Global Dimensions of International Business ---------- Term III Assignment

1. The Big Mac Index is also known as ___________________________________ Explain the term in a few sentences

 THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level.
 It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the
rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible.
Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of dozens of academic studies. For
those who take their fast food more seriously, we also calculate a gourmet version of the index for 55 countries plus the euro area.

For example, if the price of a Big Mac is $4.00 in the U.S. as compared to £2.5 in Britain, we would expect that the exchange rate would be
1.60(4 ÷ 2.5 = 1.60). If the exchange rate of dollars to pounds is any greater, the Big Mac Index would state that the pound was overvalued; any
lower and it would be undervalued.

2. What is GDP? What effect does the country’s population have on the GDP, explain in a few sentences.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time
period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

The GDP growth rate measures how fast the economy is growing. It does this by comparing one quarter of the country's gross domestic
product to the previous quarter. GDP measures the economic output of a nation.

 The GDP growth rate is driven by the four components of GDP. The main driver of GDP growth is personal consumption. This
includes the critical sector of retail sales.
 The second component is business investment, including construction and inventory levels.
 Government spending is the third driver of growth. Its largest categories are Social Security benefits, defense spending, and
Medicare benefits. The government often increases spending to jump-start the economy during a recession.
 Fourth is net trade.

The effect that the country’s population have on the GDP are as follows:

 The balance of trade is one of the key components of a country's (GDP) formula. GDP increases when the total value of goods and
services that domestic producers sell to foreigners exceeds the total value of foreign goods and services that domestic consumers
buy, otherwise known as a trade surplus. If domestic consumers spend more on foreign products than domestic producers sell to
foreign consumers – a trade deficit – then GDP decreases.

 The GDP growth rate is the most important indicator of economic health. It changes during the four phases of the business cycle:
peak, contraction, trough, and expansion.

 When the economy is expanding, the GDP growth rate is positive. If it's growing, so will businesses, jobs and personal income. But if
it expands beyond 3-4%, then it could hit the peak. At that point, the bubble bursts and economic growth stalls.

 GDP per capita is a measure of a country's economic output that accounts for its number of people. It divides the country's gross
domestic product by its total population. That makes it the best measurement of a country's standard of living. It tells you
how prosperous a country feels to each of its citizens.

 Since GDP is measured in a country’s currency, in order to compare different countries’ GDPs, we need to convert them to a
common currency.

 One way to compare different countries' GDPs is with an exchange rate, the price of one country’s currency in terms of another.

 GDP per capita is GDP divided by population.

3. Name two countries each of High and Low Context Societies a.____________ and b.____________. What are the three typical characteristics
of these societies?
  A high-context culture relies on implicit communication and nonverbal cues. In high-context communication, a message cannot be
understood without a great deal of background information. Asian, African, Arab, central European and Latin American cultures are
generally considered to be high-context cultures.
 A low-context culture relies on explicit communication. In low-context communication, more of the information in a message is
spelled out and defined. Cultures with western European roots, such as the United States and Australia, are generally considered to
be low-context cultures.

High Context Low Context

Association: Relationships build slowly and depend on
trust. Productivity depends on relationships and the
group process. An individual’s identity is rooted in
groups (family, culture, work). Social structure and
authority are centralized.
Association: Relationships begin and end quickly.
Productivity depends on procedures and paying attention to
the goal. The identity of individuals is rooted in themselves
and their accomplishments. Social structure is
decentralized.

Interaction: Nonverbal elements such as voice tone,
gestures, facial expression and eye movement are
significant. Verbal messages are indirect, and
communication is seen as an art form or way of
engaging someone. Disagreement is personalized, and
a person is sensitive to conflict expressed in someone
else’s nonverbal communication.
Interaction: Nonverbal elements are not significant. Verbal
messages are explicit, and communication is seen as a way
of exchanging information, ideas and opinions.
Disagreement is depersonalized; the focus is on rational
(not personal) solutions. An individual can be explicit about
another person’s bothersome behavior.

Territoriality: Space is communal. People stand close Territoriality: Space is compartmentalized. Privacy is
to each other and share the same space. important, so people stand farther apart.

4. The Global Business is right in your backyard. Do you agree to this statement? Elaborate in a few sentences.

Globalization has been a major development in the early 21st century, as companies are taking advantage of opportunities to grow beyond
domestic borders. Despite challenges, including transportation and logistics, supplier costs, variable marketing strategies and cultural
uncertainty, global companies have some significant advantages over local businesses. These include more diverse and cost-effective revenue
streams, resources, suppliers and labor.

