasingly though, in the constantly evolving business
environment, many firms are opting for a kind of hybrid of all of them.
The most recognizable set up is called the functional structure where a fairly
traditional chain of command (incorporating senior management, middle management and
junior management) is put in place. The main benefit of this system is clear lines of
communication from top to bottom but it is generally accepted that it can also be a
bureaucratic set up which does not favour speedy decision-making.
More and more companies are organizing themselves along product lines where
companies have separate divisions according to the product that is being worked on. In
this case the focus is always on the product and how it can be improved.
The importance for multinational companies of a good geographic structure, said Ms.
Tripoli, could be seen when one electrical products manufacturer produced an innovative
rice cooker which made perfect rice - according to western standards. When they tried to
sell it on the Asian market the product flopped because there were no country managers
informing them of the changes that would need to be made in order to satisfy this more
demanding market.

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The matrix structure first evolved during a project developed by NASA when they
needed to pool together different skills from a variety of functional areas. Essentially the
matrix structure organizes a business into project teams, led by project leaders, to carry
out certain objectives. Training is vitally important here in order to avoid conflict
between the various members of the teams.
During the 1980s a wave of restructuring went through industry around the globe. This
process, known as delayering, saw a change in the traditional hierarchical structures with
layers of middle management being removed. This development was, driven by new
technology and by the need to reduce costs. The overall result was organizations that
were less bureaucratic.
The delayering process has run its course now. Among the trends that currently
influence how a company organizes itself is the move towards centralization and
outsourcing. Restructuring has evolved along with a more customercentric approach
that can be seen to good effect in the banks. They now categorize their customers and
their complex borrowing needs into groups instead of along rigid product lines.
Another development can be

seen in larger companies, which
are giving their employees more
freedom to innovate in order to maintain
a competitive edge.
Ms. Julia MacLauchlan,
Director of Microsofts
European Product Development Centre
in Dublin, said the leading software
company had a very flat organizational
structure. There would not be more
than around seven levels between the average software tester and Bill Gates, she said.
Microsoft is a good example of a company that is structured along product lines. In
Ireland, where 1,000 employees work on localization of the software for all Microsofts
markets, the company is split up into seven business units. Each unit controls the
localization of their specific products while working closely with the designers in
Microsofts Seattle Headquarters.
It works, said Ms. MacLauchlan, because everyone who works in the unit is
incredibly empowered.
Without a huge bureaucratic infrastructure people can react a lot more quickly to any
challenges and work towards the companys objectives.
Exercise 3. Match these definitions with the four organizational structures described in
the text:
1. A cross-functional structure where people are organized into project teams.

2. A structure rather like the army, where each person has their place in a fixed
hierarchy.
3. A structure that enables a company to operate internationally, country by country.
4. A structure organized around different products.

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Exercise 4. Match these nouns as they occur together in the text:
1. product a. teams
2. target b. objectives
3. borrowing c. lines
4. project d. units
5. delayering e. company
6. country f. process
7. business g. markets
8. software h. needs
9. company i. managers
Exercise 5. Use an appropriate phrase from the text to complete each sentence:
1. Banks need to be fully aware of their customers.. .

2. Silicon Valley is full of .. .
3. Many companies are now organized along , in which each
division is responsible for a group of products.
4. A matrix organization groups people into .. .
5. Some companies are divided into different .., often also
called profit centres.
6. A multinational company will often have a number of , in charge of
activities in different parts of the world.
Exercise 6. Match these terms with their definitions:
1. business entities a. focusing on the customer rather than the product

2. set up b. new, original
3. innovative c. companies
4. flopped d. something that makes you better than other
companies
5. outsourcing e. did not succeed, failed
6. customercentric f. structure
7. competitive edge g. getting external companies to do work for your
company
Exercise 7. Complete these sentences with an appropriate preposition:
1. Organizational structure concerns who reports whom.

2. Depending . its size, there are several organizational structures a
company can choose from.
3. Many companies are organizing themselves .. product lines.
4. In the 1980s a wave of restructuring went .. industry.
5. Delayering was driven .. the need to reduce costs.
6. Microsoft in Ireland is split . seven business units.

