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8/19/2019 IBM MSM KK

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Francis Xavier Engineering College

Department of Management Studies

I Semester – BA 71! – I"#E$"A#I%"A& B'SI"ESS MA"A(EME"#

)A$# A

Important *uestions 'nit +ise

'nit I

1, Define International Business, -Ma. /10 Ma. /1!2

International business is defined as commercial transactions that occur across country

borders. When a company sells products in the US, Japan and throughout Europe, this is

an example of international business./, 34at is International Business Environment5 -Ma. /102

The international business environment can be defined as the environment in different

sovereign countries, ith factors exogenous to the home environment of the organi!ation,

influencing decision"ma#ing on resource use and capabilities.

!, Differentiate 6et+een Et4nocentrism and )ol.centrism in t4e contet of

international 6usiness -"ov /1!2

Ethnocentrism is characteri!ed by or based on the attitude that one$s on group issuperior to others. The ethnocentric attitude is found in many companies that have manynationalities and culture groups or#ing together. %olycentrism can be defined as a host

country orientation& hich reflects host countries goals and ob'ectives ith respect (todifferent management strategies and planning procedures ith regard to internationaloperations.

8, 34at are t4e factors causing glo6ali9ation of 6usiness -"ov /1!2

Increase in global competition.

)apid increase and expansion of technology.

*iberali!ation of cross border movement and

+evelopment of supporting services.

0, Define Cross "ational Agreements, -Ma. /102

n agreement beteen or amongst nations ithin an economic bloc to reduce and

ultimately remove tariff and nontariff barriers to the free flo of products, capital, andlabor across the bloc pproaches to economic integration include- global integration via

the World Trade /rgani!ation bilateral integration beteen to countries regional

integration via an economic bloc 0eighboring countries tend to ally ith one another

because of their proximity, their somehat similar tastes, the relative ease of establishing

channels of distribution, and a illingness to cooperate ith one another for the greater

benefit of all parties.


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:, 34at is International #rade, -Ma. /102

International trade may be defined as exchange of goods and services across national

borders. International business comprises all commercial transactions 1private and

governmental, sales, investments, logistics, and transportation2 that ta#e place beteen

to or more regions, countries and nations beyond their political boundaries.

7, 3rite a s4ort note on #ransnational Compan. -Ma. /182

Transnational corporations are incorporated or unincorporated enterprises comprising

parent enterprises and their foreign affiliates. parent enterprise is deemed as an

enterprise that controls assets of other entities in countries other than its home country,

usually by oning a certain e3uity capital state. foreign affiliate is an incorporated or

unincorporated enterprise in hich an investor, ho is resident in another country, ons a

sta#e that permits lasting interest in the management of that enterprise.;, 3rite a s4ort note on (lo6ali9ation, -Ma. /18 Ma. /1!2

4lobali!ation is a process of moving aay from an economic system in hich national

mar#ets are distinct entities, isolated by trade barriers and barriers of distance, time and

culture and toard a system in hich national mar#ets are merging into one global

mar#et.


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8. The state of the orld economy and distribution of orld output,=. International economic cooperation,>. )ole of multilateral economic institutions, and:. International economic las, treaties, agreements, norms, practices and codes.

1!, Differentiate 6et+een Factors of )roduction and Factor endo+ments -"ov /1!25actors of production may also refer specifically to the primary factors, hich are land,

labor 1the ability to or#2, and capital goods applied to production. a country$s factor

endo+ment is commonly understood as the amount of land, labor, capital, and

entrepreneurship that a country possesses and can exploit for manufacturing.18, &ist t4e features of Free #rade Area, -"ov /1!2

Free Trade area (FTA) is a group of countries without any traderestrictions within the areas but each member country retains its owntari and quota system on trade with third countries.

10, Define Multilateral Settlements, -Ma. /102

When international firms or home governments are unable to reach agreement ith a hostcountry, they may agree to have a third party settle the dispute. It is called ?ulti *ateral

Settlements. In cases of trade disputes, the International @hamber of @ommerce in %aris,

the Sedish @hamber of @ommerce, and speciali!ed commodity associations in *ondon

fre3uently are as#ed to assist the parties.1:, 3rite s4ort note on $egional #rade Bloc>5 -Ma. /18Ma. /102

)egional trade bloc#s are associations of nations at a governmental level to promote trade

ithin the bloc# and defend its members against global competition. +efense against

global competition is obtained through established tariffs on goods produced by member

states, import 3uotas, government subsidies, onerous bureaucratic import processes, and

technical and other non"tariff barriers. Since trade is not an isolated activity, member states ithin regional bloc#s also cooperate in economic, political, security, climatic, and

other issues affecting the region.17, (ive t+o eamples for $egional #rade Bloc> -Ma. /


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/, &ist an. t+o advantages of Foreign Capital Investment, -Ma. /1/2

8. 5oreign capital investment ill increase the production and 4+% of the host country.=. 5oreign capital investment provides the funds re3uired to ac3uire advanced

technology re3uired to stimulate economic groth.

'nit III/1, Differentiate standardi9ation +it4 differentiation -Ma. /1!2

Standardi!ation means ma#ing profit through large scale production and+ifferentiation means customers often pay a higher price for extra value.

//, 3rite different forms of International Business -Ma. /102

+ifferent forms of International Ausiness are Exporting, *icensing, 5ranchising,

?anagement @ontracts, Turn#ey @ontracts, 5oreign +irect Investment, Joint Benture./!, 34at is Balance of #rade5 -Ma. /102

Aalance of Trade is the difference beteen the value of goods and services exported out

of a country and the value of goods and services imported into the country. Aalance of

Trade is the difference beteen exports and imports.

When value of exports C value of imports D surplus in A/T

When value of imports C value of exports D deficit in A/T

/8, Define Discrimination, -"ov /112

+iscrimination is treatment or consideration of, or ma#ing a distinction in favor of or

against, a person or thing based on the group, class, or category to hich that person or

thing is perceived to belong to rather than on individual merit./0, 34at is Standardi9ation5 -Ma. /1!2

4lobal standardi!ation strategy is a strategy focusing on increasing profitability by

reaping cost reductions from experience curve and location economies./:, Eplain at least t+o merits of decentrali9ed organi9ational structure for an

international firm -Ma. /1!2

+ecentrali!ation gives top management time to focus on critical issues by delegating

more routine issues to loer level managers.?otivational research favor decentrali!ation. Aehavioral scientists have long argued that

people are illing to give more to their 'obs hen they have a greater degree of

individual freedom and control over their or#.+ecentrali!ation permits greater flexibility more rapid response to environmental

changes because decisions do not have to be referred up the hierarchy unless they are

exceptional in nature.+ecentrali!ation can result in better decisions. In a decentrali!ed structure, decisions are

made closer to the spot by individuals ho have better information than managers

several levels up in a hierarchy.+ecentrali!ation can increase control. +ecentrali!ation can be used to establish relatively

autonomous, self contained sub units ithin an organi!ation. 1Write any to2/7, 34at are t4e different forms of oint entures5 -"ov /1!2


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Short term collaborations JB is created for a particular pro'ect than to create a long

lasting relationship, *imited 5unction Joint Bentures The poers are based largely on

cooperation or coordination beteen the JB partners rather than a complete merger of

business, 5ull 5unction Joint Bentures " designed on a much larger scale compared to the

limited function, ith the intent to merge the businesses involved to create an

autonomous economic entity, often a ne company, in exchange for shares., 5ull Scale

orld ide mergers " on the largest scale, hich is often ith the involvement of

international companies, creating a ne company or subsidiary, for example the merger

beteen Shell and Texaco, to create E3uilon to deal ith a particular product, namely

industrial lubricants.

/;, 34at is Balanced Scorecard5 -"ov /1!2

The balanced scorecard is a strategic planning and management system that is used

extensively in business and industry, government, and nonprofit organi!ations orldide

to align business activities to the vision and strategy of the organi!ation, improve internaland external communications, and monitor organi!ation performance against strategic

goals.

/


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1. Provides potentia access to a wide variety of mar!ets.

". #houd ma!e a signi$cant contribution to the perceived customer bene$ts ofthe end product.

%. &i'cut to imitate by competitors.

5or example, a company$s core competencies may include precision mechanics, fine optics, and

micro"electronics.

!/, 34at is ma>e or 6u. decisions5 -Ma. /18 Ma. /1!2

hat coud be outsourced is eamined and decided by the ma!e or

buy decision. The decision reates to two aspects* what ta!es and

functions shoud be performed within the $rm and which ones shoud

be sourced to outside suppiers+ and what type of reationship shoudbe deveoped with the suppying companies for the activities it

outsources to other $rms, This set of issues requires decisions

frequenty and are coectivey referred to as -ma!eorbuy/ decisions.

