Master of Business Administration- MBA Semester 4

MB0053 International Business Management

Q 1. Write a note on Globalization. Ans 1. Globalization is a process where businesses are dealt in markets around
the world, apart from the local and national markets. According to business terminologies, globalization is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. It is advantageous for the economy of countries because it promotes prosperity in the countries that embrace globalization. Benefits of Globalization: Promotes foreign trade and liberalization of economies. Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low, with increased productivity. Promotes better education and jobs. Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices and culture. Provides better quality of products, customer services, and standardized delivery models across countries. Gives better access to finance for corporate and sovereign borrowers. Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world. Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production.

 Provides several platforms for international dispute resolutions in business, which facilitates international trade. ILL Effects of Globalization: Leads to exploitation of labour in several cases. Causes unemployment in the developed countries due to outsourcing. Leads to the misuse of Intellectual Property Rights, copyrights and so on due to the easy availability of technology, digital communication, travel and so on. Influences political decisions in foreign countries. The MNCs increasingly use their economical powers to influence political decisions. In spite of its disadvantages, globalisation has improved our lives through various fields like communication, transportation, healthcare and education. Globalisation involves companies that invest and operate in other countries. It promotes economic growth and prosperity in the countries that embrace globalisation. Some of the benefits of globalisation include liberalisation of economies and the free flow of information.

Q 2. Why do nations trade? Discuss the relevance of Porters diamond model in todays business context. Ans 2. Countries world over are endowed with different natural, human, and
capital resources. Each country varies from the other in combining these resources, land, labour and capital. In a globalised set-up, every country cannot be as efficient as the best in producing the goods and services that their residents demand. As a result, they have to trade off their decisions to produce any good or service based on opportunity cost. The production decision of the country depends on whether it is more efficient to produce the goods and services with lower opportunity cost with increased and specialized production, or to trade those goods, with goods of higher opportunity cost. Porters diamond model

In 1990, Michael Porter analyzed the reason behind some nations success and others failure in international competition. His thesis outlined four broad attributes : Factor endowments - Characteristics of production were analyzed in detail. There are basic factors like natural resources, climate and location and so on and advanced factors like communications infrastructure, research facilities. Demand conditions The role of home demand in improving competitive advantage is emphasized since firms are most sensitive about the needs of their closest customers. For example, the Japanese camera industry which caters to a sophisticated and knowledgeable local market. Relating and supporting industries The presence of suppliers or related industries is advantageous since the benefits of investment in advanced factors of production spill over to these supporting industries. Successful industries within a country tend to be grouped into clusters of related industries. For example Silicon Valley. Firm Strategy, structure and rivalry Domestic rivalry creates pressure to innovate, improve quality, and reduce costs which in turn helps create world-class competitors. He said that these four attributes constituted the diamond and he argued that firms are most likely to succeed in industries where the diamond is most favourable. He also stated that the diamond is a mutually reinforcing system and the effect of one attribute depends on the state of others. For example, favourable demand conditions will not result in a competitive advantage unless the state of rivalry is enough to elicit a response from the firms. Q 3. Why do firms pay so much attention to economic factors while entering in particular market? Justify your answer with practical examples. Ans 3. It is necessary to understand and assess international economic forces at work. Key variables that need to be examined include Gross Domestic Product per capita, regional distribution of GDP, levels of investment, consumer expenditure,

labour costs, inflation and unemployment. Variables that are examined when assessing national economic environments include:Economic structure The structure of a nations economy is determined by the size and rate of its population growth, income levels and distribution of income, natural resources, agricultural, manufacturing and services sector. Economic infrastructure is the sum of all the external facilities and services that support the work of firms including communication, transportation, electricity supply, banking and financial services. Industry structure The structure of an industry is determined by factors such as:- Entry and exit barriers, Number of competing firms, Market share among firms in that sector, Average size of competing units. Market growth It is measured in terms of local currency and adjusted for inflation. Local currency is used because conversions into other currencies are affected by exchange rate fluctuations. Income levels It is taken as the GDP per capita and GDP is directly proportional to the productivity of the country. Net income is another important variable and is without tax payments from individual gross incomes. Sector wise trends Growth activity in a country might vary significantly among certain industries. For example, India has a vibrant software services industry. Openness of the economy The ratio of a countrys imports and exports to its Gross National Product indicates its vulnerability to fluctuations in international trade. A nation with a high foreign trade or GNP depends heavily on the economic well-being of the nations it exports to. Conversely, closed economies have a high degree of control over the economy. International debt An outstanding loan that one country owes to another country or institutions within that country. Foreign debt also includes due payments to international organizations. Foreign exchange reserves should not be less than outstanding short-term foreign debts.