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Exercise 8. Read the text below about different ways of organizing companies, and then
label the diagram, according to which of these they illustrate:
line structure matrix structure functional structure staff structure
A B C D
COMPANY STRUCTURE
Most organizations have a hierarchical or pyramidal structure, with one person or a
group of people at the top, and an increasing number of people below them at each
successive level. There is a clear line or chain of command running down the pyramid. All
the people in the organization know what decisions they are able to make, who their
superior (or boss) is (to whom they report), and who their immediate subordinates are (to
whom they can give instructions).
Some people in an organization have colleagues who help them: for example, there
might be an Assistant to the Marketing Manager. This is known as a staff position: its
holder has no line authority, and is not integrated into the chain of command, unlike, for
example, the Assistant Marketing Manager, who is number two in the marketing
department.
Yet the activities of most companies are too complicated to be organized in a single
hierarchy. Shortly before the First World War, the French industrialist Henry Fayol
organized his coal-mining business according to the functions that it had to carry out. He
is generally credited with inventing functional organization. Today, most large
manufacturing organizations have a functional structure, including (among others)
production, finance, marketing, sales, and personnel or staff departments. This means, for
example, that the production and marketing departments cannot take financial decisions
without consulting the finance department.
Functional organization is efficient, but there are two standard criticisms. Firstly,
people are usually more concerned with the success of their department than that of the
company, so there are permanent battles between, for example, finance and marketing, or
marketing and production, which have incompatible goals. Secondly, separating functions
is unlikely to encourage innovation.
Yet for a large organization manufacturing a range of products, having a single
production department is generally inefficient. Consequently, most large companies are
decentralized, following the model of Alfred Sloan, who divided General Motors into
separate operating divisions in 1920. Each division had its own engineering, production
and sales departments, made a different category of car (but with some overlap, to
encourage internal competition), and was expected to make a profit.
Businesses that cannot be divided into autonomous divisions with their own markets
can simulate decentralization, setting up divisions that deal with each other using
internally determined transfer prices. Many banks, for example, have established
commercial, corporate, private banking, international and investment divisions.

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An inherent problem of hierarchies is that people at lower levels are unable to make
important decisions, but have to pass on responsibility to their boss. One solution to this is
matrix management, in which people report to more than one superior. For example, a
product manager with an idea might be able to deal directly with managers responsible for
a certain market segment and for a geographical region, as well as the managers
responsible for the traditional functions of finance, sales and production. This is one way
of keeping authority at lower levels, but it is not necessarily a very efficient one. Thomas
Peters and Robert Waterman, in their well-known book In Search of Excellence, insist on
the necessity of pushing authority and autonomy down the line, but they argue that one
element - probably the product - must have priority; four-dimensional matrices are far too
complex.
A further possibility is to have wholly autonomous, temporary groups or teams that are
responsible for an entire project, and are split up as soon as it is successfully completed.
Teams are often not very good for decision-making, and they run the risk of relational
problems, unless they are small and have a lot of self-discipline. In fact they still require a
definite leader, on whom their success probably depends.
Which of the following three paragraphs most accurately summarizes the text, and
why?
First summary:
Although most organizations are hierarchical, with a number of levels, and a line of
command running from the top to the bottom, hierarchies should be avoided because they
make decision-making slow and difficult. A solution to this problem is matrix
management, which allows people from the traditional functional departments of
production, finance, marketing, sales, etc. to work together in teams. Another solution is
decentralization: the separation of the organization into competing autonomous divisions.
Second summary:
Most business organizations have a hierarchy consisting of several levels and a clear line
of command. There may also be staff positions that are not integrated into the hierarchy.
The organization might also be divided into functional departments, such as production,
finance, marketing, sales and personnel. Larger organizations are often further divided into
autonomous divisions, each with its own functional sections. More recent organizational
systems include matrix management and teams, both of which combine people from
different functions and keep decision-making at lower levels.
Third summary:
Most businesses are organized as hierarchies, with a clear chain of command: a boss who
has subordinates, who in turn have their own subordinates, and so on. The hierarchy might
be internally divided into functional departments. A company offering a large number of
products or services might also be subdivided into autonomous divisions. Communication
among divisions can be improved by the introduction of matrix management or teams.
The text mentions the often incompatible goals of the finance, marketing and
production (or operations) departments. Classify the following strategies
according to which departments would probably favour them:
1. a factory working at full capacity

