2 management - School of International Business and ...

Günter S. Heiduk
On the monetary side the lessons learned from the beggar-my-neighbour policy of the inter-war
period resulted in the endeavours to establish a framework of international monetary cooperation
that avoids competitive devaluations in order to balance the current account. The negotiations
of representatives of 45 nations started in Bretton Woods, New Hampshire, U.S.A. in 1944 and
resulted in an agreement to establish a monetary framework after World War II. The International
Monetary Fund (IMF) as the center-piece of the Bretton Woods Agreement was established at the
end of 1947 by signatures of 29 member countries (2010: 183 member countries). Till 1971 the
Members had to agree to keep their exchange rates pegged to the U.S. Dollar (and the U.S.A.
to gold). These rates could be adjusted only to correct a »fundamental«disequilibrium in the bal-
ance of payment. In 1971 this system broke down because of its inability to adjust to the different
inflation rates between the leading trading countries. As a consequence the U.S.A. (President
Nixon) suspended the convertibility of the U.S. Dollar into gold. Since then the fundamental mis-
sion of the IMF is firstly to oversee the international monetary system, secondly to give technical
assistance to less developed countries and thirdly to provide loans to countries with balance of
payments difficulties. In many cases IMF loans are coupled with economic reforms (Conditional-
ity) aiming to fight against inflation (Structural Adjustment Programs). The theoretical basis had
been delivered by the monetarist approach (Chicago School) and heavily criticized by influential
economists [e.g. Stiglitz, 2002]. Reforms of the IMF are one of the hottest topics in international
economics’ theory and policy with an additional boost since the emergence of the financial crisis
in 2007.
Summarizing the role of the nation states in the world economy the history after the World War II
shows two important changes: Firstly, economic interdependencies between countries have sig-
nificantly limited the potential and scope of mercantilistic practices of the nation states. Secondly,
the broad acceptance of the WTO and – to a minor degree – the IMF as the liberalization and
stabilization promoting pillars of the world economy has turned nationalistic behaviour toward a
common sense of global solidarity. Governments are not getting obsolete in the age of global-
ization. But their role is changing from being interventionists to managers who are shaping their
societies’ processes to adapt to globalization.
2.5 MULTINATIONAL COMPANIES,
INTRA-FIRM TRADE AND GLOBALIZATION
MNCs are the result of FDI in more than one foreign country. Their emergence mostly results from
learning processes when creating, extending, and/or defending competitive advantages in inter-
national markets. The internationalization path usually starts with exporting/importing followed by
licensing, establishing joint ventures, investing in (representative, distributing, producing) subsidiar-
ies. During the process merger and acquisition can occur. The motivations to follow this path are ba-
sically market seeking, resource seeking, asset seeking, rent seeking. The combination of resource
and market seeking motivations is on top of the largest MNCs, such as the big oil companies. The
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