!!, 34at are t4e social responsi6ilities of a glo6al organi9ation5 -Ma. /102

a. to help the ea#er and bac#ard sections of the society b. to preserve and promote social and cultural valuesc. to generate employmentd. to protect the environment

!8, 34at is ec4ange rate ris>5 -Ma. /1!2Ec4ange $ate ris> is a financial ris> that exists hen a financial transaction isdenominated in a currency other than that of the base currency of the company.Ec4angerate ris> is the ris# of receiving less in domestic currency hen receiving anamount in a different currency denomination than in the receiver$s home country.

!0, &ist some of t4e maor investment decisions for international 6usiness -Ma. /102

Whether to produce domestically and do exports ith less investmentWhether to create Joint Benture ith a foreign company ith moderate investmentWhether to ma#e a large 5+I for creating manufacturing facility or to buy a foreign

company!:, 34at do .ou understand 6. ertical Mar>eting S.stems5 -"ov /1!2

vertical mar>eting s.stem 1B?S2 is one in hich the main members of a distribution

channelHproducer, holesaler, and retailerHor# together as a unified group in order to

meet consumer needs.!7, Define 34oll. o+ned su6sidiaries, -"ov /1!2

5iscal %olicy is a governments program ith respect to 82 the purchase of goods and

services and spending on transfer payments and =2 the amount and type of taxes.


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!;, &ist out t4e maor regional trade 6loc>s t4at prevail across t4e (lo6e pertaining to

International Business, -Ma. /1/2

ASEA" -Association of sout4East Asian "ations2 Arunei +arussalam, @ambodia,

Indonesia, *aos, ?alaysia, ?yanmar, %hilippines, Singapore, Thailand, and Bietnam.

E' -European 'nion2 5ounded in 89inds of ris>s in glo6al 6usiness5 -Ma. /102

collection of ris#s are associated ith investing in a foreign country. These ris#sinclude political ris#, exchange rate ris#, economic ris#, sovereign ris# and transfer ris#,hich is the ris# of capital being loc#ed up or fro!en by government action.

8/, Eplain 6riefl. t4e sources of conflict -Ma. /102

02s3 operations in foreign countries often give rise to con4icts

between the 02 and the host country with regard to business*

deveopmenta* environmenta* heath* and safety protection issues.

The sources of these con4icts are mainy the divergence of goas and

the abuse of power both by 02s and host countries. For example,


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increased automation aimed at promoting safety may run counter to

host poicies for promoting oca empoyment+ ocation in a densey

popuated area with a arge poo of potentia wor!ers may be

incompatibe with safety.8!, 34at is conflict in international 6usiness5 -Ma. /1! Ma. /


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on the needs and constraints of both parties rather than emphasi!ing strategies designed

to con3uer.0, "ame an. / mista>es normall. committed 6. "egotiators during t4e international

negotiation process,-Ma. /1/2

8. Thin#ing something is non negotiable

=. 0ot building relationships first>. *ac#ing confidence about the bargaining matter :. 0ot as#ing for hat they ant necessar. to produce one unit

@ountry @loth Wine

England ;N 8NN

)ortugal 8=N 9N


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Figure 1 =ours of +or> to commit after t4e speciali9ation

If the to countries speciali!e in producing

the good for hich they have the absolute

advantage, and if they exchange part of the

good ith each other, both of the to

countries can end up ith more of each good

than they ould have in the absence of trade. In the absence of trade, each country

produces one unit of cloth and one unit of ine. Gere, if England commits all of its labor

1;NO8NN2 for the production of cloth for hich England has the absolute advantage,

England produces 1;NO8NN2P;ND=.=< units of cloth. /n the other hand, if %ortugal

commits all of its labor 19NO8=N2 for the production of ine, %ortugal produces

19NO8=N2P9ND=.>>... units of ine. Ay exchanging the =.=< units of cloth and the =.>>...

units of ine, both of the to countries can end up ith more of each good than they

ould have in the absence of trade.

@omparative dvantage Theory

In a famous example, )icardo considers a orld economy consisting of to countries,

%ortugal and England, hich produce to goods of identical 3uality. In %ortugal, the a

priori more efficient country, it is possible to produce ine and cloth ith less labor than

it ould ta#e to produce the same 3uantities in England. Goever, the relative costs of producing those to goods differ beteen the countries.

=ours of +or> necessar. to produce one unit

@ountry @lothine

@ountry @loth Wine

England ;NO8NN N

)ortugal N 9NO8=N


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England

8NN 8=N

)ortugal 9N ;N

In this illustration, England could commit 8NN hours of labor to produce one unit of cloth, or

produce


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?any political decisions have serious economic and business implications. 5or example,

prohibition of alcohol is a political decision& but it affects the alcohol and related

industries. To ma#e the revenue loss due to prohibition, government my increase taxes or

resort to ne impost. Similarly hether to allo foreign investment in an industry or the

limit of foreign e3uity are often political decisions. Thus the economic policy of the

ruling party is very important.

#4e =ome Countr. )erspective

?a'or areas of governmental activity that are of concern to the international business

manager-

Embargoes and Sanctions

Export @ontrols

)egulation of International Ausiness Aehavior

=ost Countr. )olitical and &egal Environment

%olitical ction and )is# " Baries idely from country to country.

#4ree #.pes of )olitical $is>

o %+ners4ip $is>

Exposes property and life

o %perating $is>

Interference ith the ongoing operations of a firm

o #ransfer $is>

*imitations on the outflo of funds

)olitical $is> Ma. Involve

Confiscation

The government ta#eover of a firm ithout compensation to the oners.

Epropriation

form of government ta#eover in hich the firms oners are compensated.


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Domestication

The government demands transfer of onership and management responsibility.

Economic )is#

o *ess dangerous, but more common

!, %utline t4e )olitical Social Economic and Cultural environment of

international environment +it4 suita6le eamples, -Ma. /102Social or @ultural environment encompassing the religious aspects& lanugauge& customs,

traditions and beliefs& tastes and preferences& social stratification& social institutions&

buying and consumption habits etc are all very important factors for business. What is

li#ed by people of one culture may not be li#ed by those of some other culture. /ne of

the most important reasons for the failure of a number of companies in foreign mar#ets is

their failure to understand the cultural environment of these mar#ets and to suitably

formulate their business strategies. ?any companies modify their products and M or promotion strategies to suit the tastes and preferences or other characteristics of the

population of the different countries. Significant differences in the tastes and preferences

may exist even ithin the same country, particularly hen the country is very vast,

populous and more cultural li#e India.5or example, 0escafe has about a three fourths share of the Aombay mar#et, its share is

very small in Aangalore and insignificant in ?adras. Aru hich ta#es the large chun# of

the ?adras and Aangalore mar#ets has a very lo mar#et share in Aombay. It may be

relevant to recall here that hile 0escafe dvertisement pro'ects an international

cosmopolitan image of the product, the Aru advertisement has as its bac#drop the south

Indian, %articularly Tamilnadu, culture. number of ?0@s, including Fellogs and )eebo#s, *acoste, %hilips, %rocter and

4amble, Gindustan *ever, 0estle, may and So on have reali!ed that it ma#es business

sense to adapt to the Indian Tastes and preferences and business conditions. They have

launched ne product forms or got into ne categories relevant to Indian ?ar#et.%roper understanding of the cultural environment is very important for product

development, promotion, business negotiations, human resource management,

management of the social and political environment etc.n important problem is that several dimensions of culture are not easily explicit.

company hich sets out to do business in unfamiliar cultural environment may encounter

several problems if proper home or# is not done.@ultural environment includes at least three elements namely #noledge and beliefs,

ideals and preferences.Fnoledge and beliefs- They refer to a peoples prevailing notions of reality. They

include myths and metaphysical beliefs as ell as scientific realities.


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Ideals- Ideals are referred to the societal norms hich define hat is expected, customary,

right or proper in a given situation. 0orms are enforced by sanctions by rearding right

behavior and punishing the rong behavior %references- %references refer to societys definition of those things in life hich are

attractive or unattractive as ob'ects of desire. %references may differ beteen cultures.

The important factors of Social M @ultural Environment are-%rgani9ation of culture- It refers to the social structure and the integration of traits,

complexes and patterns that ma#e up the cultural system. The social structure, 6the eb

of organi!ed relationships among individuals and groups that defines their mutual rights

and liabilities7, together ith traits, complexes and patterns, reflects the organi!ation of a

culture.Cultural adaptation- The terms cultural adaptation refers to the manner in hich a

social system or an individual fits into the physical or social environment. The social

system may be a small group, such as the family or a larger collectivity, such as an

organi!ation, such as an organi!ation, or even a total society, li#e a tribal society.