2. a large advertising budget

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3. a large sales force earning high commission

4. a standard product without optional features
5. a strong cash balance
6. a strong market share for new products
7. generous credit facilities for customers
8. high profit margins
9. large inventories to make sure that products are available
10. low research and development spending
11. machines that give the possibility of making various different products
12. self-financing (using retained earnings rather than borrowing)
Exercise 9. Sentences 1 to 9 make up a short text about different ways in which

companies can be structured. Complete each sentence, by taking a middle part from the
second box and an end from the third box:
1. Most organizations have a hierarchical or pyramidal structure,

2. A clear line or chain of command runs down the hierarchy,
3. Some people in an organization have an assistant who helps them;
4. Yet the activities of most large organizations are too elaborate
5. Large companies manufacturing a wide range of products, e.g. General Motors,
6. Businesses that cannot be divided into autonomous divisions with their own markets
7. An inevitable problem with hierarchies is that people at lower levels
8. One solution to this problem is matrix management, in which people report to more
than one superior:
9. Another, more recent, idea is to have a network of flexible groups or teams,
a. are normally decentralized into separate operating divisions,
b. are unable to make important decisions, but are obliged to pass on responsibility to
their boss,
c. can simulate decentralization, setting up divisions that use
d. instead of the traditional departments, which are often at war with each other;
e. so that all employees know who their superior or boss is, to whom they report,
f. e.g. a brand manager with an idea can deal directly with
g. this is an example of a staff position: its holder has no line authority,
h. to be organized in a single hierarchy, and require functional organization,
i. with a single person or a group of people at the top,
j. and an increasing number of people below them at each successive level.
k. and is not integrated into the chain of command.
l. and who their immediate subordinates are, to whom they can give instructions.
m. each with its own engineering, production and sales departments.
n. internally determined transfer prices when dealing with each other.
o. the appropriate managers in the finance, manufacturing and sales departments.
p. they are formed to carry out a project, after which they are dissolved and their members
reassigned.
q. unless responsibilities have been explicitly delegated.
r. usually with production or operations, finance, marketing and personnel departments.

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Exercise 10. Complete the text using the correct form of the following verbs:
achieve allocate balance deal with develop

employ establish follow require set
The top managers of a company (1) have to .........objectives and then develop particular
strategies that will enable the company to (2)......... them. This will involve (3)......... the
companys human, capital and physical resources. Strategies can often be sub-divided
into tactics - the precise methods in which the resources attached to a strategy are (4)
......... .
The founders of a business usually establish a mission statement - a declaration about
what the business is and what it will be in the future. The businesss central values and
objectives will (5) ......... from this. But because the business environment is always
changing, companies will occasionally have to modify or change their objectives. It is
part of top managements role to (6) ......... todays objectives and needs against those of
the future, and to take responsibility for innovation, without which any organization can
only expect a limited life. Top managers are also expected to set standards, and to (7)
......... human resources, especially future top managers.
They also have to manage a businesss social responsibilities and its impact on the
environment. They have to (8) ........... and maintain good relations with customers, major
suppliers, bankers, government agencies, and so on. The top management, of course, is
also on permanent stand-by to (9) ......... major crises.
Between them, these tasks (10) ......... many different skills which are almost never found
in one person, so top management is work for a team. A team, of course, is not the same as
a committee: it needs a clear leader, in this case the chairman or managing director.
Complete the following collocations:

