{"id":75,"date":"2015-07-29T19:43:56","date_gmt":"2015-07-29T19:43:56","guid":{"rendered":"https:\/\/courses.candelalearning.com\/intlbusx1xmaster\/?post_type=chapter&p=75"},"modified":"2017-01-09T19:19:52","modified_gmt":"2017-01-09T19:19:52","slug":"chapter-6-international-monetary-system","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/chapter\/chapter-6-international-monetary-system\/","title":{"raw":"Reading: Chapter 6 International Monetary System","rendered":"Reading: Chapter 6 International Monetary System"},"content":{"raw":"
\r\n
\r\n

What\u2019s in It for Me?<\/h3>\r\n
    \r\n\t
  1. What is the international monetary system?<\/li>\r\n\t
  2. What role do the International Monetary Fund (IMF) and the World Bank play?<\/li>\r\n\t
  3. How do the global monetary institutions impact global business?<\/li>\r\n<\/ol>\r\n<\/div>\r\nGlobal trade depends on the smooth exchange of currencies between countries. Businesses rely on a predictable and stable mechanism. This chapter takes a look at the recent history of global monetary systems and how they have evolved over the past two centuries. While the current monetary system continues to evolve, lessons learned over the past fifty years help determine the best future options. As part of the post\u2013World War II monetary environment, two institutions were created; these institutions have expanded to play an increasingly larger role in world economy. Understanding the role of the IMF and the World Bank provides insight into how governments in developing countries prioritize and fund projects and work with the private sector to implement these initiatives.\r\n
    \r\n

    Opening Case: McKinsey & Company: Linking the Business World, Governments, and Global Institutions<\/h2>\r\n

    Who Is McKinsey?<\/h3>\r\nMcKinsey & Company is a privately held global management-consulting firm that serves as a trusted adviser to the world\u2019s leading businesses, governments, and institutions. Recognized as a global leader, it has ranked first as the most prestigious firm in the management consulting industry by Vault.com.[footnote]\u201cMcKinsey & Company,\u201d Vault<\/em>, accessed February 9, 2011, http:\/\/www.vault.com\/wps\/portal\/usa\/companies\/company-profile?WCM_GLOBAL_CONTEXT=\/wps\/wcm\/connect\/Vault_Content_Library\/companies+site\/companies\/parent_mckinsey+_+company\/mckinsey+_+company_0\/mckinsey+_+company_0&companyId=328<\/a>.[\/footnote]<\/span>\r\n\r\nJames O. \u201cMac\u201d McKinsey, an accounting professor at the University of Chicago, founded McKinsey & Company in Chicago in 1926. Over the decades, McKinsey & Company has grown to global prominence by providing expert consulting services and garnering results for companies in a wide range of industries and governments.\r\n\r\nToday, McKinsey has a revenue of $6 billion and employs almost 17,000 people worldwide, with more than 9,000 at the director level. \u201cThe firm is among the largest hirers of newly minted MBAs<\/em> in the United States.\u201d[footnote]\u201cAmerica\u2019s Largest Private Companies: #54 McKinsey & Co.,\u201d Forbes<\/em>, October 28, 2009, accessed February 9, 2011, http:\/\/www.forbes.com\/lists\/2009\/21\/private-companies-09_McKinsey-Co_IPPW.html<\/a> (emphasis added).[\/footnote]<\/span> McKinsey\u2019s employees come from around the world, speaking over 120 languages and representing more than one hundred nationalities.\r\n

