MB0053 International Business Management

Que.1 Write down the difference between international Vs global

business? And what are the benefits of globalization?

Ans. Globalization:

Globlization is a process where businesses are dealt in markets

around the world, apart from the local and national markets.
According to business terminologies, globalization defined as, and
the worldwide trend of businesses expanding beyond their domestic
boundaries. It is advantageous for the economy of the countries
because it promotes prosperity in the countries that embrace
globalization.

Globalization describes the process by which regional economies,

societies, and cultures have become integrated through a global
network of political ideas through communication, transportation, and
trade. The term is most closely associated with the term economic
globalization: the integration of national economies into the
international economy through trade, foreign direct
investment, capital flows, migration, the spread of technology, and
military presence. However, globalization is usually recognized as
being driven by a combination of economic, technological,
sociocultural, political, and biological factors. The term can also
refer to the transnational circulation of ideas, languages, or popular
culture through acculturation. An aspect of the world which has
gone through the process can be said to be globalized.

International Vs. Global Business:

Most of us assume that international and global business are the

same and that any company that deals with another country for its
business is an international or global company. In fact there is a
considerable difference between the two terms.

International Companies: Companies that deal with foreign

companies for their business are considered as international companies.
They can be exporters or importers who may not have any
investments in any other country, apart from their home country.

Global Companies: Companies, which invest in other countries for

business and also operates from other countries, are considered as
global companies. They have multiple manufacturing plants across
the globe, catering to multiple markets.

The transformation of a company from domestic to international is

by entering just one market or a few selected foreign markets as an
exporter or importer. Competing on a truly global scale comes later,
after the company has established operations in several countries
across continents and is racing against rivals for global
market leadership. Thus, there is a meaningful distinction
between a company that operates in a few selected foreign countries
and a company that operates and market its products across several
countries and continents with manufacturing capabilities in several
of these countries.

Companies can also be differentiated by the kind of competitive

strategy they adopt while dealing internationally. Multinational strategy
and global competitive strategy are the two types of competitive
strategy.

a. Multinational Strategy: Companies adopt this strategy when

each countries market needs to be treated as self contained. It can
be for the following reasons:
Customers from different countries have different preferences
and expectations about a product or service.

Competition in each national market is essentially independent

of competition in other national markets and the set of competitors
also differ from country to country.

A companys reputation, customer base, and competitive

position in one nation have little or no bearing on its ability to
successfully compete in another market.

Some of the industry example for multinational competition

includes beer, life insurance and food products.

b. Global Competitive Strategy: Companies adopt this strategy

when prices and competitive conditions across the different countries
are strongly linked together and have common synergies. In a globally
competitive industry, a companys business gets affected by the
changing environment in different countries. The same set of
competitors may compete against each other in several countries.
In a global scenario, a companys overall competitive advantage is
gauged by the cumulative efforts of its domestic operations and the
international operations worldwide.

A good example to illustrate is Sony Ericssson, which has its

headquarters in Sweden, Research and Development setup in USA
and India, manufacturing and Assembly plants in low wage
countries like China and sales and marketing worldwide. This is
made possible because of the ease in transferring technology and
expertise from country to country.

Industries that have a global competition are automobiles,

consumer electronics, watches and commercial aircraft and so on.

Differences between International and Global Strategies

Strategy International Global

Location Selected target countries Most global businesses operate in North
and trading areas America, Europe, Asia Pacific, and Latin Amer
Business Custom strategies to fit the Same basic strategy worldwide with minor
 circumstances of each host
country situation
Product-line Adopted to local culture
and particular needs and
expectations of local
buyers
Production Plants scattered across
many host countries, each
producing versions suitable
for the surrounding
environment
Source of Suppliers in host country
supply of raw preferred
materials
Marketing and Adapted to practices and
distribution culture of each host
country
Cross country Efforts made to transfer
connections ideas, technologies,
competencies and
capabilities that work
successfully in one country
to another country
whenever such a transfer
appears advantageous
Company Form subsidiary companies
organisation to handle operations in
each host country; each
subsidiary operates more
or less autonomously to fit
host country conditions
country customisation where necessary
Mostly standardised products sold worldwide,
moderate customisation depending on the
regulatory framework
Plants located on the basis of maximum
competitive advantage (in low cost countries
close to major markets, geographically
scattered to minimise shipping costs, or use o
few world scale plants to maximise economie
of scale)
Attractive suppliers from across the world
Much more worldwide coordination; minor
adaptation to host country situations if requir
Efforts made to use almost the same
technologies, competencies, and capabilities
all country markets (to promote use of a mos
standard strategy), new successful competitiv
capabilities are transferred to different countr
markets
All major strategic decisions closely coordinat
at global headquarters; a global organisation
structure is used to unify the operations in ea
country