11. to set .........
12. to allocate .........
13. to ......... responsibility
14. to ......... standards
15. to ......... and ......... good relations
16. to ......... a crisis
Exercise 11. Complete the text using the following verbs:
appointed attacked combined defined

constituted reviewed supervised supported
Large British companies generally have a chairman of the board of directors who oversees
operations, and a managing director (MD) who is responsible for the day-to-day running
of the company. In smaller companies, the roles of chairman and managing director are
usually (1)......... . Americans tend to use the term president rather than chairman, and
chief executive officer (CEO) instead of managing director. The CEO or MD is (2).........
by various executive officers or vice-presidents, each with clearly (3)......... authority and
responsibility (production, marketing, finance, personnel, and so on).
Top managers are (4) ......... (and sometimes dismissed) by a companys board of directors.
They are (5) ......... and advised and have their decisions and performance (6) ......... by the

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board. The directors of private companies were traditionally major shareholders, but this
does not apply to large public companies with wide share ownership. Such companies
should have boards (7)......... of experienced people of integrity and with a record of
performance in a related business and a willingness to work to make the company
successful. In reality, however, companies often appoint people with connections that will
impress the financial and political milieu. Yet a board that does not demand high
performance and remove inadequate executives will probably eventually find itself
(8)......... and displaced by raiders.
Exercise 12. Youll hear a new employee being told where the different offices are
in the firm he has just joint. Listen to the conversation and number the rooms that
Michael is shown. The tour starts at Mrs. Bronsons office:
Exercise 13. Many big firms have lots of different sections and it can be helpful to know
which part of the company does what. Look at the following company departments. Which
department does which job?
Human Resources:
Production:
Marketing:
Finance:

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Sales, Financial Services, Quality, Training, Payroll, Production, Advertising, Accounts,

Distribution, Maintenance, Marketing, Customer Service, Purchasing, Personnel,
Packaging
Exercise 14. What department does which job? Match each job from the column on the
left to a company department from the column on the right:
1. puts the product into boxes? A. Training

2. pays wages and salaries? B. Production
3. plans how to promote products? C. Marketing
4. has systems to prevent mistakes? D. Purchasing
5. looks after the equipment? E. Personnel
6. deals with complaints? F. Packaging
7. manufactures the products? G. Sales
8. sends invoices to customers? H. Accounts
9. buys equipment? I. Payroll
10. arranges credit facilities? J. Distribution
11. helps staff develop new skills? K. Customer Service
12. sends products to the customer? L. Financial Services
13. buys media space? M. Quality
14. recruits new staff? N. Advertising
15. sends representatives to visit O. Maintenance
customers?
Exercise 15. Imagine that an important visitor is coming to your firm. She has sent you
this fax. Draft a fax to Ms. Trosborg arranging the date and the time you propose for the
visit:
TIVOLI DESIGN CONSORTIUM

BERSTORFFSGADE 19, DK-1577 COPENHAGEN, DENMARK
Telephone: +(45) 72 14 33 21 Fax: +(45) 56 39 42 38
TO: Publicity Office/Manager
Dear Sir or Madam,
We have heard from one of our mutual customers that your company is involved in a
number of interesting design projects.
As I am shortly staying in your city on business, I am writing to enquire whether it would

be convenient to visit your office.
I shall be in town from 14th to 18th November. I would be free any morning from 11.30
onwards and in the afternoon of 15th November.

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I would be extremely grateful if you could confirm whether a brief visit could be arranged
on one of the days and at the times suggested.
I look forward to hearing from you.
Yours faithfully,
Anita Trosborg
Design Director
Exercise 16. Listen to the recording and fill in the names and titles or job
descriptions that are missing:
Exercise 17. Read the following passages about two companies. Decide which of the
headlines goes with which passage:
Planning and Building for Over 150 years

Pioneering Tomorrows Electronics
1. Over the decades the name of Siemens has become synonymous

with progress. Since 1847, when Werner Siemens and Johann Georg
Halske founded the Siemens & Halske Telegraph Construction
Company in Berlin, the history of Siemens has been closely linked with
the development of electrical engineering. While still a fledgling
firm, Siemens & Halske spearheaded the evolution of
telegraphy with the first pointer telegraph and the construction of an
extensive telegraph network. In 1866 Werner Siemens invented the
dynamo machine, laying the cornerstone of power engineering.