Cultural S4oc> - @ultural shoc# is a feeling of confusion, insecurity and anxiety caused by the strangeness of the ne environment.Cultural #ransmission- The elements of culture are transmitted among the members of

the culture, from one generation to the next, to the ne members admitted into the

culture. Some of the aspects of a culture may be transmitted to other cultures also.Cultural conformit.- Individuals in a culture tend either to conform to the cultural

norms or to deviate from them.Cultural &ag- cultural lag is that the various parts of modern culture do not change at the

same rate, and that since there is a correlation and interdependence of parts, a rapid

change in one part of our culture re3uires read'ustments through other changes in various

correlated parts of that culture.Economic Environment-The economic environment has much to do ith the scope of business, business prospects

and business strategy.The important economic factors are8. "ature of t4e econom.- The general level of development of the economy has lot of

implications for business it has significant bearing on the nature and demand si!e,

government policies affecting business etc. @ountries even different regions ithin a

country sho great differences in the level and pattern of economic development.

@ountries are classified into lo income economies 1 lo level of per capita income2,

middle income economies 1 moderate level of per capita income2, Gigh incomeeconomies 1 very rich income per capita2

=. Structure of t4e econom.- " The structure of the economy factors such as

contribution of different sectors li#e primary 1mostly agricultural2, secondary

1industrial2 and tertiary 1secondary2 sectors& large, medium and tiny sectors to the

economy and their lin#ages& integration ith the orld economy are important to

business. Aecause these factors indicate the prospects for different types of business,


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certain factors hich affect the business. The developed economies are primarily

service economies in the sense that the service sector generates bul# of the

employment and income. The contribution of the services to 4+% and employment is

substantially high, particularly, in the developed economies.>. Economic )olicies- There are several economic policies hich can have a very great

impact on business. I2 Industrial policy- Industrial policy can even define the scope

and role of different sectors li#e private, public, 'oint and cooperative, or large

medium, small and tiny. It may influence the location of industrial underta#ings,

choice of technology, scale of operation, product mix and so on. =2 Trade %olicy

restrictive import policy or policy of protecting the home industries may greatly help

the import competing industries, hile a liberali!ation of the import policy may

create difficulties for such industries >2 5oreign Exchange %olicy Exchange rate

policy and the policy in respect of cross border movement of capital are important for

business :2 5oreign investment and technology policy2 )estrictions on foreign capital

and technology constrain not only the foreign firms but also the domestic firms because it may come in their ay ac3uiring the technology of their choice from the

best source. ets -"ov /1!2Eplain t4e causes concerns and issues in economic glo6ali9ation, -"ov

/1!2Advantages of International Business

8. 5aster groth=. @heaper Imports>. 0e Technologies


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:. Increase consumer income. Improved Technology:. 4roth of ?ultinational @ompanies ith a global presence in many different

economies


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:, Eplain t4e 6ases of International )&C and )orter@s competitive

advantage t4eories of International trade -"ov /1!2

Discuss =ec>sc4er – %4lin t4eor. of factor proportion and t4e

paradoes associated t4ere+it4,

@ompetitive advantage occurs hen an organi!ation ac3uires or develops an attribute or

combination of attributes that allos it to outperform its competitors. These attributes can

include access to natural resources, such as high grade ores or inexpensive poer or access to

highly trained and s#illed personnel human resources.

%orters five forces

8. Existing competitive rivalry beteen suppliers=. Threat of ne mar#et entrants>. Aargaining poers of buyers

:. %oer of suppliers


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group of countries 1or other customs territories. trade agreement signed beteen more

than to sides 1typically neighboring or in the same region2 is classified as multilateral.There are variety of trade agreements- ith some being 3uite complex 1European Union2,

hile others are less intensive 10orth merican 5ree Trade greement2. The resulting

level of economic integration depends on the specific type of trade pacts and polices

adopted by the trade bloc.

Barriers to International trade The most common barriers to trade are

8. Tariffs,

=. Nontariff barriers

1, #ariffs

• tariff is a ta on imports, hich is collected by the federal government and hich

raises the price of the good to the consumer.

• lso #non as duties or import duties, tariffs usually aim first to limit imports and

second to raise revenue.

• #4e effect of tariffs- raises the price of the foreign good beyond the mar#et e3uilibrium

price, hich decreases the demand for and, eventually, the supply of the foreign good.

• For instance, hen the United States prohibits the importation of unpasteuri!ed cheese

from 5rance, is it protecting the health of the merican consumer or protecting the

revenue of the merican cheese producerQ

Forms of #ariffs

+epending on the motivation, tariffs come in different forms.

i, Scientific tariff a tariff may be levied in order to bring the price of the imported good up to

the level of the domestically produced good. This tariff has the stated goal of e3uali!ing the price

and, therefore, Rleveling the playing field beteen foreign and domestic producers. In this game,

the consumer loses.

ii, )erilpoint tariff is levied in order to save a domestic industry that has deteriorated to the

point here its very existence is in peril. n economist ould argue that the industry should be

alloed to expire. That ay, factors of production used by that inefficient industry could move

into a ne one here they ould be better employed.


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iii, $etaliator. tariff is one that is levied in response to a tariff levied by a trading partner. In the

eyes of an economist, retaliatory tariffs ma#e no sense because they 'ust start tariff ars in hich

no oneHleast of all the consumerHins.

/, "ontariff 6arriers 0ontariff barriers include

i, Import licenses " Each license specifies the volume of imports alloed, and the total volume

alloed should not exceed the 3uota. *icenses can be sold to importing companies at a

competitive price or fee.

ii, Eport licenses Export control document issued by a government agency to monitor the

export of sensitive technologies 1such as advanced computer chips, encryption"decryption

softare2, prohibited materials 1drugs, genetically"modified plants2, dangerous materials

1explosives, radioactive substances2, strategic materials 1uranium, advanced alloys2, or goods in

short supply in the home mar#et 1foodstuffs, ra materials2.

iii, Import *uotas 3uota is a limit on the amount of a certain type of good that may be

imported into the country.

– 3uota can be either voluntar. or legall. enforced.

– Effect of *uota 3uota limits the supply to a certain 3uantity, hich raises the

price beyond the mar#et e3uilibrium level and thus decreases demand.

iv, Su6sidies " subsidy is a form of financial aid or support extended to an economic sector 1or

institution, business, or individual2 generally ith the aim of promoting economic and social policy.Subsidies come in various forms including-

– direct 1cash grants, interest"free loans2 and

– indirect 1tax brea#s, insurance, lo"interest loans, depreciation rite"offs, rent

rebates2.

For eample, in the US at one time it as cheaper to buy gasoline than bottled ater.

v, oluntar. Eport $estraints -E$2 is a government"imposed limit on the 3uantity of some

category of goods that can be exported to a specified country during a specified period of time.

E 1


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manufacturers, the US government extended the 3uotas for an additional year. The cap as

raised to 8.;< million cars for this additional year, then to =.> million for 89;


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. 0ational @ompetitive dvantage

1, Mercantilism -mid 1:t4 centur.2

• nations ealth depends on accumulated treasure

– 4old and silver are the currency of trade

• Theory says you should have a trade surplus.

– ?aximi!e export through subsidies

– ?inimi!e imports through tariffs and 3uotas

• The theory holds that nations should accumulate financial ealth, usually in the form of

gold 1leave aside things li#e living standards or human development2 by encouraging

exports and discouraging imports.

• 5la- restrictions, impaired groth

/, A6solute Advantage -Classical2 -Adam Smit4@s model2

• dam Smith displays trade ta#ing place on the basis of countries exercising absolute

advantage over one another.

• dam Smith- Wealth of 0ations 18K2 argued-

– @apability of one country to produce more of a product ith the same amount of

input than another country

– country should produce only goods here it is most efficient, and trade for

those goods here it is not efficient• Trade beteen countries is, therefore, beneficial

• ssumes there is an absolute balance among nations

• +estroys the mercantilist idea since there are gains to be had by both countries party to an

exchange

• uestions the ob'ective of national governments to ac3uire ealth through restrictive

trade policies

• ?easures a nations ealth by the living standards of its people


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!, Comparative Advantage -$icardian model2

• +avid )icardo- %rinciples of %olitical Economy 18;82

– Extends free trade argument

– Efficiency of resource utili!ation leads to more productivity

– Should import even if country is more efficient in the products production than

country from hich it is buying.

• country must produce if it is comparatively efficient than import.