Increased free trade and communication between nations, along

with increased access to technology, media, education, healthcare,
consumer goods, and other resources are often considered
advantages of globalization. Some disadvantages of globalization
include exploitation of developing countries, cultural
homogenization, and adverse effects on local economies and the
environment. Globalization is a complex issue, and while some
argue that it reduces global poverty, others argue that it actually
increases wealth inequality worldwide.

Que.2 Elaborate in detail comparative study on cultures of Japan,

China, Brazil and France.
Ans. Culture is defined as the sum total of knowledge, arts, beliefs, laws,
morals, customs, and other abilities and habits gained by people as
part of society. The art and other signs or demonstrations of human customs,
civilization, and the way of life of a specific society or group is all
included in culture. Culture determines every aspect that is from birth to
death and everything in-between it. It is the duty of people to respect other
cultures too. Research shows that national

cultures generally characterize the dominant groups values and

practices in society, and not of the marginalized groups, even though
the marginalized groups represent a majority or a minority in the society.
Culture is very important to understand international business.
Culture is a part of the environment which man has created.

Comparative study on cultures of Japan, China, Brazil, France:

Women in Business dress

Country Communication style
business code
Japan It is difficult if Japanese Discrimination towards The Japanese
language is not known. women in the mainstream
The combination of workplace still exists. business follows
vagueness and lack of Women are assigned a conventional
understanding of the to perform lower grade business dress
language results in tasks. Women from code of dark
problems which make western countries suit, shirt and tie.
decision-making very working in Japan Business dress
difficult. Body language is probably face must be
very minimal and hence difficulties working restrained and
difficult to read for an with Japanese male formal for
untrained observer. The co-workers. women. In
Japanese sit in a formal business,
upright posture and look women do not
still. Visibility of reaction or wear trousers.
emotion is rare.
China Translators are required if Women have equal Men wear suits
Chinese language is not rights in the and ties and
known. The body workplace. But, women wear
language of people from traditional Confucian skirts and
Chinese is very restricted. thinking does not blouses. It is
agree to gender sensible to have
equality. smart business
Businesswomen from clothing.
foreign countries are
treated with great
respect and courtesy.

Sikkim Manipal University Page No. 77

 Brazil Ability to speak Brazilian is Businesswomen from Men are advised
an advantage, even foreign countries are to wear
though English is spoken treated fairly and with conservative
and understood by people respect. dark suits.
in Brazil. The body Women are less
language plays a vital role conservative in
in normal communication. their dressing
Eye contact is also very when compared
important while speaking with women from
to people. other countries.
France The French have great Women are gaining With position,
love and respect for the high position in French dress codes
use of language. The business life, differ within the
logical exposition of well- particularly with strong company,
defined ideas is admired representation in retail industrial sector,
by the French. The and service industries. and region in
comment given by them The requirement for France. People
clearly states their mind. It success is to have a in higher
is important that anything suitable level of positions within
sent in writing is education for women. a larger
thoroughly checked. organisation
follow a very
formal dress
code. In
southern region
the business
dress code is
informal.

Que.3 Write a short note on Advantages of foreign direct investment and types of foreign direct
investment.

Ans. List of Advantages of Foreign Direct Investment

1. Economic Development Stimulation.
Foreign direct investment can stimulate the target countrys economic
development, creating a more conducive environment for you as the investor and
benefits for the local industry.

2. Easy International Trade.

Commonly, a country has its own import tariff, and this is one of the reasons
why trading with it is quite difficult. Also, there are industries that usually require
their presence in the international markets to ensure their sales and goals will
be completely met. With FDI, all these will be made easier.

3. Employment and Economic Boost.

Foreign direct investment creates new jobs, as investors build new companies
in the target country, create new opportunities. This leads to an increase in
income and more buying power to the people, which in turn leads to an economic
boost.

4. Development of Human Capital Resources.

One big advantage brought about by FDI is the development of human
capital resources, which is also often understated as it is not immediately
apparent. Human capital is the competence and knowledge of those able to
perform labor, more known to us as the workforce. The attributes gained by
training and sharing experience would increase the education and overall
human capital of a country. Its resource is not a tangible asset that is owned
by companies, but instead something that is on loan. With this in mind, a country
with FDI can benefit greatly by developing its human resources while maintaining
ownership.