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New ideas are an old tradition of Siemens. The company that grew out of the original
Siemens & Halske is today a highly innovative leader in the world electrical and
electronics market. Composed of Siemens AG and an array of domestic and foreign
subsidiaries, the contemporary Siemens organization continues to set milestones on the
road of progress.
Siemens maintains its own production facilities in more than 50 countries and operates
a worldwide sales network. With more than 300,000 employees, it is one of the largest
companies in the world electrical/electronics industry, having recorded annual sales of
DM 82 billion in the 1992/93 fiscal year. Reliable and farsighted management is united
with the youthful dynamism and zest for innovation that typify the company.
2. In 1849, Johann Philipp Holzmann founded a company in Sprendlingen, near

Frankfurt am Main, which initially undertook work in connection with the construction of
the railroads, but very quickly expanded its activities to include all fields of building
construction and civil engineering. The first major foreign project was started in 1882,
with the contract for Amsterdams Central Station.
By the turn of the century, branch offices and regional offices had been established at
numerous locations throughout Germany. As early as 1885, Holzmann had more than
5,000 employees. Interesting activities from this period include the companys work on
the Baghdad railroad and railroad projects in East Africa.
Holzmann has passed through all forms of
company organization, from individual proprietorship via
a limited and general partnership through to a
GmbH (limited liability company). The Philipp
Holzmann Aktiengesellschaft (public
limited company) was formed in 1917. Companies
founded by Holzmann were active in South America.
Even following the losses of manpower and assets during the Second World War,
Holzmann was able, as early as 1950, to recommence its foreign activities. 1979 saw the
acquisition of J.A. Jones Construction Company, of Charlotte, North Carolina, USA, a
major American corporation active in the construction field. This was followed in 1981
by the purchase of Lockwood Green Engineers, Inc., Spartanburg, South Carolina, USA.
Together with its USA subsidiaries Holzmann has responded to the changes occurring in
the construction industry with a flexible and versatile corporate strategy.
The takeover in early 1989 of the Steinmller Group, one of Germanys leading
companies in the sectors of power engineering, process engineering and environmental
protection demonstrates this.
Exercise 18. Complete the information missing in the table:
Dates What happened? Who did what?

1847
1849
Invention of dynamo machine
First large foreign order begun
1885
Aktiengesellschaft founded

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1950
Acquisition of J.A. Jones Construction
Company
1981
1989
Recorded annual sales of DM 82 billion
Exercise 19. Complete the following table with information from the articles:
HOLZMANN SIEMENS
Locations of the companys
activities
Activities of both companies up to
1940s
Recent activities of the companies
Exercise 20. Read the following text and answer some questions below:
RE-ENGINEERING THE CORPORATION

Its not called redundancy these days ... Its called downsizing
If you want to stay in step with the latest management trend, fire half your staff. Thats
the advice of Michael Hammer and James Champy in their best-selling book Re-
engineering the Corporation. For Business Process Re-engineering or BPR is about
smashing up the corporate hierarchies were used to and rebuilding them from scratch.
And the result is that tens of thousands of managers are losing their jobs in the name of re-
inventing the corporation. In fact, some say that, if BPR really caught on, 25 million
Americans would be made redundant tomorrow. Of course, its not called redundancy
these days. Its called downsizing. But it means the same thing to an out-of-work
executive.
Out with vertical hierarchy
According to Tom Peters, a management guru whos clearly more excited about BPR
than the 25 million looking at impending unemployment, what a lot of large companies are
learning is that they can do better with four layers of management than with twelve. The
vertical hierarchy is out. The new, streamlined horizontal network is in. And gone are
the days of the autocratic kings of industry - the Lee Iaccocas and John Sculleys of this
world - for now the customer is king.
From the bottom up
Basically, BPR is a mixture of Japanese lean, flexible, just in time production and
American enthusiasm for re-structuring companies from the bottom up. What it means is
that, in order to remain competitive, well all have to forget the old bureaucratic empires,
divided by function into separate departments such as sales and accounts. Well be
organizing ourselves instead around continuous business processes aimed at getting the
product to the customer.
Empowerment or madness?
In fact, re-engineers say that by the year 2000 itll be team-players and not leaders
that businesses will chiefly be looking for. And, when it comes to decision-making,
middle management may increasingly find itself bypassed altogether, as more and more