• Trade is a positive"sum game


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Assumptions and &imitations

• +riven only by maximisation of production and consumption

• /nly = countries engaged in production and consumption of 'ust = goodsQ

• What about the transportation costsQ

• /nly resource labour 1that too, non"transferable2

• 0o consideration for Rlearning theory

8, Factor )roportions -or endo+ments2 #rade -=ec>sc4er – %4lin model2

• In the early 89NNs developed by to Sedish economists, Eli Gec#scher and Aertil

/hlin.

• This theory has subse3uently been #non as the Gec#scher/hlin model 1G/ model2.

• The results of the G/ model are that countries ill produce and export goods that

re3uire resources 1factors2 hich are relatively abundant and import goods that re3uire

resources hich are in relative short supply.• country that is relatively labour abundant 1capital abundant2 should specialise in the

production and export of that product hich is relatively labour intensive 1capital

intensive2

• The G/ model ma#es the folloing core assumptions-

– *abor and capital flo freely beteen sectors


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– The amount of labor and capital in to countries differ 1difference in

endoments2

– Technology is the same among countries 1a long"term assumption2

– Tastes are the same

• Empirical pro6lems ith the G/ model, such as the *eontief paradox, ere noted in

empirical tests by Wassily *eontief ho found that the United States tended to export

labor"intensive goods despite having an abundance of capital.

• Eample 5inland produces ocean cruisers and leather products such as reindeer fur,

min# and fox coats.*apland, the northern part of 5inland, is sparsely inhabited by mostly

Indians ho hunt these ild animals. This cold climate or forest is a factor specific in the

leather goods industry.In the urban areas 5inns are also engaged in cruise ship building

and 5inland exports cruisers to European countries. In addition to ell educated or#ers,

the ship building industry re3uires a large amount of capital, hich is specific to that

industry in that it cannot be used in the leather goods industry. 5innish or#ers are

mobile beteen the to industries.

0, "e+ #rade #4eor.

• 0e Trade Theory tries to explain empirical elements of trade that comparative

advantage"based models above have difficulty ith.

•

These include the fact that most trade is beteen countries ith similar factor endomentand productivity levels, and the large amount of multinational production 1i.e., foreign

direct investment2 that exists.

• 0e Trade theories are often based on assumptions such as monopolistic competition and

increasing returns to scale.

• /ne result of these theories is the home"mar#et effect, hich asserts that, if an industry

tends to cluster in one location because of returns to scale and if that industry faces high

transportation costs, the industry ill be located in the country ith most of its demand,

in order to minimi!e cost.

• lthough ne trade theory can explain the groing trend of trade volumes of

intermediate goods, Frugman$s explanation depends too much on the strict assumption

that all firms are symmetrical, meaning that they all have the same production

coefficients.

https://en.wikipedia.org/wiki/Wassily_Leontiefhttps://en.wikipedia.org/wiki/Wassily_Leontiefhttps://en.wikipedia.org/wiki/Wassily_Leontiefhttps://en.wikipedia.org/wiki/Wassily_Leontief


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• Shio!aa, based on much more general model, succeeded in giving a ne explanation on

hy the traded volume increases for intermediate goods hen the transport cost

decreases.

s5 34at are t4eir

merits and demerits5a2 Article III Status of t4e 3#%

The WT/ shall have legal personality, and shall be accorded by each of its ?embers such

legal capacity as may be necessary for the exercise of its functions.

The WT/ shall be accorded by each of its ?embers such privileges and immunities as

are necessary for the exercise of its functions.

The officials of the WT/ and the representatives of the ?embers shall similarly be

accorded by each of its ?embers such privileges and immunities as are necessary for the

independent exercise of their functions in connection ith the WT/.

The privileges and immunities to be accorded by a ?ember to the WT/, its officials, and

the representatives of its ?embers shall be similar to the privileges and immunities

stipulated in the @onvention on the %rivileges and Immunities of the Speciali!ed

gencies, approved by the 4eneral ssembly of the United 0ations on =8 0ovember

89:.

The WT/ may conclude a head3uarters agreement.

Article IX

DecisionMa>ing

The WT/ shall continue the practice of decision"ma#ing by consensus folloed under

4TT 89:. Except as otherise provided, here a decision cannot be arrived at by consensus,

the matter at issue shall be decided by voting. t meetings of the ?inisterial @onference and the

4eneral @ouncil, each ?ember of the WT/ shall have one vote. Where the European

@ommunities exercise their right to vote, they shall have a number of votes e3ual to the number of their member States hich are ?embers of the WT/. +ecisions of the ?inisterial @onference

and the 4eneral @ouncil shall be ta#en by a ma'ority of the votes cast, unless otherise provided

in this greement or in the relevant ?ultilateral Trade greement.

8. The ?inisterial @onference and the 4eneral @ouncil shall have the exclusive authority to

adopt interpretations of this greement and of the ?ultilateral Trade greements. The decision


26/65

to adopt an interpretation shall be ta#en by a three"fourths ma'ority of the ?embers. This

paragraph shall not be used in a manner that ould undermine the amendment provisions in

rticle .

=. In exceptional circumstances, the ?inisterial @onference may decide to aive an obligation

imposed on a ?ember by this greement or any of the ?ultilateral Trade greements, provided

that any such decision shall be ta#en by three fourths of the ?embers unless otherise provided

for in this paragraph.

V re3uest for a aiver concerning this greement shall be submitted to the ?inisterial

@onference for consideration pursuant to the practice of decision"ma#ing by consensus. The

?inisterial @onference shall establish a time"period, hich shall not exceed 9N days, to consider

the re3uest. If consensus is not reached during the time"period, any decision to grant a aiver

shall be ta#en by three fourths: of the ?embers.

V re3uest for a aiver concerning the ?ultilateral Trade greements and their annexes

shall be submitted initially to the @ouncil for Trade in 4oods, the @ouncil for Trade in Services

or the @ouncil for T)I%S, respectively, for consideration during a time"period hich shall not

exceed 9N days. t the end of the time"period, the relevant @ouncil shall submit a report to the

?inisterial @onference.

>. decision by the ?inisterial @onference granting a aiver shall state the exceptional

circumstances 'ustifying the decision, the terms and conditions governing the application of the

aiver, and the date on hich the aiver shall terminate. ny aiver granted for a period of

more than one year shall be revieed by the ?inisterial @onference not later than one year after it is granted, and thereafter annually until the aiver terminates. In each revie, the ?inisterial

@onference shall examine hether the exceptional circumstances 'ustifying the aiver still exist

and hether the terms and conditions attached to the aiver have been met. The ?inisterial

@onference, on the basis of the annual revie, may extend, modify or terminate the aiver.

:. +ecisions under a %lurilateral Trade greement, including any decisions on interpretations and

aivers, shall be governed by the provisions of that greement.

b) REGIONAL TRADE BLOCKS

Meaning

5n genera terms* regiona trade boc!s are associations of nations at a

governmenta eve to promote trade within the boc! and defend its members

against goba competition. &efense against goba competition is obtained through


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estabished taris on goods produced by member states* import quotas*

government subsidies* onerous bureaucratic import processes* and technica and

other nontari barriers. #ince trade is not an isoated activity* member states

within regiona boc!s aso cooperate in economic* poitica* security* cimatic* and

other issues aecting the region.

5n terms of their si6e and trade vaue* there are four ma7or trade boc!s and a

arger number of boc!s of regiona importance.

Te !o"r ma#or regional $ra%e blo&'( are, a( !ollo(*

ASEA" -Association of sout4East Asian "ations2

8stabished on August 9* 1:;Thaiand.

Member S$a$e(*

=runei &arussaam* 2ambodia* 5ndonesia* ?aos* 0aaysia* 0yanmar*

Phiippines* #ingapore* Thaiand* and @ietnam.

Goal(*

Acceerate economic growth* socia progress and cutura deveopment in the

region and

Promote regiona peace and stabiity and adhere to nited ations 2harter.

Impor$an$ In%i&a$or( !or +-*

Popuation approimatey B:1 miion+ C&P #D1.E:; triion+ and Tota Trade

#D1.B%; triion.

E' -European 'nion2

Founded in 1:B1 by si neighboring states as the 8uropean 2oa and #tee

2ommunity (82#2). ver time evoved into the 8uropean 8conomic 2ommunity*

then the 8uropean 2ommunity and* in 1::"* was $nay transformed into the

8uropean nion.

Gegiona boc! with the argest number of members states ("


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8voved from a regiona freetrade association of states into a union of

poitica* economic and eecutive connections.

ME$C%S'$ -Mercado Comun del Cono Sul Sout4ern Cone Common

Mar>et2

8stabished on "; 0arch 1::1 with the Treaty of AssunciJn.

Fu members incude Argentina* =ra6i* Paraguay* ruguay* and @ene6uea.