    What Does the Firm Do?<\/h3>\r\nAs a management consultant firm, McKinsey is approached by its clients to analyze and solve complex problems. Its industry expertise ranges from media and entertainment to the automotive industry, chemicals, and manufacturing. Functional expertise includes all aspects of running a business, including, finance, technology, sales, marketing, risk, and operations. McKinsey has its own Global Institute whose \u201cindependent investigations combine McKinsey\u2019s microeconomic understanding of companies and industries with the rigor of leading macroeconomic thinking to derive perspectives on the global forces shaping business, government, and society.\u201d[footnote]\u201cMcKinsey Global Institute,\u201d McKinsey & Company, accessed February 9, 2011, http:\/\/www.mckinsey.com\/mgi<\/a>.[\/footnote]<\/span>\r\n\r\nThe Global Institute is one of McKinsey\u2019s paths to assisting governments and global institutions with complex economic and business issues. \u201cTwenty years of McKinsey Global Institute research shows that the mix of sectors within an economy explains very little of the difference in a country\u2019s GDP growth rate. In other words, dynamism doesn\u2019t turn on whether an economy has a large financial sector, or big manufacturers, or a semiconductor industry, but instead on whether the sectors are competitive or not. Instead of picking winners and funneling subsidies to them, countries must get the basics right. These include a solid rule of law, with patents and protections for intellectual property, enforceable contracts, and courts to resolve disputes; access to finance, particularly for startups; and an efficient physical and communications infrastructure.\u201d[footnote]James Manyika, Susan Lund, and Byron Auguste, \u201cFrom the Ashes,\u201d Newsweek<\/em>, August 16, 2010, accessed February 9, 2011, http:\/\/www.newsweek.com\/2010\/08\/16\/mckinsey-institute-create-jobs-by-losing-them.html<\/a>.[\/footnote]<\/span>\r\n

    Why Does the Firm Matter to International Business?<\/h3>\r\nThis chapter discusses the international monetary system, the IMF and the World Bank. In learning about these critical parts of the global business environment, you may find yourself wondering how exactly these institutions and government-led monetary systems interact with the business world. Learning about the business of a management consulting firm like McKinsey helps to illustrate this link.\r\n\r\nOver the decades, McKinsey has helped global businesses understand how to enter new markets around the world, how to compete more effectively against their global competitors, and how to harness efficiencies and make improvements in all levels of business. Simultaneously, McKinsey has discreetly been an advisor to governments around the world on diverse issues, including how to amend policy and regulation to encourage more trade and investment in their countries; developing and implementing processes for privatizing industries; and creating more efficiencies in the public sector. At the same time, McKinsey has helped the IMF and the World Bank craft policy to meet their evolving roles in the world economy. Given the often politically charged global environment, it\u2019s clear why a company like McKinsey prefers to remain out of the public eye. Much of the work that the firm is engaged in impacts the daily lives of people around the world. Businesses and governments are attracted to McKinsey not only for its sound analysis and advice but also for its discretion and long-term perspective.\r\n\r\nMcKinsey\u2019s consultants form an enviable global network that extends even to former employees. McKinsey operates under a practice of \u201cup or out,\u201d meaning that consultants must either advance in their consulting careers within a predefined time frame or leave the firm. It\u2019s not uncommon to find that a consultant will leave McKinsey to join their clients in the private sector or work for a government or global institution. This network of \u201cMcKinsey-ites,\u201d as they are sometimes called, is evident in their influence on policy that could impact their business clients\u2014either on a country basis or industry basis. This network helps attract some of the best business school graduates to the firm.\r\n\r\nAs noted on its website, people \u201cwho join McKinsey find themselves part of a unique culture, shaped by shared values and a desire to help clients make substantial improvements in their performance. When consultants leave, their connection to our firm and their former colleagues remains strong. Our alumni number nearly 23,000 and work in virtually every business sector in almost 120 countries. Through formal events and informal networking, former McKinsey consultants make and sustain professional relationships. This dynamic network is a lasting benefit of a career with McKinsey. Our firm provides support to alumni who want to stay in touch with us and with each other, sponsoring events worldwide.\u201d[footnote]\u201cAlumni,\u201d McKinsey & Company, accessed February 9, 2011, http:\/\/www.mckinsey.com\/aboutus\/alumni<\/a>.[\/footnote]<\/span>\r\n\r\nOne of the more interesting aspects of McKinsey\u2019s business approach is its nonexclusivity. Consultants develop expertise and can work for direct competitors after short holding periods of one or two years. Other companies in the same industry often see this as an opportunity to learn more about their competitors\u2019 strategies\u2014knowing that a competitor has hired McKinsey provides a strong impetus for companies to seek McKinsey\u2019s assistance themselves. However, McKinsey does keep its client list confidential, and consultants themselves are not allowed to discuss their work with other teams.\r\n\r\nThe McKinsey mystique is another interesting aspect of the firm that adds to the secrecy that surrounds it. Despite its size, the firm does not discuss specific client situations and maintains a carefully crafted and low-profile external image, which also protects it from public scrutiny. The McKinsey commitment to discretion has earned it global private and public-sector clients and respect.\r\n
    Roundly considered to be the most prestigious company of its kind, it has achieved a level of renown so great as to be known even to laymen, despite shrouding details of its work\u2014and its client list\u2014in secrecy. In its practice areas, it addresses strategic, organizational, operational and technological issues, always with a focus\u2014according to the firm\u2014of doing what is right for the client\u2019s business, not what is best for McKinsey\u2019s bottom line. As for the range of those specialties, the list of industrial sectors the firm serves encompasses everything from commodities and natural resources to the worlds of media, entertainment and high tech. While it doesn\u2019t give up the names of its clients (even in case studies it refers to them with pseudonyms such as \u201cBigBank\u201d) the firm does claim to serve more than 70 percent of Fortune\u2019s Most Admired Companies list, roughly 90 percent of the top-100 corporations worldwide and 80 percent of the 100 largest U.S.-based companies.[footnote]\u201cMcKinsey & Company,\u201d Vault<\/em>, accessed February 9, 2011, http:\/\/www.vault.com\/wps\/portal\/usa\/companies\/company-profile?WCM_GLOBAL_CONTEXT=\/wps\/wcm\/connect\/Vault_Content_Library\/companies+site\/companies\/parent_mckinsey+_+company\/mckinsey+_+company_0\/mckinsey+_+company_0&companyId=328<\/a>.[\/footnote]<\/span><\/blockquote>\r\nWhile it\u2019s hard to know exact details of its pricing, client base, success rate, and profitability, it\u2019s clear that the company continues to earn the trust and loyalty of many of the world\u2019s companies, governments, and global institutions.\r\n\r\n<\/div>\r\n
    \r\n