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responsibility is passed down the line to cross-functional teams of junior managers and
shopfloor workers. For by then these will have become largely self-managing, and the
corporate pyramid will be turned completely upside down. BPR enthusiasts call this
empowerment. Others call it madness.
Mini-companies the way ahead
But is it even that? Or is it just a sexy new name for an old idea? In Sweden, where the
top 20 firms do 80% of their business abroad, companies like the manufacturing giant,
ABB, have already done something remarkably similar to re-engineering by breaking up
the firm into hundreds of mini-companies. IBM had the same idea when it decided to form
independent mini-companies of its own and Big Blue set up thirteen little Baby Blues.
But, whereas ABB has managed to halve the development time of its products, IBM has
not been able to keep pace with its smaller, fitter competitors.
The customer comes first
For BPR does seem to work better in some countries than in others. In the fast-growing
economies of East Asia and Latin America, for example, its doing well. But things dont
look quite so good in the USA, and in Central Europe its even worse. Paternalistic
German bosses, in particular, find it hard to delegate responsibility to subordinates and yet
overpaid German workers cost their companies 50% more than the average American
costs theirs. Many French executives, too, still find it difficult to accept that the customer
comes first. And in recession-battered Britain BPR is, more often than not, just an excuse
to cut back and get rid of unwanted staff. Perhaps they should be getting rid of BPR
instead.
What is your immediate reaction to the article? Tick the response nearest to your own or
sum up what you think in a single sentence:
1. I think it paints a rather negative picture.
2. I think it oversimplifies the issue.
3. I think its a bit one-sided.
4. I think it makes some interesting points.
5. I think it argues its case extremely well.
6. I think .....
Without referring back to the article, how much can you remember about:
7. mass redundancies
8. the managerial ladder
9. the customer
10. teamwork
11. mini-companies
12. cultural attitudes
Find the expressions in the article which mean:

13. the latest fashion
14. right from the beginning
15. became popular
16. unemployed executive
17. management expert
18. completely restructure at all levels
19. may be excluded

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20. cant match the competition

21. to economize
Exercise 21. Complete the short dialogues below using the following phrasal verbs:
get on to come up with come in for put up with back out of

get down to live up to put in for cut back on keep up with
1. Has the restructuring of the production department speeded things up at all?

Not really. Im afraid it failed to ................ expectations.
2. Hows the budget for this year looking?
I think were going to have to ................ spending, Im afraid.
3. We really need to consult our legal advisors on this one.
OK, Ill ................ them straightaway.
4. You know, in this industry its sometimes hard to ................ all the latest
developments.
But thats what Im paying you for!
5. You know, Im sorry we ever got into this project in Hong Kong.
Well, its too late to it now.
6. I hear youve ................ a promotion.
Yes. After eight years in this place, I think its about time they gave me my own
department.
7. I think everyones here whos supposed to be here.
OK, lets ................ business.
8. Look, if our team cant find a solution to this problem, no one can.
OK, go away and see what you can .. .
9. A lot of people were very unhappy about the way they handled the redundancies.
I know. Theyve ................ quite a lot of criticism over that.
10. If you want to stay in this job, youll have to ................ a fair amount of hassle, Im
afraid.
Thats OK. Im getting fairly used to it by now.
Exercise 22. Now, without referring back to the previous exercise, try to match up the
halves of the following word partnerships:
1. come up a. to business
2. cut back b. for a promotion
3. get on c. for criticism
4. keep up d. to expectations
5. back out e. with a lot of hassle
6. put in f. with a solution
7. get down g. of an agreement
8. come up h. to the account department
9. come in i. with the latest development
10. put up j. on spending

113
Exercise 23. Schering is an international company engaged in agricultural and

pharmaceutical activities. The French pharmaceutical subsidiary has recently changed
its organizational structure. Listen to a manager describing the new structure to some
colleagues from other parts of the organization and complete the organigram:
Exercise 24. Listen again and answer these questions:
1. Which person on the chart made the presentation?