Yes, I agree this statement” The Global business is right in your backyard”. Global business refers to international trade whereas a global
business is a company doing business across the world. The exchange of goods over great distances goes back a very long time.

 Access to Global business refers to the ability of a company or country to sell goods and services across borders.
 Gone are the days when businesses would confine their operations to local or regional markets. With technology advancing so fast
and international trade expanding, businesses are incentivized to sell products and services in foreign markets. As such, operating a
business on a global level helps enterprises expand their market share, reduce costs and become more competitive.
 With a wider customer base and market reach, a business has a higher potential to make more sales and earn more profits, which it
can then use to expand operations into other foreign markets.
 Global business enhances business competition. As enterprises enter foreign markets, a face-off with local businesses is inevitable.
To outperform competitors and gain a larger market share, businesses are forced to create products of higher quality and sell them
at relatively cheaper prices. This is advantageous to consumers, as they are able to access a wider variety of quality products at
lower prices.
 Developing economies also can benefit from global business. As foreign companies from industrialized nations enter new markets in
developing nations -- whether it is through foreign direct investment or franchising -- new job opportunities are bound to be created
for the locals.

5. With India in the 90s as an example, what is the effect of “closed economy” on a country? In your business opinion why is North Korea
negotiated peace.

The objective of India’s development strategy has been to establish a socialistic pattern of society through economic growth with self-reliance,
social justice and alleviation of poverty. These objectives were to be achieved within a democratic political framework using the mechanism of
a mixed economy where both public and private sectors co-exist. India initiated planning for national economic development with the
establishment of the Planning Commission. The aim of the First Five Year Plan (1951-56) was to raise domestic savings for growth and to help
the economy resurrect itself from colonial rule. The real break with the past in planning came with the Second Five Year Plan (Nehru-
Mahalanobis Plan). The industrialization strategy articulated by Professor Mahalanobis placed emphasis on the development of heavy
industries and envisaged a dominant role for the public sector in the economy. The entrepreneurial role of the state was evoked to develop the
industrial sector. Commanding heights of the economy were entrusted to the public sector. The objectives of industrial policy were: a high
growth rate, national self-reliance, reduction of foreign dominance, building up of indigenous capacity, encouraging small scale industry,
bringing about balanced regional development, prevention of concentration of economic power, reduction of income inequalities and control
of economy by the State. The planners 2 and policy makers suggested the need for using a wide variety of instruments like state allocation of
investment, licensing and other regulatory controls to steer Indian industrial development on a closed economy basis.

A closed economy is a self-contained economic unit that has no business or trading relations with anyone outside of that unit. Usually referring
to a nation or area of common currency (but can, in general, refer to any system of self-reliance), the relatively closed system would be
characterized by a small amount of exposure to external markets, as opposed to the relatively open economy. The latter allows large
movements of goods and services, intellectual property, financial capital, and foreign exchange across its borders. Policy tools such as import
and import quota, tariffs, monetary or fiscal policy, exchange rate controls, and controls on capital are some of the means whereby a national
government might try to influence the degree of openness of its economy. However, no economy is perfectly open or closed.

The closed economy is in part a theoretical construct for developing some types of macroeconomic models and theories. The theory, having
been worked out under these simplified conditions, can be expanded to take into account the effects of international transactions. Openness,
then, depending on one's theoretical perspective, may or may not alter many of the established policy precepts of a closed economic system.
Much of what is generally referred to as macroeconomics is based on closed systems, whereas international economics studies what happens
when closed economies are opened up to international cooperation and competition.

In the real world, the comparatively closed economies are associated with authoritarian political regimes or with low levels of economic
development by capitalist standards. Overall, the global trend for several decades has been toward greater openness, as world capitalist
production, distribution, and exchange have become increasingly integrated along international and interregional lines. Some notable
phenomena include

 the growing participation of the former Eastern bloc nations and developing countries in world markets;
 expansion of trade zones in the Americas such as the North American Free Trade Agreement (NAFTA) and Mercosur;
 the economic integration of Western Europe under a single-currency; and
 the implementation of the General Agreement on Tariffs and Trade, which gradually reduces trade barriers among
participating nations.