Associate members incude =oivia* 2hie* 2oombia* 8cuador* and Peru.

Associate members have access to preferentia trade but not to tari bene$ts

of fu members.

0eico* interested in becoming a member of the region* has an observer

status.

Goal(*

5ntegration of member states for acceeration of sustained economic

deveopment based on socia 7ustice* environmenta protection* and

combating poverty.

"AF#A -"ort4 American Free #rade Agreement2

Agreement signed on 1 Kanuary 1::E.

Member(*

2anada* 0eico* and the nited #tates of America.

Goal(*

8iminate trade barriers among member states* promote conditions for free

trade*

increase investment opportunities* and protect inteectua property rights.

ADA"#A(ES A"D DISADA"#A(ES %F $E(I%"A& #$ADE B&%C

Advantages

#ransaction costs +ill 6e eliminated

5or instance, UF firms currently spend about 8.< billion a year buying and selling

foreign currencies to do business in the EU. With the E?U this is eliminated, so increasing


29/65

profitability of EU firms. dvice to young people- Xou can go on holiday and not have to orry

about getting your money changed, therefore avoiding high conversion charges.

)rice transparenc.

EU firms and households often find it difficult to accurately compare the prices of goods,services and resources across the EU because of the distorting effects of exchange rate

differences. This discourages trade. ccording to economic theory, prices should act as a

mechanism to allocate resources in an optimal ay, so as to improve economic efficiency. There

is a far greater chance of this happening across an area here E.?.U exists.

'ncertaint. caused 6. Ec4ange rate fluctuations eliminated

?any firms become ary hen investing in other countries because of the uncertainty

caused by the fluctuating currencies in the EU. Investment ould rise in the E?U area as the

currency is universal ithin the area, therefore the anxiety that as previously apparent is there

no more.

Single currenc. in single mar>et ma>es sense

Trade and everything else should operate more effectively and efficiently ith the Euro.

Single currency in a single mar#et seems to be the ay forard.

$ival to t4e GBig #+oG

If e loo# out in the orld today e can see strong currencies such as the Japanese Xen

and The merican Y. merica and Japan both have strong economies and have millions of

inhabitants. nely found monetary union and a ne currency in Europe could be a rival to the

(AI4 TW/(. E?U can be self"supporting and so they could survive ithout trading ith anyone

outside the E?U area.

)revent +ar

The E?U is, and ill be a political pro'ect. It$s founding is a step toards European

integration, to prevent ar in the union. It$s a ell #non fact that countries ho trade

effectively together don$t age ar on each other and if E?U means more happy trade, then this

means, peace throughout Europe and beyond.

Increased #rade and reduced costs to firms

%roponents of the move argue that it brings considerable economic trade through the

iping out of exchange rate fluctuations, but as ell as this it helps to loer costs to industry

because companies ill not have to buy foreign exchange for use ithin the EU. 5or them, EU


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represents the completion of the Single European ?ar#et. It is vital if Europe is to compete ith

the other large trading blocs of the 5ar East and 0orth merica.

#4e )olitical agenda

There is also a political agenda to European ban# 1the European System of @entral Aan#s"ES@A2, the complete removal of national control over monetary policy and the partial removal

of control over fiscal policy. Individual nation states ill lose sovereignty 1i.e. the ability to

control their on affairs2. It ill be a considerble step don the road toards political union.

There are many in the EU ho faviour economica dn political union and they are very much in

facour ot E?U. There are also many ho ish to #eep national sovereignty and are strugging to

prevent E?U, hatever its merits might be, from going ahead.

Disadvantages

#4e insta6ilit. of t4e s.stem

Throughout most of the 89;Ns the UF refused to 'oin the E)? 1Exchange rate

mechanism2. It argued that it ould be impossible to maintain exchange rate stability ithin the

E)?, especially in the early 89;Ns hen the pound as a petro"currency and hen the UF

inflation rate as consistently above that of 4ermany. When the UF 'oined the E)? in 899N

there had been three years of relative currency stability in Europe and it loo#ed as though the

system had become relatively robust. The events of Sept. 899=, hen the UF and Italy ere

forced to leave the system, shoed that the system as much less robust than had been thought.

%ver estimation of #rade 6enefits

Some economists argue that the trade and cost advantages of E?U have been grossly

over estimated. There is little to be gained from moving from the present system hich has some

stability built into it, to the rigidities hich E?U ould bring.

&oss of Sovereignt.

/n the political side, it is argued that an independent central ban# is undemocratic.

4overnments must be able to control the actions of the central ban#s because 4overnments have

been democratically elected by the people, hereas an independent central ban# ould be

controlled by a non elected body. ?oreover, there ould be a considerable loss of sovereignty.%oer ould be transferred from *ondon to Arussels. This ould be highly undesirable because

national governments ould lose the ability to control policy. It ould be one more step don

the road toards a Europe here Arussels as a#in to Westminster and Westminster a#in to a

local authority.


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1, Criticall. evaluate t4e need for glo6al competitiveness in International

#rade -"ov /1/2

"eed for glo6al competitiveness

8. *iberali!ation- /ne of the most important factors hich have given a great impetus to

4lobali!ation since the 89;Ns is the almost universal economic policy liberali!ationhich are fostering a borderless business orld. While a lot of the liberali!ations oeit to the 4TT M WT/, substantial liberali!ation have been occurring outside the4TT M WT/ as ell.

=. ?0@s- ?ultinational enterprises hich lin# their resources and ob'ectives ith orldmar#et opportunities, have been a poerful force driving targets globali!ation. Ta#ingadvantage of the liberali!ation trend, there has been a fast groth of the number of ?0@s and their global netor# of affiliates.

>. Technology- Technology is a poerful driving force of globali!ation. Technologicaladvances have tremendously fostered globali!ation. With its raising costs and ris#s,hich ma#es it imperative for firms to tap orld mar#ets and to share these costs and

ris#s. ?onopoly of technology, li#e possession of patented technology, encouragesinternationali!ation because the firm can exploit the respective demand ithout anycompetition.

:. Transportation and @ommunication )evolutions- The pace of globali!ation has beenaccelerated by several enabling technologies. Technological revolution in severalspheres, li#e transport and communication, has given a great impetus to globali!ation by their tremendous contribution to the reduction of the disadvantages of natural barriers li#e distance and cost.

The IT revolution has made an enormous contribution to the emergence of theglobal village. Indeed the microprocessor, hich enabled the explosive groth of high poer, lo cost computing, vastly increasing the amount of information that

can be processed by individuals and firms has been doing onders. The internetand orld ide eb have revolutioni!ed the speed, dimensions and volume of information search and dissemination and global business.


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;. @ompetition- Geightened competition compels firms to explore ne ays of increasing their efficiency, including by extending their international reach to nemar#ets at an early stage and by shifting certain production activities to reduce costs.

9. World Economic Trends- /ne of the important trends is the difference in the grothrates of the economies M mar#ets. The comparatively slo groth of the developed

economies or the stagnation of some of their mar#ets and the fast groth of a number of developed countries prompt firms of developed countries to turn to the expandingmar#ets elsehere.

8N. )egional Integration- The proliferation of regional integration schemes li#e theEuropean Union 1EU2, 0orth merican 5ree Trade greement 105T2 etc., bycreating a borderless orld beteen the members of such trade blocs, foster theglobali!ation trend.

'nit III

11, 34at are t4e features of an effective control mec4anism in

International Business5 Eplain t4e tec4ni*ues of control,-Ma.

/10/182

To give a clear definition of hat is meant by control of business is a demanding tas#. The

concept of control is very elusive it has different meanings ithin different social communities,

hich varies ith time and the communitys level of cohesion, its organi!ational stage and

cultural origin. If e manage to define control, e are still left ith another deceptive concept

that of business. organi!ed structure of poer7 is represented by the state and nely established

regulatory bodies. In that sense e can argue that control became more expert than poer and

social orientated. This 6social control7 is exercised in behalf of the society and its groups&

therefore it should include all of the different interests that e encounter ithin this socio"economic cohesion. Goever the level of social cohesion is variable it changes together ith

the evolution of the demographic and economic factors, and it alters social interests hindering the

efficiency of social control. In an era of business internationali!ation and booming trans"national

business transactions, the interests that should be protected and controlled are groingly

divergent.