2. Who does he report to?
3. What are the Unit Directors responsible for?
4. What three advantages of the work groups does he mention?
Exercise 25. Invent your own company and describe its organizational structure using the
following verbs:
The most common verbs for describing structure are:
consists of contains includes

is composed of is made up of is divided into
Other verbs frequently used to describe company organization include:
to be in charge of
to support or to be supported
to be accountable to
to be responsible for
to assist or to be assisted

114
Use the following questions to expand the topic:
1. What does your company do?

2. What is it called?
3. What kind of public image do you have?
4. How many people do you employ?
5. Where are your headquarters?
6. Do you have offices in other countries? If so, where?
7. What is your turnover, market share and net profits? Who is your main
competitor?
8. Are you growing, shrinking or holding steady?
9. What are your most promising products and/or markets?
10. What problems are you having and how are you dealing with them?
Exercise 26. Read the whole text and then complete the organization chart:
I think we have a fairly typical organization for a manufacturing firm. Were divided into
Finance, Production, Marketing and Human Resources departments.
The Human Resources department is the simplest. It consists of two sections. One is
responsible for recruitment and personnel matters, the other is in charge of training.
The Marketing department is made up of three sections: Sales, Sales Promotion, and
Advertising, whose heads are all accountable to the marketing manager.
The Production department consists of five sections. The first of these is Production
Control, which is in charge of both Scheduling and Materials Control. Then theres
Purchasing, Manufacturing, Quality Control, and Engineering Support. Manufacturing
contains three sections: Tooling, Assembly, and Fabrication.
Finance is composed of two sections: Financial Management, which is responsible for
capital requirements, fund control, and credit, and Accounting.

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1

UNIVERSIDAD AUTONOMA DE COAHUILA

MAAD OSCAR GONZALEZ FLORES

Applicable for the subjects: -INTERNATIONAL LAW

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

What is the role of International Organizations in Foreign Trade?

What are the advantages and disadvantages of having

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

The WTO is better understood as negotiating forum and a set

A little bit of History

Principles of the International Trading System

What is the WTO?

The World Trade Organization

The WTO is a negotiating forum Born out of negotiations, where member

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

Its an organization for liberalizing trade

a forum for governments to negotiate trade agreements.

a place to settle trade disputes and

a system of trade rules.

Trade without discrimination

Most-favoured-nation (MFN): treating other people equally

National treatment: Treating foreigners and locals equally

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

Freer trade: gradually, through negotiation

Predictability: through binding and transparency

Sometimes, promising not to raise a trade barrier can be as important as lowering

Promoting fair competition

Encouraging development and economic reform

The WTO system contributes to development. On the other hand, developing

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

The GATT years: from Havana to Marrakesh

GATT: provisional for almost half a century

Over 50 countries participated in negotiations to create an International Trade

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

The Uruguay Round

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

The Doha Development Agenda

Highest authority: the Ministerial Conference

Second level: General Council in three guises

Day-to-day work in between the ministerial conferences is handled by three bodies:

The General Council

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

The Council for Trade in Goods (Goods Council)

Fourth level: down to the fundamentals

The WTO Secretariat is located in Geneva and is headed by a director-general. Pascal

Technical support for developing countries, and especially the least-developed.

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

Reporting to General Council (or a subsidiary)

Reporting to Dispute Settlement Body

Plurilateral committees inform the General Council or Goods Council of their

Trade Negotiations Committee reports to General Council

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

Checking your understanding of the text.

1.- What is the WTO?

2.- Explain the principles of the trading system

3.- What is the GATT? When did it start?

4.- Why is the Uruguay round important for international trade?

5.- How is the WTO organized?

FCA TORREON 2017 Compiled and revised by Oscar Gonzalez, MBA.

Rhetorical functions: Chronological Order

by (specific time / year or By the 1980s, the negotiations had expanded to

The Tokyo Round during the seventies was the first