    Opening Case Exercises[footnote](AACSB: Ethical Reasoning, Multiculturalism, Reflective Thinking, Analytical Skills)[\/footnote]<\/h3>\r\n
      \r\n\t
    1. How does the business of a management consultant illustrate the link between businesses, governments, and global institutions?<\/li>\r\n\t
    2. Discuss how a global consulting firm might assist a government client.<\/li>\r\n\t
    3. Why would a global business in the private sector want to hire McKinsey if McKinsey had already done consulting work for a competitor?<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>","rendered":"
      \n
      \n

      What\u2019s in It for Me?<\/h3>\n
        \n
      1. What is the international monetary system?<\/li>\n
      2. What role do the International Monetary Fund (IMF) and the World Bank play?<\/li>\n
      3. How do the global monetary institutions impact global business?<\/li>\n<\/ol>\n<\/div>\n

        Global trade depends on the smooth exchange of currencies between countries. Businesses rely on a predictable and stable mechanism. This chapter takes a look at the recent history of global monetary systems and how they have evolved over the past two centuries. While the current monetary system continues to evolve, lessons learned over the past fifty years help determine the best future options. As part of the post\u2013World War II monetary environment, two institutions were created; these institutions have expanded to play an increasingly larger role in world economy. Understanding the role of the IMF and the World Bank provides insight into how governments in developing countries prioritize and fund projects and work with the private sector to implement these initiatives.<\/p>\n

        \n

        Opening Case: McKinsey & Company: Linking the Business World, Governments, and Global Institutions<\/h2>\n

        Who Is McKinsey?<\/h3>\n

        McKinsey & Company is a privately held global management-consulting firm that serves as a trusted adviser to the world\u2019s leading businesses, governments, and institutions. Recognized as a global leader, it has ranked first as the most prestigious firm in the management consulting industry by Vault.com.[1]<\/sup><\/a><\/span><\/p>\n

        James O. \u201cMac\u201d McKinsey, an accounting professor at the University of Chicago, founded McKinsey & Company in Chicago in 1926. Over the decades, McKinsey & Company has grown to global prominence by providing expert consulting services and garnering results for companies in a wide range of industries and governments.<\/p>\n

        Today, McKinsey has a revenue of $6 billion and employs almost 17,000 people worldwide, with more than 9,000 at the director level. \u201cThe firm is among the largest hirers of newly minted MBAs<\/em> in the United States.\u201d[2]<\/sup><\/a><\/span> McKinsey\u2019s employees come from around the world, speaking over 120 languages and representing more than one hundred nationalities.<\/p>\n