A))$%AC=ES #% C%"#$%&

@ontrol means, 6Some sort of systematic effort to compare current performance to a

predetermined plan of ob'ective, presumably in order to ta#e any remedial action re3uired7. This

is a very general definition of the term. Goever, as a management function, it has been defined

as 6the process by hich managers assure that resources are obtained and used effectively and

efficiently in the accomplishment of the organi!ations goals7. @ontrolling is tool for achieving

organi!ational goals and activities. @ontrol is managements planning, implementation,

evaluation, and correction of performance to ensure that the organi!ation meets its ob'ectives in

the short, medium and long terms. In the case of ?0Es, the top managements toughest


33/65

challenge is to balance the companys global needs ith its need to adapt to country"level

differences.

ccording to Genry 5ayol , R@ontrol of an underta#ing consists of seeing that everything

is being carried out in accordance ith the plan hich has been adopted, the orders hich have

been given, and the principles hich have been laid don. Its ob'ect is to point out mista#es inorder that they may be rectified and prevented from recurring

ccording to E5* Areach, R@ontrol is chec#ing current performance against pre"

determined standards contained in the plans, ith a vie to ensure ade3uate progress and

satisfactory performance.

ccording to Garold Foont! and /+onnel, R@ontrolling is the measurement and

correction of performance in order to ma#e sure that enterprises ob'ectives and the plans devised

to attain them are accomplished. 5rom these definitions, it could be deduced that control, one of

the managerial functions li#e planning, organi!ing, etc. is an important function because it helpsensuring that the planned goals are attained through a system of chec#s, monitoring, corrective

actions and forard thin#ing so that errors are removed, and corrective actions ta#en timely so

that deviation from standards are minimi!ed, if not eliminated. @ontrol in management means

setting standards, measuring actual performance and ta#ing corrective action. Thus, control

comprises these three main activities.

)E$F%$MA"CE %F (&%BA& B'SI"ESS

There are to fundamental ays in hich managing political ris# improves global

business performance-

8. %rotecting ne and existing global investments and operations

=. @apitali!ing on opportunities resulting from political change

It is our belief that by establishing a systematic approach to political ris# management,

multinational companies can drive business performance improvement.

We #no that the tas# of managing political ris# is not easy. 0ot only do political changes pose

direct ris#s to firms, but politics is also a component of other external ris#s. )egulatory changes

have the potential to promote or inhibit mar#et competition, social ris#s often have political

bases and responses, and political mismanagement can turn natural or human"made events intocatastrophes. ?oreover, political ris# is often perceived to be outside of managements control,

ma#ing it difficult to define, predict, and align ith ob'ectives. 4iven the complexity of these

issues, it is no onder that corporations often fail to address political ris# in a systematic ay.

#ec4ni*ues of control

The opportunity to promote employees 'ob progress and professional development.


34/65

ay to develop and evaluate the employees professional development training plan.

system for providing employees ith feedbac# on the degree employees are achieving

duties.

ay to identify and document employees special talents, s#ills, and capabilities.

system for planning personnel moves and placements that ill best utili!e eachemployee capabilities.

n opportunity for each employee to discuss 'ob problems and interests ith supervisor.

system for assembling data for use of a guide, although not necessarily the sole

governing factor, for salary ad'ustments, promotions, disciplinary actions and

termination.

1/, Eplain t4e steps involved in Strategic planning in In International

Business -Ma. /102

ssess the external context, in terms of opportunities and threats 1e.g. from environmental scan,

institutiogramme, coverage matrix andMor sta#eholder analysis2

)riorities and cluster opportunities and threats

If you have more than 8< of each, priorities 1e.g. through voting2

Arainstorm hich opportunities and threats can be related to each other

Who should participate in the folloing stepQ It is often hard to ta#e step = ith a group

of 8< or more people, although that is ideal. lternatively a core team of 8"< people can do step

=. Goever, a process facilitator should not do it alone in a brea#

Develop strategic options. 5ormulate strategic options that-

)espond to one or more opportunities andMor threats.

re actions 1or results2 related to output, input, mission, vision andMor relations

re straightforard 1clearly relate to opportunities andMor threats2, but

re also creative 1there may be more than the most obvious response. nd you may

consider ne solutions that respond to ne trends, opportunities, and threats2

Xou may develop several options relating to the same opportunity or threat.

5or each threat or opportunity try to formulate at least one strategic option.


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$ate t4e options in terms of relevance to 1note that this is only a preliminary selection2

in the S/% matrix.

The criteria in your A, and

The mission and aspiration of the organi!ation.

0ote- )ating should not be done using the criterion of feasibility, as matching external

strategic options ith internal possibilities happens only during S/). )ating can be done

individually 1give each person around < votes2 or 'ointly. Each S/ may be given N"> Rvotes.

Select the >"K most relevant options to be further considered during strategic orientation.

Follo+up

Implement internal organisational analysis of critical elements.

Strategic orientation 1S/)2, the final selection of a 1set of2 strategic options.

1!, Distinguis4 6et+een standardi9ation and differentiation strategies+it4 suita6le eamples, -Ma. /182

Standardi!ation or undifferentiated mar#eting is characteri!ed by mar#et aggregation i.e.

treating a hole mar#et as a single unit hose parts are ali#e in all ma'or respects. The

entire mar#et is sought to be tapped ith a single mar#eting mix. +ifferentiated

mar#eting essentially involves mar#et segmentation, the opposite of mar#et aggregation.?ar#et segmentation is the process of dividing heterogeneous mar#et for a product into

groups of customers so that each such segment is amenable to a separate mar#eting mix.

The ob'ective of mar#et segmentation and differentiated mar#eting strategy is to increase

the business of the company by more effectively serving the needs of the different

segments of the customers. Thus hile Standardi!ation ta#e a shotgun approach,

differentiation is a rifle approach. Standardi!ation strategies are appropriate hen the

mar#et is homogeneous i.e. hen customer characteristics are the same, differentiation

strategies may be desirable hen the mar#et is heterogeneous i.e. hen the relevant

customer characteristics differ. 6In the language of economic theory, in standardi!ation,

the seller assumes there is a single demand curve for his product. In effect, the product is

assumed to have a broad mar#et appeal. In contrast, in differentiation, the total mar#et is

vieed as a series of demand curve. Each one represents a separate mar#et segment

calling for a different product, promotional appeal, or other elements in the mar#etingmix.+ifferentiation is based on the appreciation of the heterogeneity of the mar#et i.e. income

levels, tastes and preferences, usage conditions, purposes of use and other consumer

characteristics relevant to mar#eting differ beteen different groups of consumers.

18, Eplain t4e various performance measurement indicators of a

multinational corporation in detail -Ma. /182


36/65

5inancial Indicators-8. 5inancial statements=. )eturn on ssets, )eturn on E3uity and Earnings %er Share.>. Stoc# Turnover days.:. +ebtors turnover days


37/65

F"n&$ional Organi.a$ional S$r"&$"re

functional organi!ational structure is centered on 'ob functions, such as mar#eting, research

and development and finance. Small companies should use a functional organi!ation hen they

ant to arrange their organi!ational structure by department. 5or example, a small company may

have a director, to managers and to analysts in the mar#eting department. The director ould

li#ely report to the @hief Executive /fficer, or @E/, and both managers ould report to the

director. In addition, each manager may have an analyst reporting to them. functional

organi!ational structure or#s ell hen small companies are heavily pro'ect"focused. +irectors

can assign certain pro'ects to managers, ho can then divvy up tas#s ith their analysts. The

department can then more effectively meet their pro'ect deadlines.

/ro%"&$ Organi.a$ional S$r"&$"re

product organi!ational structure has managers reporting to the president or head of the

company by product type. %roduct organi!ational structures are primarily used by retail

companies that have stores in various cities. Goever, stores in each city may still need a localhuman resources or mar#eting department to carry out functions locally. 5or example, a small

department store company may have a vice president of sporting goods, houseares and general

merchandise at the corporate office. /ne manager may report to each vice president. Goever,

each manager may oversee the or# of one or more field mar#eting employees ho travel and

handle local mar#eting stores in several states. These field mar#eting employees may or# for

the sporting goods manager one ee# in *eague @ity, Texas, then do merchandising for the

houseares manager another ee# in the Sugarland, Texas, mar#et.

Geograpi&al Organi.a$ional S$r"&$"re

The Small Ausiness dministration is responsible for defining small businesses in differentindustries. 5or example, in manufacturing, the SA usually considers a company ith


38/65

1ii2 ?0@s are faced ith fast and technologically influenced changes in global mar#ets.

/ptimi!ing global efficiencies, national responsiveness and orld ide learning all re3uired

?0@s to find ne strategic orientations and changes in organi!ational capabilities. International

mar#ets are complex and volatile, re3uiring management to find ne ays of efficiently meeting

rapid changes. The application softare of such products is very much dependent on local

culture and is very difficult for engineers from different cultures to develop. Such softare has to

be developed by local engineers ith #noledge of the mar#et.