5. Tax Incentives.
Parent enterprises would also provide foreign direct investment to get
additional expertise, technology and products. As the foreign investor, you can
receive tax incentives that will be highly useful in your selected field of
business.

6. Resource Transfer.
Foreign direct investment will allow resource transfer and other exchanges of
knowledge, where various countries are given access to new technologies and
skills.

7. Reduced Disparity Between Revenues and Costs.

Foreign direct investment can reduce the disparity between revenues and
costs. With such, countries will be able to make sure that production costs will be
the same and can be sold easily.

8. Increased Productivity.
The facilities and equipment provided by foreign investors can increase a
workforces productivity in the target country.

9. Increment in Income.
Another big advantage of foreign direct investment is the increase of the
target countrys income. With more jobs and higher wages, the national income
normally increases. As a result, economic growth is spurred. Take note that larger
corporations would usually offer higher salary levels than what you would
normally find in the target country, which can lead to increment in income.

Green Field Investment direct investment in new facilities or the expansion of

existing facilities. Greenfield investments are the primary target of a host nations
promotional efforts because they create new production capacity and jobs, transfer
 technology and know-how, and can lead to linkages to the global marketplace.
However, it often does this by crowding out local industry; multinationals are able to
produce goods more cheaply (because of advanced technology and efficient
processes) and uses up resources (labor, intermediate goods, etc).

Another downside of greenfield investment is that profits from production do not feed
back into the local economy, but instead to the multinational's home economy. This
is in contrast to local industries whose profits flow back into the domestic economy
to promote growth.

Mergers And Acquisition occur when a transfer of existing assets from local firms to
foreign firms takes place, this is the primary type of FDI. Cross-border mergers occur
when the assets and operation of firms from different countries are combined to
establish a new legal entity.

Cross-border acquisitions occur when the control of assets and operations is

transferred from a local to a foreign company, with the local company becoming an
affiliate of the foreign company. Unlike greenfield investment, acquisitions provide no
long term benefits to the local economy-- even in most deals the owners of the local
firm are paid in stock from the acquiring firm, meaning that the money from the sale
could never reach the local economy.

Nevertheless, mergers and acquisitions are a significant form of FDI and until around
1997, accounted for nearly 90% of the FDI flow into the United States.

Horizontal Foreign Direct Investment: is investment in the same industry abroad as a

firm operates in at home.

Vertical Foreign Direct Investment : Takes two forms:

1) backward vertical FDI: where an industry abroad provides inputs for a firm's
domestic production process

2) forward verticle FDI: in which an industry abroad sells the outputs of a firm's
domestic production processes.

Que.4 What are the key objectives and function of World Trade organization?

Ans. The Uruguay round of GATT (1986-93) gave birth to World Trade Organization.
The members of GATT singed on an agreement of Uruguay round in April 1994 in
Morocco for establishing a new organization named WTO.

It was officially constituted on January 1, 1995 which took the place of GATT
as an effective formal, organization. GATT was an informal organization which
regulated world trade since 1948. Contrary to the temporary nature of GATT,
WTO is a permanent organization which has been established on the basis of an
international treaty approved by participating countries. It achieved the
international status like IMF and IBRD, but it is not an agency of the United Nations
Organization (UNO).
 Objectives:

The important objectives of WTO are:

1. To improve the standard of living of people in the member countries.

2. To ensure full employment and broad increase in effective demand.

3. To enlarge production and trade of goods.

4. To increase the trade of services.

5. To ensure optimum utilization of world resources.

6. To protect the environment.

7. To accept the concept of sustainable development.

Functions:

The main functions of WTO are discussed below:

1. To implement rules and provisions related to trade policy review

mechanism.

2. To provide a platform to member countries to decide future strategies

related to trade and tariff.

3. To provide facilities for implementation, administration and operation of

multilateral and bilateral agreements of the world trade.

4. To administer the rules and processes related to dispute settlement.

5. To ensure the optimum use of world resources.

6. To assist international organizations such as, IMF and IBRD for establishing
coherence in Universal Economic Policy determination.

Que.5 Explain in detail about international regulatory Bodies

Ans. The prime responsibility for safety is assigned to the operator. The primary
objective of the regulatory body is to ensure that the operator fulfils this
responsibility to protect human health, and the environment from possible adverse
effects arising from nuclear facilities and management of radioactive waste. In
order to achieve these objectives the regulatory body defines
policies, safety principles and associated criteria as a basis for its regulatory
actions. Table VI presents the main functions of the regulatory body.