        What Does the Firm Do?<\/h3>\n

        As a management consultant firm, McKinsey is approached by its clients to analyze and solve complex problems. Its industry expertise ranges from media and entertainment to the automotive industry, chemicals, and manufacturing. Functional expertise includes all aspects of running a business, including, finance, technology, sales, marketing, risk, and operations. McKinsey has its own Global Institute whose \u201cindependent investigations combine McKinsey\u2019s microeconomic understanding of companies and industries with the rigor of leading macroeconomic thinking to derive perspectives on the global forces shaping business, government, and society.\u201d[3]<\/sup><\/a><\/span><\/p>\n

        The Global Institute is one of McKinsey\u2019s paths to assisting governments and global institutions with complex economic and business issues. \u201cTwenty years of McKinsey Global Institute research shows that the mix of sectors within an economy explains very little of the difference in a country\u2019s GDP growth rate. In other words, dynamism doesn\u2019t turn on whether an economy has a large financial sector, or big manufacturers, or a semiconductor industry, but instead on whether the sectors are competitive or not. Instead of picking winners and funneling subsidies to them, countries must get the basics right. These include a solid rule of law, with patents and protections for intellectual property, enforceable contracts, and courts to resolve disputes; access to finance, particularly for startups; and an efficient physical and communications infrastructure.\u201d[4]<\/sup><\/a><\/span><\/p>\n

        Why Does the Firm Matter to International Business?<\/h3>\n

        This chapter discusses the international monetary system, the IMF and the World Bank. In learning about these critical parts of the global business environment, you may find yourself wondering how exactly these institutions and government-led monetary systems interact with the business world. Learning about the business of a management consulting firm like McKinsey helps to illustrate this link.<\/p>\n

        Over the decades, McKinsey has helped global businesses understand how to enter new markets around the world, how to compete more effectively against their global competitors, and how to harness efficiencies and make improvements in all levels of business. Simultaneously, McKinsey has discreetly been an advisor to governments around the world on diverse issues, including how to amend policy and regulation to encourage more trade and investment in their countries; developing and implementing processes for privatizing industries; and creating more efficiencies in the public sector. At the same time, McKinsey has helped the IMF and the World Bank craft policy to meet their evolving roles in the world economy. Given the often politically charged global environment, it\u2019s clear why a company like McKinsey prefers to remain out of the public eye. Much of the work that the firm is engaged in impacts the daily lives of people around the world. Businesses and governments are attracted to McKinsey not only for its sound analysis and advice but also for its discretion and long-term perspective.<\/p>\n

        McKinsey\u2019s consultants form an enviable global network that extends even to former employees. McKinsey operates under a practice of \u201cup or out,\u201d meaning that consultants must either advance in their consulting careers within a predefined time frame or leave the firm. It\u2019s not uncommon to find that a consultant will leave McKinsey to join their clients in the private sector or work for a government or global institution. This network of \u201cMcKinsey-ites,\u201d as they are sometimes called, is evident in their influence on policy that could impact their business clients\u2014either on a country basis or industry basis. This network helps attract some of the best business school graduates to the firm.<\/p>\n

        As noted on its website, people \u201cwho join McKinsey find themselves part of a unique culture, shaped by shared values and a desire to help clients make substantial improvements in their performance. When consultants leave, their connection to our firm and their former colleagues remains strong. Our alumni number nearly 23,000 and work in virtually every business sector in almost 120 countries. Through formal events and informal networking, former McKinsey consultants make and sustain professional relationships. This dynamic network is a lasting benefit of a career with McKinsey. Our firm provides support to alumni who want to stay in touch with us and with each other, sponsoring events worldwide.\u201d[5]<\/sup><\/a><\/span><\/p>\n

        One of the more interesting aspects of McKinsey\u2019s business approach is its nonexclusivity. Consultants develop expertise and can work for direct competitors after short holding periods of one or two years. Other companies in the same industry often see this as an opportunity to learn more about their competitors\u2019 strategies\u2014knowing that a competitor has hired McKinsey provides a strong impetus for companies to seek McKinsey\u2019s assistance themselves. However, McKinsey does keep its client list confidential, and consultants themselves are not allowed to discuss their work with other teams.<\/p>\n

        The McKinsey mystique is another interesting aspect of the firm that adds to the secrecy that surrounds it. Despite its size, the firm does not discuss specific client situations and maintains a carefully crafted and low-profile external image, which also protects it from public scrutiny. The McKinsey commitment to discretion has earned it global private and public-sector clients and respect.<\/p>\n