. '"I# I1:, Elucidate t4e 6asic concepts of foreign ec4ange its nature and t.pes

of Fore Mar>et, -"ov /1!2

)resent t4e t.pes of Fore $is> t4e internal and eternal 4edging

strategies for transaction and operating ris>s,5oreign exchange mar#ets exist to allo business oners to purchase currency in another

country so they can do business in that country. The 5 mar#et also called the forexmar#et is a orldide netor# of currency traders ho or# around the cloc# to

complete these transactions and their or# drives the exchange rate for currencies around

the orld.The types of forex mar#ets are-

Spot mar#et " The spot mar>et or cas4 mar>et is a public financial mar#et in hich financial

instruments or commodities are traded for immediate delivery. It contrasts ith a futures mar#et,

in hich delivery is due at a later date. In spot mar#et, settlement happens in tO= or#ing days,

i.e., delivery of cash and commodity must be done after to or#ing days of the trade date.

spot mar#et can be-

• an organi6ed mar!et+

• an echange+ or

• overthecounter (T2)

5orard mar#et is a mar#et here agreements are made to buy or sell an asset at a certain

future time for a certain price. It can be contrasted ith a spot mar#et, here agreements

are made to buy or sell an asset today. Investors or traders may ta#e long or short

position. *ong position means buying the underlying asset or short position selling theunderlying asset. So in a particular forard contract, one party ta#es a long position and

another party ta#es short position at a specified price for a specified future date.

*i#e a forard mar#et, a futures mar#et is a mar#et here agreements are made beteento parties to buy or sell an asset at a certain time in the future for a certain price. Unli#eforard contracts, futures contracts are normally traded on an exchange.


39/65

The three main types of echange rate ris!

8.Transaction ris#, hich is basically cash flo ris# and deals ith the effect of exchange

rate moves on transactional account exposure related to receivables 1export contracts2,

payables 1import contracts2 or repatriation of dividends. n exchange rate change in thecurrency of denomination of any such contract ill result in a direct transaction exchange

rate ris# to the firm&

=.Translation ris#, hich is basically balance sheet exchange rate ris# and relates

exchange rate moves to the valuation of a foreign subsidiary and, in turn, to the

consolidation of a foreign subsidiary to the parent companys balance sheet. Translation

ris# for a foreign subsidiary is usually measured by the exposure of net assets 1assets less

liabilities2 to potential exchange rate moves. In consolidating financial statements, the

translation could be done either at the end"of"the"period exchange rate or at the average

exchange rate of the period, depending on the accounting regulations affecting the parentcompany. Thus, hile income statements are usually translated at the average exchange

rate over the period, balance sheet exposures of foreign subsidiaries are often translated at

the prevailing current exchange rate at the time of consolidation& and

>. Economic ris#, hich reflects basically the ris# to the firms present value of future

operating cash flos from exchange rate movements. In essence, economic ris# concerns

the effect of exchange rate changes on revenues 1domestic sales and exports2 and

operating expenses 1cost of domestic inputs and imports2. Economic ris# is usually

applied to the present value of future cash flo operations of a firms parent company

and foreign subsidiaries. Identification of the various types of currency ris#, along iththeir measurement, is essential to develop a strategy for managing currency ris#.

17, Eplain t4e terms Domestic mar>eting International Mar>eting

Multinational Mar>eting and (lo6al mar>eting, In t4e contet of

t4ese four terms descri6e 4o+ t4e international mar>eting

involvement and commitment of a compan. c4anges,-"ov /1!2

+omestic ?ar#eting- mar#eting restricted to the political boundaries of a country is called R+omestic

?ar#eting. company mar#eting only ithin its national boundaries only has toconsider domestic competition. Event if that competition includes companies from

foreign mar#ets, it still only has to focus on the competition that exists in its home

mar#et. %roducts and services are developed for customers in the home mar#et ithout

thought of ho the product or service could be used in other mar#ets. ll mar#eting

decisions are made at head 3uarters. These mar#eters can be considered ethnocentric as

they are most concerned ith ho they are perceived in their home country.


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International ?ar#eting-International mar#eting is the export, franchising, 'oint venture or full direct entry

of a mar#eting organi!ation into another country. This can be achieved by exporting a

companys product into another location, entry through a 'oint venture ith another firm

in the target country or foreign direct investment into the target country. The development

of the mar#eting mix for that country is then re3uired International mar#eting. It can be

as straightforard as using existing mar#eting strategies, mix and tools for export on the

one side, to a highly complex relationship strategy including locali!ation, local product

offerings and leadership. Internationali!ation and international mar#eting meets the needs

of the selected foreign countries here a companys value can be exported and there is

inter firm and firm learning, optimi!ation and efficiency in economies of scale and scope.

The firm does not need to export or enter all orld mar#ets to be considered an

international mar#eter.

?ultinational ?ar#eting-

@ompany vies the different countries as one mar#et and creates their brand or service

according to the business climate of these foreign countries.

4lobal ?ar#eting-4lobal mar#eting is a firms ability to mar#et to almost all countries on the planet. With

extensive reach, the need for a firms product or service is established. The global firm

retains the capability, reach, #noledge, staff, s#ills, insights and expertise to deliver

value to customers orldide. The firm understands the re3uirement to service

customers locally ith global standard solutions or products and locali!es that product as

re3uired to maintain an optimal balance of cost, efficiency, customi!ation and locali!ation

in a control customi!ation continuum to best meet local, national, and globalre3uirements to position itself against or ith competitors, partners, alliances, substitutes

and defend against ne global and local mar#et entrants per country, region or city. The

firm ill price its products appropriately orldide, nationally and locally and promote,

deliver access and information to its customers in the most cost effective ay. The firm

also needs to understand, research measure and develop loyalty for its brand and global

brand e3uity for the long term.

1;, Discuss various modes of entr. suita6le in t4is regard and also

eplain t4eir merits and limitations,-Ma. /1! "ov /1!2

8. Target ?ar#et Selection

crucial step in developing a global expansion strategy is the selection of potential target

mar#ets

four"step procedure for the initial screening process-


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8. Select indicators and collect data

=. +etermine importance of country indicators

>. )ate the countries in the pool on each indicator

:. @ompute overall score for each country

=. @hoosing the ?ode of Entry

?ode of Entry @hoice- Transaction @ost Explanation

)egarding entry modes, companies normally face a tradeoff beteen the benefits

of increased control and the costs of resource commitment and ris#.

Transaction @ost nalysis 1T@2 perspective

Transaction"Specific ssets 1assets valuable for a very narro range of applications2

>. Exporting

Indirect Exporting

Export management companies

@ooperative Exporting

%iggybac# Exporting

+irect Exporting

5irms set up their on exporting departments

:. *icensing

*icensor and the licensee

Aenefits-

ppealing to small companies that lac# resources

5aster access to the mar#et

)apid penetration of the global mar#ets

@aveats-


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/ther entry mode choices may be affected

*icensee may not be committed

*ac# of enthusiasm on the part of a licensee

Aiggest danger is the ris# of opportunism

*icensee may become a future competitor

Go to see# a good licensing agreement-

See# patent or trademar# protection

Thorough profitability analysis

@areful selection of prospective licensees

@ontract parameter 1technology pac#age, use conditions, compensation, and

provisions for the settlement of disputes


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@aveats-

@ontract manufacturer may become a future competitor

*oer productivity standards

Aac#lash from the companys home"mar#et employees regarding G) and labor

issues

Issues of 3uality and production standards

ualities of an ideal subcontractor-

5lexibleMgeared toard 'ust"in"time delivery

ble to meet 3uality standards

Solid financial footings

ble to integrate ith companys business

?ust have contingency plans

. Joint Bentures

Aenefits-

Gigher rate of return and more control over the operations

@reation of synergy

Sharing of resources

ccess to distribution netor#

@ontact ith local suppliers and government officials

@aveats-

*ac# of control

*ac# of trust

@onflicts arising over matters such as strategies, resource allocation, transfer

pricing, onership of critical assets li#e technologies and brand names

;. Wholly /ned Subsidiaries

Aenefits-


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4reater control and higher profits

Strong commitment to the local mar#et on the part of companies

llos the investor to manage and control mar#eting, production, and sourcing

decisions

@aveats-

)is#s of full onership

+eveloping a foreign presence ithout the support of a third part

)is# of nationali!ation

Issues of cultural and economic sovereignty of the host country

c3uisitions and ?ergers

uic# access to the local mar#et

4ood ay to get access to the local brands

Strategic lliances

• lliances beteen partners that are related in terms of products, technologies, and

mar#ets

• Similar cultures, assets si!es and venturing experience

• shared vision on goals and mutual benefits

8N. Timing of Entry

International mar#et entry decisions should also cover the folloing timing"of"entry

issues-

When should the firm enter a foreign mar#etQ

/ther important factors include- level of international experience, firm si!e

?ode of entry issues, mar#et #noledge, various economic attractiveness

variables, etc.