Debates over NAFTA and, before it, the U.S.-Canada Free Trade Agreement centered around the effects of allowing the free movement of
capital across Canada, the United States, and Mexico, with the relative openness or closedness (and, perhaps, political independence itself) of
these geographic economic units at stake. It is important to note that while such agreements create symbolic "free trade" and openness, often
certain industries within countries continue to be tightly protected for years after the agreement is signed. This has been most recently the case
with NAFTA, in which the United States has fought vehemently to protect selected industries from Mexican competitors, even while political
leaders continued to extol the benefits of free trade. Despite these nuances of interpretation, trade pacts such as NAFTA and, more
importantly, GATT are effecting palpable shifts toward greater openness between world economies.

As the existence of various trading blocs suggests, the extent of an economy's self-reliance (or closedness) can be relative. A national economy
may be considered open because it engages in significant cross-border trade, but if all of its trade is conducted with only a few members of
tightly integrated economic bloc, the group might function collectively as a closed system. Similarly, as seen in cases of industry protectionism,
an economy may be generally open, but particular segments within it may represent de facto closed systems.

To illustrate how much more open world economies have become, one might consider the growth of U.S. foreign trade. Foreign trade made up
only a small portion of U.S. gross national product (GNP). But from 1960 to 1990, exports and imports as a percentage of GNP rose from around
5 percent to over 15.5 percent, indicating that the United States could no longer be analyzed as if it were a closed system. In dollar volume,
exports and imports increased by over 24 times while GNP increased only tenfold.

In my opinion North Korea has negotiated peace for the following reasons:

1) Sanctions are beginning to bite:

Exports of goods such as textiles, coal and seafood are the biggest contributors to North Korea's GDP.
It's difficult to gauge just how much of an impact sanctions have had on the country's economy, simply because growth rates for the 2017 year
have yet to be estimated.

But exports may have declined by "as much as 30% last year", according to Byung-Yeon Kim, author of the book "Unveiling the North Korean
Economy".

In particular, exports to China - North Korea's biggest trading partner and the reason many believe Pyongyang is able to survive - are down as
much as 35%.

Remittances from those workers are the second biggest foreign exchange earner for Pyongyang. And some predict that new sanctions could cut
North Korea's hard currency earnings by up to 80%.

It's all bad news for a regime that in part maintains its legitimacy by keeping the elite happy with luxury goods bought with foreign currency.

2) The economy is increasingly a priority

The word "economy" is peppered through the speech, getting almost as much play as "nuclear".

Because North Korea can't make foreign currency through exports or foreign labour anymore, another potential source of hard currency is
tourism.

One of the projects Kim Jong Un names explicitly in his speech is "the Wonsan-Kalma coastal tourist area". And he also expects a "revival of
travel to his country in 2018."

Kim Jong Un may be hoping for a similar result in the future, which perhaps help explain the North's about-face at the negotiating table.

3) Nuclear capabilities have been proven

A series of successful missile tests have demonstrated the regime's ability to develop nuclear weapons, each one more seemingly more
sophisticated than the last.

And despite the bellicose rhetoric from the US and Donald Trump, North Korea has managed to consistently conduct its missile tests with no
real retaliation or repercussions, barring sanctions.

So in a sense, Kim Jong Un isn't losing anything by negotiating with South Korea.

He's developed the weapons he believes he needs, and has what he thinks to be an effective nuclear deterrent necessary for his regime's
survival.

But with a weakening economy what he may now need is help to offset the effect of sanctions.

Conclusion:

Let's be realistic. Kim Jong Un isn't desperate yet. Sanctions and a weaker economy aren't going to have the regime discarding its nuclear goals.

And there are still plenty of ways for it to make money, including via the latest asset class to hit international markets - cryptocurrencies.

But it is possible to see why North Korea may be more inclined to head to the negotiating table - especially with South Korea which has already
said it may consider removing some sanctions temporarily during next month's Winter Olympics.

So practical concerns may outweigh nuclear needs for now, especially as North Korea has proved what it has always said it would: that it is a
real nuclear force to be reckoned with. North Korea-US relations North Korea South Korea
6. Name typical three modes of entry in International Business. Explain any two.

The following strategies are the main entry to international business.

a) Direct Exporting.

b) Licensing

c) Franchising. .

Direct Exporting

Direct exporting is selling directly into the market you have chosen using in the first instance you own resources. Many companies, once they
have established a sales program turn to agents and/or distributors to represent them further in that market. Agents and distributors work
closely with you in representing your interests. They become the face of your company and thus it is important that your choice of agents and
distributors is handled in much the same way you would hire a key staff person.

Licensing

Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use of a product or service to another firm. It is a
particularly useful strategy if the purchaser of the license has a relatively large market share in the market you want to enter. Licenses can be
for marketing or production. licensing).