In order to discharge its main responsibilities the regulatory body needs to:

Establish a process for dealing with application, e.g. issuing of

an authorization;

Provide guidance to the operator on developing and

presenting safety assessments or any other required safety related
information;

Ensure that proprietary information is protected;

Communicate with, and provide information to, other competent

governmental bodies, international organizations and the public;

Ensure that operating experience is appropriately analysed and that

lessons to be learned are disseminated; Ensure that
appropriate records relating to the safety of facilities and activities are
retained and retrievable;

Ensure that its regulatory principles and criteria are adequate and valid,
and shall take into consideration internationally endorsed standards and
recommendations;

Advise the government on matters related to the safety of facilities and

activities;

Confirm the competence of personnel responsible for the

safe operation of the facility or activity; and

Confirm that safety is managed adequately by the operator.

The regulatory body needs to be structured in a manner that ensures that it

is capable of discharging its responsibilities and fulfilling its functions
effectively and efficiently. The organizational structure and size of
the regulatory body are influenced by many factors and it is not appropriate
to recommend a single organization model. The regulatory body needs
a structure and size commensurate with the extent and nature of the facilities
and activities it must regulate, and it needs adequate resources
to discharge its responsibilities.
The organizational structure of a regulatory body varies from country to
country. The following sections provide general guidance on the
organizational structure based on the functions of the regulatory body. The
principal functions to be carried out are: regulations and
guides, authorization, review and assessment, inspection and enforcement.
The regulatory body has also the function in connection with emergency
 preparedness. For a large organization it is often useful to have each of these
functions assigned to a discrete section or division within the regulatory body.
Each of these functions need many specialized skills. Rather than having
each functional unit containing its own specialists, it is often practical and
efficient to group the specialists in a matrix such that each organizational unit
assigned responsibility for a function can draw on specialist skills as needed.
Development of regulations and guides requires a considerable amount of
resources. If new or revised regulations and guides are required frequently it
may be appropriate to have a permanent unit to deal with this. Where the
need for new or revised regulations and guides is infrequent it may be
sufficient to identify a mechanism whereby such resources can be drawn
together when required. regulations and guidance cannot be produced in
isolation but consultation both within and outside the regulatory body is
needed. In developing regulations and guides, account is taken of
international standards and recommendations, obligations imposed by any
conventions to which the state may be party, relevant industrial standards
and any advances in technology.
Review and assessment are among the main continuous functions of
a regulatory body. It is therefore appropriate to assign this to a person or
organizational unit within the regulatory body. This function often involves
drawing together teams of specialists. Review and assessment is based
on regulations and guides. The Review and assessment necessitate
effective communication and interaction between different units of
the regulatory body. The main parameters, characteristics and results are
recorded and retained, in written form, for future reference.
Inspection is another continuous function of the regulatory body and can take
many forms. The inspectors may form a permanent part of
the Inspection unit, or may be drawn from other parts of the regulatory
body as required. Project managers or supervisors should be appointed to
plan and monitor the work of all inspections performed for a facility and draw
the results together. An inspection may result in a requirement for
additional review and assessment or for enforcement action. Therefore, there
should be strong and effective links with all other parts of the regulatory
body.
The use of resident inspectors may provide benefits such as improving the
ability of the regulatory body to engage in on-site surveillance of systems,
components, tests, process and other activities of the operator at any time.
The full-time presence of inspectors can improve the ability of the regulatory
body to identify and respond promptly to problems. With resident
inspectors, inspection frequency and intensity at any given level of human
resources can be more readily optimised, and the regulatory body may be
better informed of operator schedules and hence better able to coordinate
its inspection activities with key operator activities that it wishes to observe.
Where resident inspectors are employed, consideration should be given to
locating more than one at a particular site for mutual support. There should
be adequate communication between resident inspectors and the
headquarters to maintain regulatory effectiveness.
The use of non-resident inspectors may demand less in terms of human
resources than the use of resident inspectors. Non-resident inspectors may
inspect more than one site, which may be a more efficient use of limited
 resources. Alternatively a non-resident inspector may be assigned to a
particular facility and may co-ordinate inspection activities at that facility.
Furthermore, a non-resident inspector is less likely to become unduly isolated
from the activities and decision making of the regulatory body.
Enforcement actions are designed to respond to non-compliance with
specified conditions and requirements. There are different Enforcement
actions, from written warnings to penalties and, ultimately, withdrawal of
an authorization. In all cases the operator is required to remedy the non-
compliance, to perform a thorough investigation in accordance with an
agreed time-scale, and to take all necessary measures to prevent recurrence.
The regulatory body shall ensure that the operator has effectively
implemented any remedial actions. The organizational structure of
the regulatory body needs to enable Enforcement actions to be taken at
appropriate level.
The precise role of the regulatory body in emergencies varies considerably
between states, depending on how it is organized to respond to emergencies
in general. In many states, the regulatory body has an advisory function for
the authority responsible for emergency preparedness. It will therefore be
necessary to set up procedures to draw together the necessary resources
when required, and to exercise them as appropriate. The structure of
the regulatory body should clearly indicate a responsible person or group in
charge of co-ordinating the development of procedures, liasing with other
organizations involved in the overall emergency preparedness and
conducting the exercises.