)easons for exit-

Sustained losses

Bolatility


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%remature entry

Ethical reasons

Intense competition

)esource reallocation

1

http://www.quickmba.com/marketing/product/lifecycle/http://www.quickmba.com/marketing/product/lifecycle/


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o +iversify macroeconomic ris#s 1business cycles not perfectly correlated among

countries2

o +iversify operational ris#s 1labor problems, earth3ua#es, ars2

• &earning

o Aroaden learning opportunities due to diversity of operating environments

• $eputation

o @rossover customers beteen mar#ets " reputation and brand identification

Sumantra 4hoshal of I0SE+ proposed a frameor# comprising three categories of strategic

ob'ectives and three sources of advantage that can be used to achieve them. ssembling these

into a matrix results in the folloing frameor#-

Strategic

Objectives

Sources of Competitive Advantage

Na$ional Di0eren&e( S&ale E&onomie(S&ope

E&onomie(

E1&ien&2 in

Opera$ion(

8poit factor cost

dierences#cae in each activity

#haring

investments and

costs

Flexibili$2 0ar!et or poicyinducedchanges

=aancing scae withstrategic L operationa

ris!s

Portfoiodiversi$cation

Inno3a$ion

an%

Learning

#ocieta dierences in

management and

organi6ation

8perience cost

reduction and

innovation

#hared earning

across activities

The ature of 2ompetitive Advantage in Coba 5ndustries

global industry can be defined as-

• n industry in hich firms must compete in all orld mar#ets of that product in order to

survive.

• n industry in hich a firm$s competitive advantage depends on economies of scale and

economies of scope gained across mar#ets.


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Some industries are more suited for globali!ation than are others. The folloing drivers

determine an industry$s globali!ation potential.

8. Cost Drivers

o *ocation of strategic resources

o +ifferences in country costs

o %otential for economies of scale 1production, )Z+, etc.2 5lat experience curves in

an industry inhibits globali!ation. /ne reason that the facsimile industry had more

global potential than the furniture industry is that for fax machines, the production

costs drop >N":N ith each doubling of volume& the curve is much flatter for

the furniture industry and many service industries. Industries for hich the larger

expenses are in )Z+, such as the aircraft industry, exhibit more economies of

scale than those industries for hich the larger expenses are rent and labor, such

as the dry cleaning industry. Industries in hich costs drop by at least =N for

each doubling of volume tend to be good candidates for globali!ation.

o Transportation costs 1valueMbul# or valueMeight ratio2 DC +iamonds and

semiconductors are more global than ice.

=. Customer Drivers

o @ommon customer needs favor globali!ation. 5or example, the facsimile

industry$s customers have more homogeneous needs than those of the furniture

industry, hose needs are defined by local tastes, culture, etc.

o 4lobal customers- if a firm$s customers are other global businesses, globali!ation

may be re3uired to reach these customers in all their mar#ets. 5urthermore, global

customers often re3uire globally standardi!ed products.

o 4lobal channels re3uire a globally coordinated mar#eting program. Strong

established local distribution channels inhibits globali!ation.

o Transferable mar#eting- hether mar#eting elements such as brand names and

advertising re3uire little local adaptation. World brands ith non"dictionary

names may be developed in order to benefit from a single global advertising

campaign.

>. Competitive Drivers


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o 4lobal competitors- The existence of many global competitors indicates that an

industry is ripe for globali!ation. 4lobal competitors ill have a cost advantage

over local competitors.

o When competitors begin leveraging their global positions through cross"

subsidi!ation, an industry is ripe for globali!ation.

:. (overnment Drivers

o Trade policies

o Technical standards

o )egulations

The furniture industry is an example of an industry that did not lend itself to globali!ation beforethe 89KN$s. Aecause furniture has a high bul# compared to its value, and because furniture is

easily damaged in shipping, transport costs traditionally ere high. 4overnment trade barriers

also ere unfavorable. The Sedish furniture company IFE pioneered a move toards

globali!ation in the furniture industry. IFE$s furniture as unassembled and therefore could be

shipped more economically. IFE also loered costs by involving the customer in the value

chain& the customer carried the furniture home and assembled it himself. IFE also had a frugal

culture that gave it cost advantages. IFE successfully expanded in Europe since customers in

different countries ere illing to purchase similar designs. Goever, after successfully

expanding to several countries, IFE ran into difficulties in the U.S. mar#et for several reasons-

• +ifferent tastes in furniture and a re3uirement for more customi!ed furniture.

• +ifficult to transfer IFE$s frugal culture to the U.S.

• The Sedish Frona increased in value, increasing the cost of furniture made in Seden

and sold in the U.S.

• Stoc#"outs due to the one to to month shipping time from Europe

• ?ore competition in the U.S. than in Europe

2ountry 2omparative Advantages

Competitive advantage is a firm$s ability to transform inputs into goods and services at a

maximum profit on a sustained basis, better than competitors. Comparative advantage resides in


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the factor endoments and created endoments of particular regions. 5actor endoments

include land, natural resources, labor, and the si!e of the local population.

In the 89=N$s, Sedish economists Eli Gec#sher and Aertil /hlin developed the factor"

proportions theory, according to hich a country en'oys a comparative advantage in those goods

that ma#e intensive use of factors that the country has in relative abundance.

?ichael E. %orter argued that a nation can create its on endoments to gain a comparative

advantage. @reated endoments include s#illed labor, the technology and #noledge base,

government support, and culture. %orter$s +iamond of 0ational dvantage is a frameor# that

illustrates the determinants of national advantage. This diamond represents the national playing

field that countries establish for their industries.

/, Discuss t4e issues involved in (lo6al suppl. c4ain management

34at are t4e c4allenges in International )roduct Development

Issues in 4lobal supply chain management-1, ith the gobai6ation of manufacturing operations* having a goba

procurement networ! that can support and react to your suppy chain needs

is important. According to many chief procurement o'cers* seecting a

strategic suppier that provides manufacturing ocations with consistent

goba quaity and a reiabe oca service* is a chaenge.

/, The pressure on manufacturers to produce highquaity products that are safeis an increasing chaenge. The number of product reca cases is growing

each day. 5t can damage a company3s reputation and is epensive to its

bottom ine.

!, ith shorter product ife cyces and changing mar!et demands* companiesare forced to embar! on a ean 7ourney. 5t is important to note that the suppy

strategies in a ean environment support the operations strategy. The

chaenge is aways to $nd not 7ust a ean concept* but a wor!ing ean

soution.

8, 2onsoidation of the suppier base can bring many advantages. 5t eiminatessuppy base variances and overheads* especiay in the suppy of 2parts. The

chaenge is to $nd a suppier with soutions and eperience in suppierbased

consoidation processes.

0, Access to the atest technoogy in various $eds by having the right eperts

has proven to be a great support in new product deveopment.@hallenges in International %roduct +evelopment

The ultimate proof of meeting an unmet need is of course that customers actually buy the

product. Goever, 'ust as#ing the potential customer if they ould buy the product ithout

identifying if the product meets a critical unmet need ill lead one don the rong path. What

customers say they buy differs from hat they actually buy. In the life sciences, such customers


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are often physicians. Scientists and engineers tend to be very good at ma#ing products given

certain specs but not very good at identifying and tal#ing to potential customers. Technical

feasibility and cost may render a [\]perfect[\ product but unless it meets the

customer[\^s unmet need, it can yield many surprises. @onversely, physicians are not

particularly interested in providing specs of their needs to scientists, nor ould their training

e3uip them ell to do so. It is to different cultures ith to different mindsets. It can be of

great advantage to have someone li#e )egina communicate ith both sides and translate beteen

them. The 'ob is ultimately to understand here the critical unmet need is, and to articulate the

specs of a product meeting that need.

It is also important to #eep an eye on the mar#et si!e as ell as the mar#et potential for the

product in meeting the business goals of the company. The last thing you ant to find out is that

there is no mar#et for the product or that the customer isn[\^t buying the product. In addition to

meeting a critical unmet need you need to be in a mar#et here you sell a significant amount of

product to develop more products and expand your business. It often ma#es sense to outsource tosomeone ho can determine the si!e of the mar#et and the mar#et potential for the product in

meeting the business goals of the company through mar#et research and tal#ing to potential

customers.

Thirdly, a competitive advantage needs to be articulated to your customers- ho does the product

1or attributes of the product2 meet your customers[\^ unmet need that no other product can.

This is the reas

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