Degree of urbanization This is an important factor because there are major differences in incomes and lifestyles between urban and rural areas in most of the countries. Q 4. How has India reacted towards regional integration? Discuss briefly the trade agreements signed by India. Ans 4. India considers Regional Trading Arrangements as the building blocks towards the objective of trade liberalisation. Therefore, India participates in a number of RTAs, which include Free Trade Agreements, Preferential Trade Agreements and so on. These agreements take place bilaterally or in a regional grouping. Asia-Pacific Trade Agreement It is previously known as the Bangkok Agreement, was signed on 31st of July 1975, as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific. The United Nations ESCAP is the regional development arm of the United Nations for the Asia-Pacific region. It focuses on issues that are most effectively addressed through regional cooperation. Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation Bangladesh India Myanmar Sri Lanka and Thailand Technical and Economic Cooperation, a sub-regional economic cooperation grouping, was formed in Bangkok in June 1997. Myanmar joined the grouping later in December 1997. Bhutan and Nepal too joined in February 2004. Five members of SAARC (India, Bangladesh, Bhutan, Nepal and Sri Lanka) and two members of ASEAN (Thailand, Myanmar) are members of the agreement. Thus, it is considered as a bridging link between the two major regional groupings that is, ASEAN and SAARC. The chairmanship of BIMSTEC rotates among the member countries in alphabetical order. The immediate priority of the grouping is to merge its activities to make it attractive for economic cooperation.

Framework Agreement on Comprehensive Economic Co-operation between India and the Association of South East Asian Nations Look East Policy led India to engage with the Association of South East Asian Nations and it started in the year 1991. The ASEANs political economic and strategic importance in the larger Asia-Pacific Region and its capability to become a major partner of India in trade and investment made India to join association with ASEAN. India-MERCOSUR Preferential Trade Agreement India and MERCOSUR signed a framework agreement on 17th June 2003. The objective of this agreement is to create an environment for negotiations in the first stage, by granting mutual tariff preferences, and in the second stage, to negotiate a FTA between the two parties in conformity with the rules of the WTO. Q 5. What is global sourcing? What makes India so attractive for global sourcing? Ans 5. Globalisation of the world economy under the WTO has opened abundant opportunities of cost cutting, gaining competitive advantage and saving time for industries worldwide. Indian industries have experienced such developments as India is a member of the WTO since its inception in 1995. Global sourcing is described as the practice of sourcing cost effective and best goods and services across geopolitical boundaries in order to cater to global markets. Global sourcing strategy is aimed at exploiting global efficiencies in all areas of manufacturing, trading and services to enable offering clients and customer the best possible product or service. Usually, efficiencies that prompt firms for global sourcing are low cost skilled labor, low cost raw material, proximity to key markets, time zone differences and other economic factors such as tax exemption and low trade tariffs. Indian industries have successfully levered global sourcing strategies in their global trade operations and sourcing has been the driving force behind the development and expansion of Indian foreign trade in the recent past. Global sourcing strategy has made Indian industry more globalised as buyers from all

over the world are bidding for Indian goods, particularly services, to enable executing their contracts on time, reduce prices and generate efficiency in the system through increased competition. Indian industries, in order to reap the benefits of sourcing opportunities, has opened global offices and subsidiaries to tap opportunities on all fronts, that is, manufacturing, trading, skilled services and call centers. India is emerging as a global hub in gems and jewellery, oil refining, engineering equipments, textiles, sports goods, auto components, etc. Global sourcing has both benefits and risks for the Indian industry. Global sourcing has helped Indian companies in the generation of additional revenue and profits, precious foreign exchange, scalable business operations and employment. There are spillover effects of outsourcing to India and its economy has grown additionally by emerging as lower cost suppliers of merchandise and services. Brand India is widely recognized in the silicon valley and the Indian governments bargaining power has increased due to the dependence of many countries for Indian services. Living standards of the people has improved, higher wages, improved working conditions and learning transferable skills has helped thousands of Indians. Q 6. Write short notes on:(a) Cross cultural management Ans. Cross cultural management is defined as the development and application of knowledge about cultures in the practice of international management, when people involved have diverse cultural identities. In international management, where people are from different cultures, we have to develop and apply our knowledge about cultures and not use a standard process for everyone. This is called cross cultural management. In a global market even if we do not have a diverse workgroup we may have to deal with clients abroad or vendors or service providers of different countries. So knowledge about different cultures is a must. Factors:-

 Cross cultural management skills The ability to demonstrate a series of behavior is called a skill. It is functionally linked to achieving a performance goal. Handling Cultural diversity Cultural diversity in a work group offers opportunities and difficulties. Economy is benefited when the work groups are managed successfully. Factors controlling group creativity On complicated problem solving jobs, diverse groups do better than identical groups. Diverse groups require time to solve issues of working together. Ignore diversity It may be difficult to manage diversity. It is better to ignore, which is also an alternative. (b) WTO Ans. World Trade Organisation was established on 1st Jan 1995. In April 1994, the Final Act was signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed to strengthen the world economy that would lead to better investment, trade, income growth and employment throughout the world. The WTO is the successor to the General Agreement of Tariffs and Trade. India is one of the founders of WTO. WTO represents the latest attempts to create an organizational focal point for liberal trade management and to consolidate a global organizational structure to govern world affairs. WTO has attempted to create various organizational attentions for regulation of international trade. WTO created a qualitative change in international trade. It is the only international body that deals with the rules of trades between nations. The key objective of WTO is to promote and ensure international trade in developing countries. Helping trade flows by encouraging nations to adopt discriminatory trade policies. The structure of the WTO consists of Ministerial Conference, which is the highest authority. This body consists of the representatives from all WTO members. The members meet once in every two years and decisions on all matters regarding the multilateral trade agreements are taken.