Que.6 What are the various export promotion schemes offered by government in
order to promote export from the country?

Ans. Export Promotion Schemes

Software Technology Parks (STPs)
Special Economic Zones (SEZ) Scheme

After the economic reforms of 1991-92, liberalization of external trade, elimination of duties on
imports of information technology products, relaxation of controls on both inward and outward
investments and foreign exchange and the fiscal measures taken by the Government of India and
the individual State Governments specifically for IT and ITES have been major contributory factors
for the sector to flourish in India and for the country to be able to acquire a dominant position in
offshore services in the world. The major fiscal incentives provided by the Government of India have
been for the Export Oriented Units (EOU), Software Technology Parks (STP), and Special Economic
Zones (SEZ).

Software Technology Parks (STPs)

For the promotion of Software exports from the country, the Software Technology Parks of India
was set up in 1991 as an Autonomous Society under the Department of Electronics and Information
Technology. The services rendered by STPI for the Software exporting community have been
statutory services, data communications servers, incubation facilities, training and value added
services. STPI has played a key developmental role in the promotion of software exports with a
special focus on SMEs and start up units. The STP Scheme which is a 100% export oriented scheme
 has been successful in fostering the growth of the software industry. The exports made by STP Units
have grown over the years.

The STP scheme allows software companies to set up operations in convenient and inexpensive
locations and plan their investment and growth driven by business needs. Over 2500 units are
registered under STP Scheme.

Benefits under STP Scheme:

Customs Duty Exemption in full on imports.
Central Excise Duty Exemption in full on indigenous procurement.
Central Sales Tax Reimbursement on indigenous purchase against from C.
All relevant equipment / goods including second hand equipment can be imported (except
prohibited items).
Equipment can also be imported on loan basis/lease.
100% FDI is permitted through automatic route.
Sales in the DTA up to 50% of the FOB value of exports permissible.
Use of computer imported for training permissible subject to certain conditions.
Depreciation on computers at accelerated rates up to 100% over 5 years is permissible.

Special Economic Zones (SEZ) Scheme

In 2005, the Department of Commerce, Ministry of Commerce & Industry, Government of India has
enacted the Special Economic Zone (SEZ) Act, with an objective of providing an internationally
competitive and hassle free environment for exports. A SEZ is defined as a "specifically demarked
duty-free enclave and shall deemed to be foreign territory (out of Customs jurisdiction) for the
purpose of trade operations and duties and tariffs". The SEZ Act, 2005, supported by SEZ Rules,
came into effect on 10th February, 2006.

It provides drastic simplification of procedures and a single window clearance policy on matters
relating to central and state governments. The scheme is ideal for bigger Industries and has a
significant impact on future Exports and employment.

The SEZ policy aims at creating competitive, convenient and integrated Zones offering World class
infrastructure, utilities and services for globally oriented businesses. The SEZ Act 2005 envisages
key role for the State Governments in Export Promotion and creation of related infrastructure.

Salient features of SEZ scheme are as under:

Duty free import/domestic procurement of goods for development, operation and
maintenance of SEZ units
100% Income Tax exemption on export income for SEZ units under Section 10AA of the
Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export
profit for next 5 years.
Exemption from Central Sales Tax.
Exemption from Service Tax.
Single window clearance for Central and State level approvals.
Exemption from State sales tax and other levies as extended by the respective State
Governments.
This scheme has a significant impact on future exports & employment. About 202 IT-ITES
specific SEZs have been notified by the DOC.