        Roundly considered to be the most prestigious company of its kind, it has achieved a level of renown so great as to be known even to laymen, despite shrouding details of its work\u2014and its client list\u2014in secrecy. In its practice areas, it addresses strategic, organizational, operational and technological issues, always with a focus\u2014according to the firm\u2014of doing what is right for the client\u2019s business, not what is best for McKinsey\u2019s bottom line. As for the range of those specialties, the list of industrial sectors the firm serves encompasses everything from commodities and natural resources to the worlds of media, entertainment and high tech. While it doesn\u2019t give up the names of its clients (even in case studies it refers to them with pseudonyms such as \u201cBigBank\u201d) the firm does claim to serve more than 70 percent of Fortune\u2019s Most Admired Companies list, roughly 90 percent of the top-100 corporations worldwide and 80 percent of the 100 largest U.S.-based companies.[6]<\/sup><\/a><\/span><\/p><\/blockquote>\n

        While it\u2019s hard to know exact details of its pricing, client base, success rate, and profitability, it\u2019s clear that the company continues to earn the trust and loyalty of many of the world\u2019s companies, governments, and global institutions.<\/p>\n<\/div>\n

        \n

        Opening Case Exercises[7]<\/sup><\/a><\/h3>\n
          \n
        1. How does the business of a management consultant illustrate the link between businesses, governments, and global institutions?<\/li>\n
        2. Discuss how a global consulting firm might assist a government client.<\/li>\n
        3. Why would a global business in the private sector want to hire McKinsey if McKinsey had already done consulting work for a competitor?<\/li>\n<\/ol>\n<\/div>\n<\/div>\n
          1. \u201cMcKinsey & Company,\u201d Vault<\/em>, accessed February 9, 2011, http:\/\/www.vault.com\/wps\/portal\/usa\/companies\/company-profile?WCM_GLOBAL_CONTEXT=\/wps\/wcm\/connect\/Vault_Content_Library\/companies+site\/companies\/parent_mckinsey+_+company\/mckinsey+_+company_0\/mckinsey+_+company_0&companyId=328<\/a>. ↵<\/a><\/li>
          2. \u201cAmerica\u2019s Largest Private Companies: #54 McKinsey & Co.,\u201d Forbes<\/em>, October 28, 2009, accessed February 9, 2011, http:\/\/www.forbes.com\/lists\/2009\/21\/private-companies-09_McKinsey-Co_IPPW.html<\/a> (emphasis added). ↵<\/a><\/li>
          3. \u201cMcKinsey Global Institute,\u201d McKinsey & Company, accessed February 9, 2011, http:\/\/www.mckinsey.com\/mgi<\/a>. ↵<\/a><\/li>
          4. James Manyika, Susan Lund, and Byron Auguste, \u201cFrom the Ashes,\u201d Newsweek<\/em>, August 16, 2010, accessed February 9, 2011, http:\/\/www.newsweek.com\/2010\/08\/16\/mckinsey-institute-create-jobs-by-losing-them.html<\/a>. ↵<\/a><\/li>
          5. \u201cAlumni,\u201d McKinsey & Company, accessed February 9, 2011, http:\/\/www.mckinsey.com\/aboutus\/alumni<\/a>. ↵<\/a><\/li>
          6. \u201cMcKinsey & Company,\u201d Vault<\/em>, accessed February 9, 2011, http:\/\/www.vault.com\/wps\/portal\/usa\/companies\/company-profile?WCM_GLOBAL_CONTEXT=\/wps\/wcm\/connect\/Vault_Content_Library\/companies+site\/companies\/parent_mckinsey+_+company\/mckinsey+_+company_0\/mckinsey+_+company_0&companyId=328<\/a>. ↵<\/a><\/li>
          7. (AACSB: Ethical Reasoning, Multiculturalism, Reflective Thinking, Analytical Skills) ↵<\/a><\/li><\/ol><\/div>","protected":false},"author":9,"menu_order":1,"template":"","meta":{"_candela_citation":"[]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-75","chapter","type-chapter","status-publish","hentry"],"part":74,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/75","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/users\/9"}],"version-history":[{"count":3,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/75\/revisions"}],"predecessor-version":[{"id":526,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/75\/revisions\/526"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/parts\/74"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/75\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/media?parent=75"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=75"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/contributor?post=75"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/license?post=75"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}